The hotel sector enters 2026 with a pronounced divide, with luxury RevPAR growth significantly outpacing other segments, according to a report from Embark Beyond.
The gap is driven by high-income travellers and major events like the FIFA World Cup. Embark Beyond highlights an uneven recovery being experienced by the hotel sector, with premium demand strong while broader markets navigate affordability pressures and labour challenges.
- Wealth Bifurcation: The gap mirrors a broader economic pattern where high-net-worth individuals maintain or increase spending, while middle- to lower-income consumers face tighter discretionary budgets due to inflation and rising costs. A widely cited report from Moody’s in 2025 found that the top 10pc of earners accounted for nearly half of all U.S. consumer spending, a historic high.
- “Premiumissation” of Travel: Travelers, particularly the affluent, are taking fewer but higher-quality trips and prioritizing unique, personalized, and experience-driven stays, such as integrated wellness programs and gourmet dining options, which justifies higher rates at luxury hotels.
- Performance Metrics Divergence: Through late 2025, luxury properties demonstrated positive Revenue Per Available Room (RevPAR) growth (up 5.3pc year-to-date August 2025), while the economy segment saw a decline (down 1.8pc).
- Investor Interest: The resilient performance of the luxury sector is attracting significant investor interest and development, especially in “trophy assets” and well-located properties with strong experiential offerings. In contrast, the mid-market segment is often underserved with aging stock, leading to a gap in quality and value that is not always reflected in pricing.
- Cautious Mid-Market Behavior: Price-conscious travelers in the mid-market are opting for shorter stays, booking last-minute, and seeking value through “destination dupes” (cheaper alternatives to popular spots).
- Operational Headwinds: Lower-tier segments are also disproportionately affected by rising labor costs and new government taxes (e.g., increased tourist levies), which squeeze already tighter margins.
- Luxury Focus on Experience: To sustain growth, luxury hotels are investing heavily in unique amenities, private access, and tailored experiences that align with traveler values.
- Mid-Market Vulnerability: The mid-market faces the greatest challenge and must adapt by focusing on operational efficiencies, leveraging technology like AI for cost savings, and joining “soft brands” to benefit from larger loyalty programs and marketing channels.
- Technology as a Differentiator: AI is being rapidly adopted across all segments, but in different ways: for hyper-personalization in luxury and for operational efficiency and self-service in the mid-to-economy tiers.
Embark Beyond’s Q4 2025 Travel Trends Report concludes that, ultimately, successful properties in 2026 will be those that strategically adapt to these divergent traveler preferences and economic pressures, with the luxury end continuing to lead market performance.
Jack Ezon CEo of Embark Beyond shared: “Luxury travel has become distinctively bifurcated — the ultrawealthy and the, well, the poor rich. Inflation continues to squeeze the aspirational luxury traveler. Suites are going for higher rates than ever and quickly sell out, while base-rate deluxe rooms or opening categories remain barren.”
