Hotel transactions are happening today, but the activity isn’t exactly even across the board. Instead, it’s a tale of two markets.
STR data notes the luxury segment posted 5.3 percent RevPAR growth year to date as of this past August. At the same time, the hotel data and analytics firm has called out deterioration in rate growth and softening demand in the upscale and upper midscale select-service tiers - the heart of the market’s middle.
“The bifurcation isn’t subtle at this point,” says Travis Burns, executive vice president of business development at Remington Hospitality. “Luxury and upper‑upscale assets with strong positioning continue to command pricing power, while the middle has run into resistance much faster.”
Luxury’s irreplaceability factor
Luxury has always been built on exclusivity, but today it’s showing up in a different way. It’s not just who can afford to stay at a luxury asset that makes it exclusive, but who can afford to buy it.
“Often, these properties physically cannot be built again given either scarcity of land, construction costs or both,” says Stephen Haase, director of capital markets at Greysteel. “Investors are looking at an opportunity today to buy well-below replacement costs, which only becomes more prevalent the higher up the chain you look.”
Scarcity, combined with the irreplaceability factor, gives buyers a reason to remain competitive.
“In underwriting and bids, investors are accepting thinner going-in yields because they expect outsized growth or value upon exit,” Haase explains. “Quality has retained a premium, supported by the notion that a trophy hotel held through the cycle can deliver outsized total returns relative to its risk.”
Even in a tighter cycle, trophy hotels are commanding trophy pricing. Surfrider Malibu, for example, sold for $37.5 million last year, or roughly $1.9 million per key, notes CoStar/industry reporting. The 20-room oceanfront boutique luxury hotel had been purchased by its previous owner in 2021 for $28 million.
Then there was one of the priciest luxury hotel trades of the year. Kam Sang acquired the Edition Clocktower in Miami for $250 million in late 2025, a deal that reportedly cleared more than $800,000 per key.
Burns believes the luxury class is defined by a handful of characteristics that investors find very attractive today – and every day.
“What continues to resonate is clarity, and clarity is surprisingly scarce in choppy markets,” he says. “Higher‑end assets that are well located and well operated offer investors a more predictable path through the current uncertainty, which is always valuable.”
In terms of underwriting, Burns adds that he’s consistently seeing focus on high barrier locations, brand relevance and the ability to drive rate growth through experience rather than simply pushing occupancy harder.
“Assets that can protect margin through irreplaceable real estate service combined with unique demand generators tend to rise to the top,” he continues. “You see this play out across lifestyle‑oriented luxury and upper‑upscale hotels in strong leisure and mixed‑use markets.”
Stuck in the middle
While the luxury market offers scarcity, pricing power and a defensible path through uncertainty, the middle market remains stuck. On the one hand, these assets aren’t cheap enough to be value plays. On the other, they’re not differentiated enough to command a premium.
“Mid-scale hotels are in a relatively flat growth market right now,” Haase says. “Some markets are experiencing new supply coming online or in the pipeline, and the likelihood those can get developed and hurt demand for existing assets is much higher for mid-scale. Given that new almost always wins for hotels, the impact on performance will be felt and buyers are underwriting that risk.”
Not all is lost, however. Haase notes that brand conversions have been a popular strategy for middle-market hotels to improve their position and seek protection from a stronger brand. This can also widen the pool of potential buyers at exit, as well as increase the number of lenders willing to finance the deal.
Renovations can further make a big impact, especially if the asset is performing at the middle or bottom of the competitive set – with one caveat.
“It is important to ensure that the quality of the hotel is the issue and not the sales team, revenue management or location,” Haase adds. “A renovation cannot solve those underlying issues.”
He additionally recommends managing expenses and regularly revisiting contracts to avoid continued deterioration in margin.
Burns notes that mid-scale assets that are well maintained and operated continue to do well. That’s because those properties have “invested” owners.
“There is definitely a path forward for middle‑market assets that are willing to invest thoughtfully and partner with the right operators,” he says.
That investment needs to be smart, measured and disciplined if it is to succeed, Burns clarifies, noting that this isn’t the time to throw spaghetti at the wall and see what sticks. This is especially true when it comes to capex and renovation scope.
“It stops penciling when execution starts chasing individual aspirations instead of demand,” he says. “Importing a gateway‑city playbook into a market that doesn’t have the demand and won’t support it is an expensive way to find out where the ceiling really is. Understand what the market wants, not what you want. Discipline on scope and spend matters more than ambition.”
Of course, a look at what the future may hold can always bring some of that coveted clarity for investors.
“When inflation stabilizes and discretionary spending becomes less pressured, middle‑market assets always benefit,” Burns adds. “You’ll also see momentum as transaction activity picks up – not just at the top of the market – but across all well‑located, well‑maintained assets. When those conditions come together, reinvestment becomes less defensive and more strategic. That’s typically when both groups have forward momentum.”