RevPAR Stalls, Costs Rise Across Southern California, San Francisco, and Phoenix
Hotel markets are entering a more challenging phase heading into 2026. After several years of uneven recovery, RevPAR growth is flattening in many major markets just as labor and operating costs remain elevated. At the same time, consumers are becoming more value-conscious, shifting demand toward alternative lodging and lower-priced options.
Every market I track right now is telling a version of the same story. The growth that felt automatic over the past few years is leveling off, and the operators who come out ahead in 2026 will be the ones who know exactly where the softness is showing up.
Jump to a market:
Los Angeles
71.6% occupancy at $196, virtually flat year-over-year through November, 2025
Los Angeles continues to stand out as one of the nation’s highest-performing hotel markets for both occupancy and average daily rate (ADR), even as growth has slowed relative to earlier momentum. Through November 2025, the 12-month average RevPAR was flat at -0.4%, signaling a clear deceleration from earlier momentum.
The strongest performance was concentrated in the first quarter, when RevPAR increased by nearly 5%, driven by a surge in demand tied to the January wildfire crisis.
As the year progressed, however, economic uncertainty, slower corporate travel, and more cautious consumer spending softened results, particularly during the summer.
Looking forward, Los Angeles still holds an enviable advantage in its lineup of global sporting events. Between 2026 and 2028, the region will host eight FIFA World Cup matches, the NBA All-Star Game, Super Bowl LXI, and the Summer Olympics. These high-profile events are expected to generate meaningful compression nights and increase ADR, with RevPAR projected to grow by an average of 3%-5% annually through 2028.
Leisure remains the market’s dominant driver, supported by iconic attractions such as Santa Monica, Hollywood, Beverly Hills, and Universal Studios. But the leisure segment is shifting. Consumers, facing inflation and higher borrowing costs, are trading down to more affordable alternatives like short-term rentals, cruises, and regional travel. This has constrained ADR growth, particularly during the summer months, when international competition for tourists is intense.
Phoenix Metro Area
66.1% at $173 with a three percent drop in occupancy and flat ADR
The Phoenix hotel market outlook is showing signs of softening through the second half of 2025, driven by weaker leisure and business travel. For the 12 months ending in November, occupancy averaged 66.0%, down 3.3 percentage points. ADR posted modest gains, but RevPAR declined 3.0%, reflecting occupancy pressures and slower rate growth. Transient demand fell by 2.3%, while group demand eased by approximately 1%, indicating relative stability in meetings despite broader travel softness. Weekend occupancy continues to trail weekdays, underscoring weaker leisure trends.
Scottsdale and Tempe remain steady, with RevPAR flat or slightly positive, but Black Canyon, Mesa, and the Southeast/Chandler-Phoenix Airport report sharper RevPAR declines amid lower ADR and increased supply.
Supply growth remains a headwind. Phoenix’s pipeline reached a 10-year high in 2025, with 4,200 rooms under construction, representing 5.7% of the existing inventory and ranking the market among the most active in the nation.
Looking ahead, occupancy is expected to remain the primary drag on RevPAR through 2026, while ADR growth is modest but stable. Inflationary pressures, reliance on international travel, and elevated supply pose ongoing challenges. Construction and refinancing risks loom, with 11 CMBS loans maturing in two years and nine properties identified as at risk of distress. Despite uncertainty, Phoenix’s diverse investor base and marquee events—such as the 2026 NCAA Women’s Final Four and 2027 NBA All-Star Game—should support long-term demand fundamentals.
San Francisco Bay Area
68.7% at $225, up dramatically, but then it was down dramatically
San Francisco/San Mateo market experienced a notable rebound in 2025, driven by a stronger convention calendar and several major sporting events. Year-to-date through October, RevPAR surged 10.5%, the fastest pace among the top 25 U.S. markets. However, this growth reflects a recovery from unusually weak levels, which exaggerates year-over-year comparisons.
On a 12-month basis through November, RevPAR rose 10.6%, yet the market still ranks among the nation’s least-recovered in terms of overall hotel demand. Forecasts indicate RevPAR will increase by approximately 6% in 2026, driven by global events such as six FIFA World Cup matches and the 2026 Super Bowl. The city continues to grapple with lingering image issues stemming from years of negative press, which have redirected some long-term convention business elsewhere. Even with revised return-to-office policies at technology firms, corporate travel has been slow to recover.
According to San Francisco Travel, the Moscone Center is on track to host 32 conventions in 2025, producing an estimated 670,000 room nights—over 70% above 2024, though still only three-quarters of its historic peak of 850,000. Super Bowl–related activities scheduled at the Moscone Center in 2026 are expected to provide an additional boost to hotel performance, despite the game itself being played at Levi’s Stadium in Santa Clara.
Labor challenges remain acute. In late 2024, over 2,000 Bay Area hotel workers staged strikes across five properties before reaching a settlement in December that secured higher pay, expanded healthcare, and protections against understaffing through 2028; steep discounts, underscoring investors’ persistent caution.
Orange County
72.1% at $209, essentially flat from the past year
The Orange County market remains anchored by leisure travel, though demand in that segment has softened over the past year. In early 2025, wildfires in neighboring Los Angeles temporarily boosted demand in the lower-tier segments, as displaced residents and emergency workers filled economy and extended-stay hotels. At the same time, upscale and luxury properties offered targeted rate reductions to retain group and leisure bookings.
Leisure mainstays such as Disneyland, Huntington Beach, and Dana Point continue to draw visitors, yet the market faces increasing competition from both domestic and international alternatives. Many U.S. travelers have shifted budgets toward overseas vacations, cruises, and short-term rentals, limiting demand for local hoteliers.
Despite these headwinds, forecasts remain modestly optimistic. RevPAR is expected to increase by 1%-4% annually through 2028, supported by gradual gains in ADR and occupancy. A robust regional event calendar, including the 2026 FIFA World Cup, the 2027 Super Bowl, and the 2028 Summer Olympics, should deliver meaningful tailwinds for Orange County and the broader Southern California market. However, a cooler domestic leisure environment and weaker corporate travel could temper growth.
Occupancy remains a relatively bright spot. The market’s 12-month average through November stood at 72.1%, well above the national benchmark of 62.3%. Major conventions such as NAMM and Natural Products Expo West continue to bolster performance, while steady weekday business from healthcare, technology, and financial services sustains baseline demand.
San Diego
72.3% at $213, down 1% from last year and down in every submarket last month
San Diego continues to rank among California’s strongest hotel markets, with 12-month occupancy above 70%, reaching 72.3% through November 2025. This performance reflects the region’s highly diversified demand base, supported by leisure tourism, military and government travel, a robust convention calendar, and steady corporate activity.
However, the momentum that carried the market through late 2024 and early 2025 has begun to moderate. Softer domestic leisure demand, combined with reduced government-related travel, contributed to weaker performance during peak months. For the 12 months ending October, RevPAR changed by -0.9%, signaling soft summer results and a cooling trend following last year’s strong gains. Market participants also note a cooling trend in theme-park visitation and a normalization of cruise-related hotel demand after a surge in early 2024.
Looking ahead, RevPAR is expected to turn moderately positive in 2026; however, the combination of new hotel supply and modest demand growth will continue to put pressure on performance. San Diego benefits from a well-rounded economic base anchored by life sciences, military operations, higher education, and a globally recognized tourism sector. Look for all the gains to occur in Q3 and Q4 when the combination of easier comps, convention business, World Cup and interest rates help along with the tax reductions offered in the One Big Beautiful Bill Act.
Visitors are drawn year-round to the city’s beaches, marine attractions, the Zoo, and theme parks. Corporate and group demand is supported by activity at the San Diego Convention Center and by research hubs such as the Golden Triangle. Convention planners report a stronger booking pace for FY2025–2026, driven by the return of medical, biotech, and scientific meetings. These segments historically deliver some of the city’s highest room-night yields.
Data source: CoStar Hospitality Market Report
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