Google Ads has updated its guidance, allowing Hotel Ads campaigns to target and exclude specific geographic areas such as regions, states, cities, or postal codes within a country.
This change shifts away from the previous restriction of targeting by just country or territory.
However, radius targeting, also known as proximity targeting, remains unavailable for these campaigns.

Read the official help page here: Refine your location targeting.
This update was spotted by Hana Kobzová.