The hotel sector faced a complex, fast-changing new reality as tariffs announced by President Trump on Wednesday threatened to increase the cost to outfit, renovate, and develop properties — and to potentially reshape travel patterns.
“All that concrete coming from Mexico and all that lumber from Canada will now be more expensive, putting downward pressure on the number of hotels breaking ground or getting renovated,” said Jan Freitag, national director, hospitality analytics at CoStar Group.
Estimates of the tariff impact varied. Michael Bellisario, a senior research analyst at RW Baird, noted that internationally sourced materials typically represent between 15% and 20% of a development project’s total budget, and much of it is imported from China and Vietnam.
“All else being equal, the cost to build a hotel could be about 5% to 10% higher now,” Bellisario wrote.
However, hoteliers may find “a “silver lining” of reduced price competition because of this likely construction slowdown.
“Supply growth, which has been muted for the past three years, will likely remain constrained,” Freitag said.
Demand Weakness?
According to a research note by Richard Clarke at Bernstein Research, if a tariff war reduces U.S. GDP by around 1% to 1.5%, that could translate into a reduction of the year-over-year growth in U.S. RevPAR (revenue per available room) to a range of 0.9% to1.9%, down from a previously forecasted 3.1%.
If consumers pull back on their travel spending, that could further reduce RevPAR by 1% to 1.5% — potentially bringing industry growth close to flat with last year’s level, Clarke wrote.
Because the U.S. recession and global slowdown risks are higher than at the start of the year, Skift Research lowered its outlook for global travel on Thursday. It now forecasts 2% to 5% travel industry growth in 2025, down from the forecast at the start of the year for 6% to 9% growth.
‘Don’t Panic’
Alan Benjamin, president and founder of Benjamin West, a hotel procurement firm, described a nuanced and complicated situation.
“I’ve been going on this topic since 5 a.m. as every client has concerns,” Benjamin said on Thursday. His firm handles more than $400 million in procurement annually for hotels ranging from roadside select-service hotels to luxury resorts.
“People feel like an explosion happened in some ways even more than Covid or the financial crisis,” Benjamin said.
His advice to hoteliers: “Don’t panic.”
The cost pressure on hotel furniture, fixtures, and equipment will vary significantly by vendor, product type, and timing. The tariff that will apply is the one in effect when items clear customs, not when they’re ordered.
“While that creates uncertainty for long-lead hospitality items, it also opens up the chance that tariffs will be reduced by the time orders hit Long Beach [California], Norfolk [Virginia], or other ports,” Benjamin said.
Hospitality furnishings are typically custom-made for specific properties. This means there won’t be a rush to purchase existing inventory as may be seen in the automotive and other sectors, Benjamin said.
“The question related to the impact of tariffs on hotel costs is going to be dependent on retaliation from foreign countries,” said Ryan Meliker, president and co-founder of Lodging Analytics Research & Consulting (LARC). “The Trump Administration is using the sweeping tariffs as a point of negotiation, and it is very unclear where things will ultimately net out and for how long these tariffs will stay in place.”
“Most operational costs will be minimally impacted in the near term by rising tariffs,” said Meliker, whose firm helps hotel operators forecast expense growth factors.
Renovation Delays?
Hotel owners already negotiating with the brands of large hotel groups about property improvement plans (PIPs) that were postponed during the pandemic are now finding themselves in an even more challenging position.
Some essential renovations to comply with brand standards may be delayed further, while others might be scaled back as hoteliers reassess what’s financially feasible.
“This may elongate the conversation where owners are saying, ‘Look, I really want to do the PIP, but this is suddenly getting a lot more expensive,'” Freitag said.
Other analysts agreed. “For operational hotels undergoing renovations, renovation disruption could extend for months longer than initially expected, severely impacting cash flows,” Meliker said.
Risks to Domestic and International Travel
Domestic leisure travel, which has been a bright spot for the industry since the pandemic, may see rising weakness if recession risks rise.
That could mean more last-minute bookings and “trading down” in traveler hotel choices — opting for limited-service properties instead of full-service hotels, or choosing locations slightly removed from premium destinations.
Political tensions coupled with new economic policies might make the U.S. more expensive to visit for foreigners, reducing inbound travel.
“The American tariffs are causing anti-American sentiment that could affect international travel,” said David Sherwyn, professor of hospitality human resources and law at Cornell University.
Some regions of the U.S. might be affected more than others if they’re disproportionately dependent on particular nationalities of tourists to visit.
Some U.S. areas, especially along border states and winter destinations and in the Southeastern Sunbelt, may feel the effect more strongly. Sherwyn cited the examples of Lake George, New York, and Old Orchard Beach, Maine, which both rely heavily on Canadian tourism.
Clarke at Bernstein forecasted that, if other countries follow Canada in reducing U.S. travel by 20%, this could represent another 1% hit to U.S. RevPAR.
Freitag said: “We expect that the American high-end traveler will continue to go abroad, but that there won’t be as much of a reciprocal inbound inflow from high-end travelers to the U.S., which would then mean that there could be softness in the U.S. luxury sector as well.”
Corporate Travel Under Review?
If economic pressures mount, corporations may also revisit their travel policies. While some business travel remains essential to operations, discretionary trips could be curtailed if consumer spending decreases and companies feel pressure to reduce costs.
“If consumers are spending less, that will impact corporations, and business travel will be one of the easier expenses for them to cut,” Freitag said.
“During the pandemic, corporations didn’t just cut fat, they cut muscle,” Freitag said. “While there is some corporate transient and group demand that is critical to keeping companies going, some trips may fall by the wayside.”
Accommodations Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
The Skift Travel 200 (ST200)Â combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.
Read the full methodology behind the Skift Travel 200.
