The hospitality landscape has been anything but predictable. Just as development leaders at major hotel companies began 2025 envisioning conversions as a key growth engine, headwinds emerged – tariffs, volatile travel patterns, and persistent economic uncertainty. The anticipated balm of federal interest rate reductions failed to materialize, stalling projects and tightening financial constraints. Now, as we approach 2026, the industry finds itself in a state of cautious optimism, tempered by lingering challenges but fueled by emerging trends that suggest a path forward.
A year ago, the forecast was straightforward: conversions would be the lifeline for hotel development amidst rising costs and limited lending. The reality proved more complex. While those predictions haven’t entirely evaporated, they’ve been reshaped by a series of economic pressures. The initial hope for swift interest rate cuts hasn’t materialized, leaving developers to grapple with elevated construction expenses and ongoing labor shortages. This has forced a recalibration – a shift from ambitious expansion plans to more measured, strategic growth initiatives.
“Construction costs, labor availability, and financing terms continue to require careful management,” observes Dan Hansen, Head of Americas Development at Hyatt. “Developers will need to demonstrate realistic ramp-up assumptions and strong operational support from brands.” This sentiment echoes across the industry; success in 2026 won’t be about grand gestures but about meticulous planning and a keen understanding of market dynamics.
The Rise of Conversions: A Resilient Strategy
Despite the challenges, one trend has remained remarkably consistent: the dominance of conversions. Transforming existing buildings – from office spaces to retail locations – into hotels offers a compelling advantage in today’s environment. It bypasses lengthy construction timelines and reduces upfront capital expenditure, allowing for faster revenue generation.
“One underlying trend, and one of our most powerful growth engines, is conversions,” confirms Shawn Hill, Chief Development Officer at Marriott International. “They continue incredible expansion across brand tiers and segments.” Marriott’s newly launched Series by Marriott and Outdoor Collection brands are specifically designed to facilitate these transformations, offering owners flexible pathways for conversion projects. This isn’t just a short-term fix; it represents a fundamental shift in how hotels are developed, prioritizing agility and responsiveness to market demands.
Beyond the Standard: The Appeal of “Collection” Brands
The rise of conversions is intrinsically linked to another significant trend: the proliferation of “collection” brands. These aren’t your typical cookie-cutter hotel chains. Instead, they offer a more curated experience, often emphasizing local character and unique design elements. Hilton’s Outset brand, with over 60 hotels already in development, exemplifies this approach. These brands appeal to owners seeking to differentiate their properties and cater to increasingly discerning travelers who crave authenticity and personalized experiences.
“You’re going to continue to see smart growth: more conversions, more efficient prototypes,” explains Amit Sripathi, Chief Development Officer at Wyndham Hotels & Resorts. “At Wyndham, we see that most clearly in extended stay and essential-tier hotels.” This focus on simpler building designs and operational models aligns perfectly with the current economic climate, allowing for quicker returns and reduced risk.
Extended Stay: A Beacon of Stability
While luxury and lifestyle segments continue to attract investment, the extended-stay category stands out as a particularly resilient area for growth. Fueled by factors like project-based work, relocations, infrastructure development, and the burgeoning “bleisure” trend (combining business and leisure travel), extended-stay hotels offer a consistent stream of demand that is less susceptible to economic fluctuations.
“Extended stay remains one of the most compelling investment opportunities in hospitality,” states David Pepper, Chief Development Officer at Choice Hotels International, citing the boom in AI and data centers as key drivers. This stability makes it an attractive option for developers seeking predictable returns in a volatile market.
The Waiting Game: Interest Rates and Future Growth
While conversions and collection brands offer immediate opportunities, the long-term health of hotel development hinges on interest rates. Developers are keenly watching for further reductions, which could unlock pent-up investment and accelerate project timelines.
“Developers across all segments and regions are keeping an eye on potential additional interest rate adjustments,” notes Kevin Schramm, Senior Vice President of Mainstream Brands in the U.S. & Canada at IHG Hotels & Resorts. “Further reductions could provide more attractive financing and sway developers who are on the fence.” However, even with lower rates, a return to the development boom seen in the late 2010s isn’t expected immediately. The impact will likely be gradual, as developers continue to factor in high construction costs and labor challenges.
Looking Ahead: A Landscape of Calculated Risks
The outlook for 2026 is one of cautious optimism. While economic uncertainty persists and global events can quickly shift the landscape, hotel development leaders are demonstrating resilience and adaptability. The focus has shifted from chasing rapid expansion to prioritizing efficiency, speed-to-market, and catering to evolving traveler preferences.
Matt Wehling, Senior Vice President of Development in the U.S. and Canada at Hilton, highlights that “high-quality, brand-backed deals have a competitive edge.” This underscores the importance of strong partnerships between developers and established brands, leveraging their expertise and resources to navigate the complexities of the current market.
Ultimately, success in 2026 will belong to those who are willing to take calculated risks, embrace innovative strategies like conversions and collection brands, and remain agile enough to adapt to the ever-shifting sands of the hospitality industry. The path forward may be challenging, but the opportunity for growth remains – for those prepared to navigate it with foresight and resilience.
