“It’s not good, it’s not bad” Boston hotel performance down after a weak summer - by Jim Luchars

2025 has been a choppy year for the U.S. hotel market. Nationally, through September year-to-date, occupancy is down 0.9% and average daily rate (ADR) is up 0.9%, reflecting flat RevPAR for the same period. However, this doesn’t tell the full story. Several markets (New York, Orlando, Tampa and San Franciso) have outperformed during the year and others (Denver, Houston, Las Vegas and Nashville) have experienced significant declines. Much of this is driven by market specific group pace and leisure trends and the degree of exposure to softer international travel. Overall, the hotel business is holding up OK and usually tracks economic conditions pretty closely with GDP growth aligning closely with ADR growth. Beginning in the summer, some signs emerged that indicated that price-sensitive consumers are starting to be a little more selective on bookings and travel. Certain markets felt this more than others and weather was also a factor. Finally, no year over comparison can be made unless you factor in the Taylor Swift effect. Any market that benefitted from being on her 2024 tour saw as much if not more of a positive impact than hosting a Super Bowl! “Swifties” came in waves to various cities, filled hotel rooms, restaurants and spent freely. From Boston to New Orleans to international destinations, the economic impact was remarkable. Unfortunately, in many markets, we are now comparing against that in 2025. If only we could host Taylor every year!

Compared to national trends, according to Smith Travel, Boston RevPAR was down 1.7% through September year-to-date. Most of this is in occupancy which was down 1.4% year over year for the same period. The summer months in Boston were a challenge. June was not a great weather month and overall compression in the city was weak with less convention activity than 2024 and no Celtics repeat! The weather improved in July and August but transient leisure and group demand was down year over year with less Canadian and European travelers visiting the city and the ongoing renovation of the Hynes Convention Center impacting the calendar and group pick-up. This softness peaked in August with RevPAR down 5.3%, evenly split between occupancy and ADR. The Hynes project will be phased over the next five years and continue to have an impact on the city’s group capacity. According to the Massachusetts Convention Center Authority, the city will host less than 700,000 attendees in 2025 compared to 830,000 in 2019. Long term, Boston will continue to be a top group destination but it will take a few years to get back to prior peak attendance levels. 

One bright spot is the performance of Boston’s luxury hotels. While the overall market experienced softness, RevPAR in the luxury segment grew 4% September YTD versus the prior year. This is a national trend in which the luxury guest continues to spend and is more insulated from economic uncertainty and inflationary increases in the cost of goods. The continued positive performance of the stock market is certainly a factor as the wealthiest 1% of America is still feeling good about their investment portfolio and pent-up savings from more limited spending during the height of COVID. Anecdotally, some of the most prominent luxury drive-to leisure hotels in New England (e.g. Ocean House in Rhode Island, Cliff House in Maine) had very strong summer business, exceeding expectations and quite the opposite of demand patterns in the city and suburbs. The beautiful weather in July, August and September certainly boosted demand at these properties but important to understand and differentiate the spending pattern of these wealthy travelers. 

Despite some headwinds this year, the Boston economy remains more diverse than most markets and that bodes well for future hotel demand. Furthermore, since COVID, it has become increasingly difficult to pencil new hotel construction in the city and, with construction costs at a peak and interest rates and borrowing a challenge, the barriers to entry are very high. It seems we are years away from the market being at risk of over-supply. A silver lining and positive takeaway for hotel owners in the city.

With the above factors in consideration including general investor uncertainty around tariffs and other government policy, nationally hotel capital markets are at a low point of activity. There was a lot of optimism heading into 2025 but much of this waned heading into Q2. While interest rates have improved and stabilized from a year ago, buyers are looking for discounted pricing and higher going-in cap rates and sellers are hanging on to prior peak values and, in many cases, under limited pressure to transact as market fundamentals remain OK. Boston remains a top target for acquisitions given the RevPAR performance and the aforementioned barriers to entry. Despite some headwinds this year, investors are still bullish on Boston’s long-term outlook and this will continue into 2026.

Jim Luchars is chief investment officer for Stonebridge Companies, a hotel development and operating company.

Prior to joining Stonebridge, Luchars was a principal at AEW Capital Management overseeing all hotel investments.

Luchars has over 25 years of experience in the hotel business and commercial real estate. Founded in 1991 by Navin Dimond, Stonebridge is a privately owned, innovative hotel development and hospitality management company. They manage a portfolio of 45 hotels across the United States, and provide investor opportunities, hotel development services, hotel management services, and hospitality career opportunities to its partners and associates. Currently, their hotel portfolio is comprised of 7,000 guest rooms across multiple select-service, extended stay, mid-scale, and full-service hotel brands located in primary and secondary markets.