A Market That Prices Certainty

Hotel transactions in 2026 are being shaped by a simple commercial reality. Capital flows when buyers can underwrite cash flows with confidence and sellers can see their price expectations validated by the market. In this 1TourismWorld conversation, Rod Clough, President of the Americas for HVS, joins a session hosted by Glenn Tyranski of 1BusinessWorld to explain why deal activity has not fully reignited and what conditions can bring liquidity back at scale. Tyranski sets the tone by describing 1TourismWorld as a global platform that accelerates collaboration, surfaces practical insights, and turns relationships into partnerships that strengthen the sector. Clough then translates that ambition into a clear set of operating and investment levers that owners and operators can use now while the market works through a transition period.

Occupancy Direction and the Drivers Behind 2025 Softness

Clough grounds his outlook in national performance trends and an explicit forecast path. He notes that overall U.S. occupancy declined in 2025 from 63.0 to 62.3, then shares HVS expectations for 2026 occupancy to tick up to 62.7 before rising further over the next two years. He acknowledges that other forecasters are less bullish, then outlines why he views a modest improvement as the more probable case.

The explanation starts with a set of shocks that hit in 2025 and then became embedded realities. Clough points to a shift of discretionary international travel away from the United States, driven by reaction to the current administration and fear of visa and entry and exit hassles. He emphasizes that the decline was notable rather than catastrophic, describing a drop in the range of roughly 5 to 6 percent, yet still meaningful enough to pressure overall occupancy. Federal travel also weakened after the launch of the Doge Division in the federal government, which contributed to hesitation, employment declines in certain federal employment centers, and reduced federal government transient and group business in markets that typically benefit from that demand. He adds that alternative accommodations such as Airbnb continued to gain share, and he describes tariffs launched in the March to April window as a major uncertainty shock that prompted businesses to pull back on discretionary spending and business travel. A government shutdown in the fall compounded the disruption.

Why 2026 Can Improve Without a Full Demand Rebound

Clough’s 2026 case rests on the difference between new shocks and continued conditions. He describes tariffs as a continuing reality, then references a Supreme Court decision that suggested many tariffs may not have been put in place legally, followed by the administration signaling it would pursue other ways to maintain tariff policy. The operational takeaway is that markets can adapt to known constraints more effectively than they can react to unknown policy swings. Clough argues that the industry is less likely to experience the same negative adjustment in 2026 because the initial shock has already been absorbed.

International travel fits the same pattern. Clough does not project a rapid return of international travelers who stayed away due to the current administration, but he also does not expect the same shock of decline to repeat. He frames late summer and fall as a period when some travelers may decide they have had enough of a break and begin returning, which would help year over year comparisons even if the recovery is partial.

Group and convention dynamics also shift from headwinds to a more constructive baseline. Clough cites major convention center closures for reconstruction in cities such as Dallas and Austin as a negative factor in 2025 that is less likely to recur with the same force. He also describes convention calendars in cities such as New Orleans and Nashville as shaping up well for 2026 after slower prior years, and he highlights Las Vegas as a market hit by the international travel pullback that may see improvement if convention business picks up and international demand begins to return.

Event Catalysts and Market Specific Factors

Clough connects national averages to local catalysts because investment outcomes are ultimately market specific. He notes that the San Francisco Bay Area continues its return to stronger demand and occupancy, and he attributes part of the recent momentum to the Super Bowl. Tyranski reinforces that point by referencing earlier conference remarks from Alex Bastion of the Hotel Council of San Francisco, who described the Super Bowl impact as a regional collaboration story across the Bay Area. Clough then points to the World Cup as a demand catalyst that can lift occupancy in host markets and support higher average daily rate as demand spikes allow rates to spike.

He also names disruptions that can swing results in either direction. He cites a significant decline in Los Angeles travel in the first quarter of 2025 due to fires, then notes that the absence of comparable fire events in 2026 would create positive comparisons. He mentions Minneapolis experiencing a January increase in demand and occupancy of 25 percent due to disruption related to ice, while recognizing that this type of uplift is not the preferred path to growth and may wane. He also flags very recent unrest in Mexico as a live variable, suggesting it could temporarily pull U.S. travelers away from Mexico as a vacation destination and potentially redirect spring break demand to the Gulf Coast, the Florida Keys, the Caribbean, or Southern California.

Rate Outlook and the Cost Imperative

Clough sets a specific rate expectation and then ties it to operating reality. He expects rate to rise to 163 in 2026, then move notably higher in the next two years, while emphasizing that the industry needs more certainty before stronger rate growth becomes durable. He frames the World Cup as an example of how a demand spike can unlock ADR upside in specific markets. He also makes an operational point that matters for every owner and operator. Hotels need rate growth to cover rising costs so the asset can continue to function and meet escalating expenses.

Cap Rate Benchmarks and How Underwriting Shifts

Clough describes average cap rates as steady in an 8.0 to 8.5 range, with limited service roughly 50 basis points higher than full service. He then explains how deals can rationally trade above or below that band depending on the credibility and sustainability of net operating income. A lower cap rate can make sense when first year NOI is temporarily limited for a clear reason and a credible bump is expected, such as post renovation recovery, steady market improvement from 2025 to 2026, or an under managed asset with operating potential. He offers a concrete operating lens by describing a select service hotel that should run at a 35 to 40 percent gross operating profit but is stuck at 25 to 30 percent under current management, which creates a plausible path for NOI improvement under new ownership.

A higher cap rate can be justified when trailing NOI is inflated by non recurring factors. Clough cites one time events, special contracts, and shared expense structures across larger portfolios as reasons T12 results may not represent sustainable performance. He encourages buyers to understand revenue sources and expense completeness and to adjust offer price accordingly.

The Buyer Seller Gap and the Renovation Constraint

Clough describes transaction activity as still waiting to take off and explains why. He says the gap between buyer and seller expectations remains too wide, with progress toward alignment but not enough to drive a broad uptick in deal volume. The core friction, in his view, is renovation economics and timing.

He outlines typical renovation budgets for hotels in the ten to fifteen year window at roughly 25,000 to 35,000 per key when exterior work is limited. He then describes costs moving into the 40,000 to 50,000 or 60,000 per key range when facade work or structural change becomes necessary. He adds that brand upgrade conversions can reach 60,000 to 80,000 per key because both exterior standards and interior changes can be significant, including bathroom and layout modifications.

The timing of renovation matters as much as the budget. Clough describes the sequencing reality of design approvals, purchasing decisions, and delivery timelines, which delays the NOI uplift that a buyer needs to underwrite a five year hold. He contrasts buyer conservatism on post renovation ADR lift with seller optimism on both renovation speed and pricing upside, and he frames that mismatch as a central reason transactions stall.

Labor, Government Exposure, and Cost of Debt

Clough adds three additional constraints that keep underwriting cautious. He expects only a slight increase in occupancy, which limits the degree to which cash flow forecasts can assume rapid momentum. He cites disruption near government related employment centers as a demand risk factor, and he discusses labor caution tied to staffing availability, noting that the industry benefits from immigrant labor and that labor constriction creates operational pressure.

Cost of debt reinforces the gap. Clough describes borrowing costs as still elevated relative to prior years and expresses hope for additional declines in the federal funds rate, reflecting expectations from leading economists. Tyranski underscores the value sensitivity by referencing an almost 16 percent swing in weighted average cost of capital reflected in Clough’s materials. Clough adds a practical negotiation point by noting that sellers do not always appreciate how higher financing costs reduce supportable offer prices, while buyers must price that reality into value.

Actions Owners Can Take Now

Clough closes with a portfolio readiness agenda that is directly actionable. He urges owners to get assets ready for sale so they attract multiple bids, describing five to fifteen offers as the competitive environment that supports the highest sale price per room. He suggests that completing a needed renovation can position a buyer to step into an asset that is ready for the next ten to fifteen years, which can materially improve marketability and pricing. He also describes newer assets that have ramped and require no near term renovation as well positioned to sell in the current environment.

Operational profitability is the second readiness lever. Clough provides benchmark gross operating profit ranges for non union markets and ties them to sale preparedness. Full service hotels typically target 30 to 35 percent GOP. Select service targets 35 to 40 percent. Limited service targets 40 to 45 percent. Extended stay targets 45 to 55 percent, with economy extended stay closer to the higher end of that range. He argues that assets materially below these norms may not be ready for sale and should prompt owners to evaluate why performance is off standard and whether the management company is the right fit.

Segment focus matters more than flag in this cycle. When Tyranski asks whether certain brands are more active in the deal space, Clough says it does not materially matter by brand and points instead to economy extended stay as a current hot spot. He cites strong demand for assets in that segment when they are in good condition and delivering strong GOP, which positions them to attract multiple offers even while broader transaction volume remains muted.

Strategic Takeaways for 2026

Clough’s central message is that deal flow returns when operating confidence and financing feasibility converge. Occupancy and rate need clearer momentum, and cost of debt needs to ease enough for buyers to meet sellers closer to their expectations. Owners and operators can still improve outcomes immediately by reducing uncertainty at the asset level through renovation readiness, expense realism, and profitability performance that aligns with market benchmarks. In a market where certainty commands a premium, assets that present a credible post acquisition path to durable NOI will trade first and will set the pricing tone for the next upswing.

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