SOUTHWEST U.S. HOSPITALITY MARKET REPORT – Q1 2025

The Southwest posted one of the strongest Q1 2025 hospitality performances in the U.S., led overwhelmingly by Texas. RevPAR growth was driven by corporate relocations, convention and event calendars, energy-sector activity, and steady leisure demand across key metros. Texas markets outperformed national averages, while Arizona and New Mexico contributed stable, seasonally strong performance.

Dallas–Fort Worth and Austin benefitted from large-scale corporate expansions and tech-driven demand, Houston leveraged an energy and medical-led rebound, and San Antonio delivered dependable results supported by tourism, military, and public-sector employment. In Arizona, Phoenix enjoyed strong resort, spring travel, and event-driven performance, while Tucson maintained stable occupancy tied to medical and university demand. New Mexico markets such as Albuquerque and Santa Fe balanced government, arts, and leisure demand with constrained new supply.

Transaction activity increased across the region, especially in the sub-$25 million select-service and extended-stay segments. Capital remained available through bridge, SBA 7(a), SBA 504, and conventional loan structures, although lenders maintained a sharp focus on expense trends, sponsor quality, and realistic underwriting.

Population and corporate migration continue to define the Southwest story. Texas and Arizona, in particular, have attracted corporate headquarters relocations, regional office expansions, manufacturing investment, and logistics growth. This has supported steady weekday demand and broadened the base of higher-rated corporate and group business.

Leisure demand remained resilient across the region, with strong spring travel, national park visitation, and sports and entertainment events. Major events in Texas and Arizona continue to drive compression weekends that support premium ADR and length of stay. In New Mexico, arts, cultural tourism, and outdoor recreation contributed to stable seasonal patterns.

Development remains disciplined due to construction costs, interest rates, and lender caution. Select-service, extended-stay, and upper-midscale formats remain the most financeable product types, with sponsors and lenders favoring markets that offer diversified demand drivers, visibility on future growth, and modest new supply pipelines.

Dallas–Fort Worth – corporate relocations and convention-driven strength

Dallas–Fort Worth remains one of the most active and liquid hotel markets in the Southwest. Corporate relocations, finance and tech expansion, and major conventions at Kay Bailey Hutchison and Fort Worth Convention Center all contributed to strong Q1 2025 performance. Airport-area hotels, as well as assets in Plano, Frisco, and Irving/Las Colinas, benefitted from ongoing corporate campus growth and demand from national and regional headquarters.

Transaction activity was particularly strong in the sub-$30 million select-service segment, with both institutional and private buyers targeting newer vintage or recently renovated assets that can be financed with conventional or SBA structures.

Austin – tech, state capital, and entertainment-driven demand

Austin continued to support premium ADR relative to other Southwest markets. Q1 performance was bolstered by SXSW, ongoing tech industry travel, state government activity, and a robust events calendar. The Domain, East Austin, and airport corridors remained focal points for investor interest, particularly for lifestyle, boutique, and extended-stay hotels catering to tech and creative industries.

While new supply has entered the market over the last several years, demand growth and higher-rated segments have helped maintain competitive positioning for well-located hotels with updated product and strong management.

Houston – energy-led rebound and diversified economic drivers

Houston’s Q1 2025 hospitality performance reflected steady improvement across Energy Corridor, Galleria, and Texas Medical Center submarkets. Corporate travel tied to energy, petrochemicals, and engineering firms supported weekday occupancy, while medical and academic travel contributed to strong base demand around the Medical Center. Large events such as the Houston Livestock Show and Rodeo provided significant seasonal compression.

Investors are pursuing recapitalizations and refinancing opportunities for stabilized limited- and select-service hotels, particularly where sponsors can demonstrate improved operating discipline and realistic capital expenditure plans.

San Antonio – tourism, military, and medical stability

San Antonio produced reliable Q1 performance supported by Riverwalk tourism, convention activity, military demand, and healthcare-related travel. Limited new hotel supply relative to demand growth has helped owners preserve ADR, particularly in core tourism zones and around major medical and military facilities.

Investors are selectively targeting value-add opportunities where PIPs or modest renovations can reposition assets into stronger brand families or higher-rated segments without relying on aggressive pro forma assumptions.

Phoenix – resort, events, and suburban expansion

Phoenix remained one of the Southwest’s strongest resort and event markets in Q1 2025. Spring travel, MLB Spring Training, and a deep roster of conferences and group events contributed to high occupancy and strong ADR. Luxury and upper-upscale resorts in Scottsdale and Paradise Valley benefitted from high-income leisure and group business.

Submarkets such as Chandler, Tempe, and Gilbert saw ongoing hotel demand tied to tech, manufacturing, and logistics expansion. Extended-stay and upper-midscale select-service hotels in these corridors continue to attract capital due to consistent operating performance and durable local employment bases.

Tucson – healthcare, university, and outdoor tourism

Tucson delivered stable Q1 performance supported by healthcare travel, university events, and outdoor recreation. Limited new supply in core submarkets, along with a balanced mix of leisure and institutional demand, has attracted investor interest from buyers seeking predictable cash flow in a lower-competition environment.

Albuquerque – government travel and cultural tourism

Albuquerque posted steady performance in Q1 2025, supported by government-related travel, regional business demand, and arts and cultural tourism. The city’s events calendar continues to attract leisure visitors, while proximity to major transportation routes supports consistent transient business travel. New development remains limited, creating favorable conditions for existing well-managed assets.

Santa Fe – boutique, luxury, and arts-driven ADR

Santa Fe remains one of the strongest ADR markets in the Southwest, driven by high-end leisure, arts tourism, and limited boutique supply in core historic districts. Investors are especially interested in well-located small hotels and inns that can benefit from targeted upgrades, brand affiliation, or soft-brand strategies that protect rate integrity.

• El Paso, Texas: Supported by defense, manufacturing, and cross-border trade, with steady business travel and growing investor interest in limited- and select-service hotels.
• Flagstaff, Arizona: Benefitting from tourism tied to the Grand Canyon and regional outdoor recreation, with strong weekend and seasonal occupancy and limited new supply.
• Las Cruces and Ruidoso, New Mexico: Emerging regional leisure and university-driven markets attracting private buyers looking for stable cash flow in less crowded competitive landscapes.

Capital markets remained selective but open for Southwest hospitality deals. Texas captured the largest share of transaction and refinancing activity, with strong sponsor demand for acquisition, recapitalization, and renovation financing. Arizona and New Mexico saw a mix of recapitalizations, smaller portfolio trades, and single-asset transactions.

Lenders focused heavily on sponsor quality, trailing twelve-month performance, realistic expense assumptions, and clearly articulated renovation or repositioning plans. Loan proceeds and leverage remained conservative compared to prior cycles, but capital was available for well-structured deals with credible business plans.

The most active financing structures in Q1 2025 included:

• SBA 7(a): For owner-operators acquiring hotels, buying out partners, or funding renovations and PIPs where operating company and real estate can be financed together.
• SBA 504: For long-term fixed-rate financing on owner-user hotel real estate, typically paired with a conventional first mortgage to complete the capital stack.
• Bridge loans: For acquisitions, recapitalizations, and transitional business plans involving renovation, repositioning, or the refinancing of maturing debt ahead of a permanent takeout.
• Conventional loans: For stabilized, well-located limited- and select-service hotels with strong operating histories and experienced management teams.

Sponsors who can present transparent financial histories, detailed capital expenditure schedules, and thoughtful underwriting continue to secure execution, even if the process requires more structure and negotiation than in prior years.

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Operating costs and labor availability

Labor, insurance, and utility costs remain front-of-mind for Southwest hotel owners. Texas and Arizona markets in particular face competition for skilled staff, and operators are refining scheduling, cross-training, and technology use to maintain service levels while protecting margins. Lenders are closely reviewing historical and projected expense ratios to ensure pro formas reflect current cost realities.

Renovations, PIPs, and brand repositioning

Many properties across the Southwest are facing brand-mandated PIPs, soft-brand opportunities, or full repositionings. Sponsors who align construction timing with seasonality, negotiate thoughtfully with brand partners, and structure capital stacks that include adequate renovation reserves are better positioned to emerge with stronger ADR and long-term competitiveness.

Distress, workouts, and opportunistic buying

Systemic distress has not materialized, but pockets of stress exist where elevated interest costs, deferred capex, or submarket demand challenges intersect with upcoming maturities. In these situations, owners are exploring loan modifications, extensions, and recapitalizations that introduce new equity alongside more sustainable debt structures.

For well-capitalized investors, these conditions present selective opportunities to acquire hotels at more attractive going-in yields than those available during the recent peak cycle, particularly where operational improvements and targeted capital projects can unlock value.

Sponsor sophistication as a competitive advantage

Across the Southwest, lenders, franchisors, and equity partners are prioritizing sponsors who demonstrate operational discipline, transparent reporting, and well-structured business plans. Thoughtful underwriting, realistic hold periods, and clearly defined exit strategies have become central to securing favorable financing terms and moving quickly on acquisition opportunities.

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