LARC predicts 0.6% US RevPAR growth in 2026

With increasing economic uncertainty and elevated budget deficits, LARC expect U.S. hotel cap rates to rise 25 bps through 2030, on average. This increase is driven by widening spreads (or risk premia), offset by expectations for the Fed to cut rates.

Since LARC published its report, the conflict in the Middle East has arisen, causing LARC President and Co-Founder Ryan Meliker to tell Hotel Investment Today, “The conflict in Iran adds further uncertainty to an already cloudy outlook for the U.S. hotel industry.”

He said if the conflict persists for an extended period, it is likely to have two materially negative consequences for the U.S. hotel industry in 2026:

• Oil prices have already spiked and if they remain elevated, they will show up at the gas pump and further impact the disposable income of an already stretched U.S. consumer.  This will have negative implications on leisure travel.
• It could make travel to the U.S. more challenging for foreigners, which will be especially impactful during the World Cup events in June and July.

LARC’s outlook for hotel performance is driven by a confluence of factors that are both tailwinds and headwinds.

Tailwinds

• Comparisons begin to ease in 2Q-2026, given RevPAR declines in 2Q-2025.

• The World Cup is estimated to drive a 1.8% impact to annual RevPAR growth across the U.S. with the impact skewed toward only a handful of markets with strong matches that also serve as international tourism destinations (New York, Miami, Los Angeles, Dallas and Atlanta).

• SALT tax relief will hit the consumer balance sheet beginning in 2Q-2026, which should provide an added capacity for spending leading up to the summer leisure travel season.

• The high-end leisure traveler will continue to be strong, supported by a robust stock market and increasing wealth levels.

• Group demand will continue to be strong, with convention bookings pacing up 8% year-over-year in 2026 and remaining flat in 2027.

While 2025 was fraught with headwinds and uncertainty tied to the impact of the current Administration’s policies, LARC said it does not expect those headwinds to get worse, while clarity from the Administration could provide tailwinds.

Headwinds

• Limited job growth and traditional business investment will limit leisure travel demand from most Americans and business travel demand. Uncertainty on tariffs following the Supreme Court ruling and the Administration’s response, including plans to move forward with sweeping tariffs through alternative means, could further cloud these issues.

• While the World Cup should provide a tailwind for foreign visitation to the U.S., sentiment toward the U.S. is increasingly negative, driven by tariffs and rhetoric coming from Washington, D.C. In 2025, inbound international arrivals declined 4%, and without a shift in rhetoric, the declines could continue and limit the benefit of the World Cup.

• In February, a partial government shutdown went into effect, suspending payment of wages to TSA employees. We would expect this shutdown to have a more disruptive impact on travel demand than the one in late 2025, given it is the second time in just a few months that TSA employees will go without pay.

Domestic trends

With this backdrop, LARC expects domestic leisure travel to remain sluggish in early 2026; however, these headwinds are skewed away from the high-end leisure traveler.

Given a challenged job market and economic uncertainty, corporate transient demand will also remain soft in 2026. However, group trends are proving more resilient.

Additionally, international travel trends remain a headwind for U.S. hotels. In 2019, the U.S. was a net importer of about 4 million travelers. In 2025, the U.S. was a net exporter of about 18 million travelers. The 22 million traveler swing is weighing on hotel performance, especially in gateway markets. As foreign travelers tend to stay longer and spend more than domestic travelers, the recovery of this portion of the leisure segment is a critical component of recovery back to pre-pandemic occupancy levels.

LARC expects this trend to reverse in 2026 as sentiment toward the U.S. stabilizes and hopefully improves and the U.S. hosts the World Cup across multiple cities.

The macros

Additionally, Moody’s Analytics economic forecasts incorporate the following key national assumptions that drive LARC’s outlook:

• The Fed will cut the target Fed Funds Rate by 25 bps in March, June, and July 2026, before stabilizing at around 3%.
• U.S. GDP will increase 3.1% in the first quarter, 2.6% in 2026 and 1.5% in 2027.

With that backdrop, LARC forecasts 2026 RevPAR to increase 0.6%, driven by a 3.0% ADR increase, and a (2.3)% occupancy decline. However, it is important to note that most markets not impacted by the World Cup will experience much softer performance.

Upside, downside

LARC has also issued an upside scenario and a downside scenario of our U.S. forecast.

The upside scenario is based on Moody’s Analytics forecast that assumes there is a 75% probability that the U.S. economy will underperform the upside scenario. The downside scenario assumes that there is a 75% probability that the U.S. economy will outperform the downside scenario.

Under the upside scenario, RevPAR would increase 7.0% in 2026, before RevPAR growth slows to 2.1% in 2027.

Under the downside scenario, RevPAR would decrease (7.8)% in 2026, before beginning to recover in early 2027.

LARC continues to anticipate U.S. lodging markets that materially outperform as well as those that underperform national averages.

Over the medium-to-long term, LARC expect markets with outsized exposure to high-end leisure transient and group to outperform. However, in the immediate term, those with strong convention calendars and World Cup exposure are likely to yield the most topline growth.

Furthermore, expense pressures will become a substantial factor in identifying markets that are winners and those that are losers, particularly with several major cities recently completing or soon to negotiate collective bargaining agreements.

Recent finalized agreements in several U.S. cities have resulted in a roughly 10% annual increase in wages over the next five years and a reset back to pre-pandemic staffing levels.

LARC expect nonunion hotels to keep pace with wage growth at union properties across these markets, though many are already paying wages above union-mandated levels. Layering in added political risks like the Safe Hotels Act in New York City and the increased minimum wage in cities such as Los Angeles and San Diego, all of which can be duplicated in other major markets, wage and expense growth is likely to be a bigger component of value change than top-line performance across many trade areas.