Real estate slowdown in hospitality: A perspective on travel declines and investment hesitancy

By Tyler Foresta & Joe Latina, SIOR, LMT Commercial Realty, LLC/CORFAC International

Macroeconomic and geopolitical shifts have a direct impact on commercial real estate, often materializing in the form of vacant properties, stalled leases, and overly cautious, risk-averse investors. The recent downturn in international travel to the U.S., as highlighted by the U.S. Travel Association’s latest data, presents a sobering reality for those of us working to place tenants and buyers in hospitality and travel-related business and real estate opportunities.

Travel Contraction and the Real Estate Ripple Effect

In March of this year, international arrivals to the U.S. experienced a 14% year-over-year decrease; this is not merely a tourism statistic—it’s a flashing red signal for the hospitality real estate sector. The sharp decline in travel from traditionally reliable feeder markets such as Canada (down 26%), Western Europe (down 17%), and Asia (down 25%) translate into fewer “heads in beds” and less foot traffic for urban core retail.

The lack of robust travel demand to backstop income projections has made hospitality investors’ appetites very tepid; this has many hotel operators pausing expansion, with many even considering disposition. This uncertainty has significantly affected the desirability, and in many cases, the value of such assets. When buyers are facing reduced revenue per available room (RevPAR) trends or when forward bookings are down, as flagged by Hyatt and Host Hotels, many of these investors are taking a wait-and-see approach.

Buyers Are Hesitant, Tenants Are Selective

The current travel slowdown comes at a time when many institutional and private investors are already reeling from higher interest rates and tighter lending and underwriting standards. With the hospitality sector now facing a projected $21 billion loss in travel-related exports and the U.S. now running an uncharacteristic $50 billion travel trade deficit, confidence in the near-term outlook is shaky at best.

We are seeing this translate into longer listing periods, increased demand for concessions, aggressive repricing and much longer due diligence periods, especially for assets directly reliant on international tourism, convention travel, or gateway city footfall. International investors, once stalwarts in U.S. hospitality deals, have also begun to pull back, citing political uncertainty, tighter visa regimes, and now, softening demand metrics.

The Retail Leasing Dilemma

Leasing retail space, especially in hospitality-adjacent corridors, has become increasingly challenging and complex. Many retailers that once thrived on international tourism and business travel have shifted strategies or paused expansion altogether. Urban retailers that traditionally counted on hotel guests for foot traffic are now struggling with high costs and underwhelming sales metrics.

Moreover, prospective retail tenants are being much more selective and cautious. Many retail tenants are now requiring shorter lease terms, flexible exit clauses, and substantial tenant improvement allowances (TIA). National credit tenants appear to be downsizing footprints or focusing on drive-to suburban markets with more predictable customer flows. Local operators, on the other hand, face their own set of hurdles; tight labor markets, inflationary input costs, and supply chain volatility—all of which make committing to a multi-year lease in a softening urban core an unattractive proposition.

From the landlord’s side, expectations haven’t always realigned with market realities. Some are slow to adjust asking rents or are unwilling to accommodate the newer, more defensive lease structures that tenants are demanding. This mismatch often leads to longer vacancy periods and friction during negotiations, requiring brokers to step in as educators and mediators to bridge the gap between perception and market evidence.

The Challenge with Forward-Looking Deals

With the uncertainty of future performance, determining valuations of hospitality opportunities are becoming increasingly more difficult. Take Hyatt’s Q1 earnings, which on the surface look positive, but warns of a slowdown in forward bookings, sending a clear message to the market. Don’t count on the same momentum heading into the second half of the year.

As the real estate professional role has shifted from transactional to consultative, we’re helping sellers embrace creativity including restructuring deals to include seller financing, advising on adaptive reuse strategies, and educating both domestic and foreign investors on localized submarket resilience.

Political Overhang: The Trump Effect

The travel downturn cannot be entirely divorced from political dynamics. Whether it’s rhetoric, visa restrictions, or shifting global perceptions, the international community’s interest in visiting or investing in the U.S. has cooled in ways that affect our bottom line. The second Trump term, regardless of one’s political stance, has the potential to prolong or intensify those headwinds, especially if global perception continues to shift unfavorably.

Hospitality Real Estate in a Holding Pattern

For now, CRE professionals in the hospitality sector are navigating a perfect storm of weakening demand, cautious capital, and geopolitical uncertainty. Sellers must be realistic, buyers must be strategic, and real estate professionals must be agile. The fundamentals of hospitality real estate are still strong in the long term, but in the current environment, patience and creativity are as important as price per key or cap rate and in retail leasing, adaptability is no longer a luxury—it’s a survival tactic.

Tyler Foresta, sales & leasing, LMT Commercial Realty, LLC/CORFAC International.

Joe Latina, SIOR, managing principal, LMT Commercial Realty, LLC/CORFAC International.