U.S. hotel revenue per available room fell 0.3% in 2025, according to CoStar data released this week, extending a stretch of flat-to-negative top-line performance that has sharpened focus on investment economics at this year's Americas Lodging Investment Summit in Los Angeles.

The contraction coincided with a steeper slide on the demand side. U.S. Travel's October projection of a 6.3% drop in inbound visits has largely held through year-end, with preliminary figures putting total international arrivals at 68.5 million, down 5.4% from 72.4 million in 2024.

Where is demand leaking?

December data drove the trend: arrivals from Canada fell 25.1% year-over-year, Mexico added 4.8%, and overseas travel declined 1.3%. Canada still led inbound spending at nearly $16 billion, but the cumulative damage has pushed 2025 international arrivals to roughly 85% of 2019 levels.

"There's been a disaggregation between the growth of travel and the growth of economies," IHG Hotels & Resorts CEO Elie Maalouf said at the JW Marriott Los Angeles L.A. LIVE, blaming tariff turmoil, federal cutbacks and the government shutdown. He is more constructive on 2026, citing easier comps and what he called "huge demand generators" — America250 and the FIFA World Cup.

Mit Shah, CEO of Noble Investment Group, mirrored the view. His portfolio posted a 7% gain in Q4 2024 and an 8% lift in January 2025 before DOGE-driven federal travel cuts, a Canadian boycott and "Liberation Day" tariffs landed.

What does the investment thesis look like now?

Even with the Federal Reserve holding rates at 3.50%–3.75%, the gap between seller price expectations and buyer willingness remains wide, thawing deal flow only at the margins. Shah said Noble logged its largest transactional year in 32 years of operation, financed at SOFR plus 200, while the broader market stayed stuck.

For Marriott International, conversions have overtaken ground-up development as the primary growth lever. CEO Tony Capuano said conversions now account for "as high as 40%" of new signings and openings, a level he expects to hold even in a stronger economy. "They'll be a more fundamental part of the growth story for big brand companies on a permanent basis," he said.

Marriott's luxury tier — Ritz-Carlton, St. Regis — has been the chain's strongest segment in what Capuano called a "K-shaped economy." On the more affordable end, Marriott acquired citizenM in July 2025; IHG picked up German brand Ruby Hotels in February. Both prize small rooms and activated public space over square footage.

Are owners getting squeezed?

The sharper conversation centered on margins. Capuano said expense growth has run at or ahead of the historical base, putting "extraordinary stress on the return proposition." Investors are now sizing up alternative-accommodations assets in response.

"There's no question that the last five years have been kinder to brand companies than to ownership companies — the share prices tell the story," Maalouf said, framing owner retention as existential for asset-light operators. IHG lowered its owner-paid loyalty assessment fee in May 2024 and is leaning on AI to compress unit costs without trimming service levels. "AI allows us to keep that quality of service high, but lower the unit cost," Maalouf said.

Shah, who runs an owner/operator platform, said brands deserve credit for engaging on cost structure rather than relying on the spread between RevPAR and expense growth. His own properties have shifted from contract labor to in-house staffing to defend margins.

What comes next for the room product?

Capuano flagged a stock of upscale and upper-upscale hotels designed for a different era — "white elephants," he called them — where bellman-and-doorman service models no longer pencil out. The fix, both CEOs agreed, is the urban micro format: a 140-square-foot room paired with a buzzy lobby.

"That actually makes money," Maalouf said, pointing to higher room density and better per-square-foot returns. With 2026 comps easier and marquee events on the calendar, hoteliers left ALIS betting that demand catalysts can outrun the structural pressure on owner returns.