After facing continuing headwinds at the beginning of this year, the hospitality market is seeing signs of momentum as business and group travel is balancing a pullback in leisure travel.

Average occupancy in the first quarter was down more than 100 basis points from the same period last year, according to Marcus & Millichap's third-quarter hospitality report. Household budgets have been constrained by inflation and higher interest rates, which impacted the hotel sector's occupancy recovery.

Beginning in the second quarter, occupancy rates grew 60 basis points year-over-year, although the year-long average occupancy rate at limited-service hotels fell by 140 basis points through the first half of the year. Higher-income leisure travel pushed the full-service rate up by 100 basis points during that span, said Marcus & Millichap.