For 90 years, CBRE has tracked the financial performance of the U.S. lodging industry and has identified a consistent truth: hotel managers adapt to preserve profits amidst challenging economic conditions. Despite the industry’s legendary resilience, however, the latest CBRE Trends in the Hotel Industry data reveals a fundamental challenge: revenue growth is stalling, while expenses accelerate at an unsustainable pace. From a valuation perspective, this environment—where expense inflation consistently outpaces revenue—mandates a recalibrated underwriting lens. Traditional underwriting models with categorically generic and often overly optimistic revenue and profit growth assumptions are increasingly insufficient and potentially dangerous. A deeper dive into specific market and asset class performance is critical.
According to the operating statements provided by the 2,216 hotels that participated in our latest annual Trends survey, total operating revenue rose just 2.6 percent in 2025. This growth matched inflation (CPI) growth for the year and is just half of the 90-year long-run average revenue growth of 5.2 percent. This is more than a slowdown; it’s a profound squeeze on the bottom line that demands hoteliers closely examine all aspects of their operations.
The core challenge is that expenses are outpacing inflation. From 2024 to 2025, combined operated and undistributed department expenses rose by 3 percent, with total hotel expenses (including management fees and non-operating items) increasing by 3.1 percent. This expense growth, exceeding revenue gains, has directly impacted profitability. Gross operating profit (GOP) margins for our CBRE sample declined from 35.1 percent in 2024 to 34.8 percent in 2025, while earnings before interest, taxes, depreciation, and amortization (EBITDA) margins dropped from 23.3 percent to 22.8 percent over the same period. This trend underscores the struggle hoteliers face in achieving revenue flow-through to the bottom line.
Despite the decline in flow-through, the aggregate CBRE sample indicates that hotel operators managed limited increases in profit dollars from 2024 to 2025, with total GOP rising by 1.5 percent and EBITDA by 0.3 percent. While preserving profits in an environment of decelerating revenue growth and rising expenses is an achievement, it’s crucial to acknowledge the bifurcated nature of U.S. hotel performance. A distinct K-shaped divergence characterized 2025, with luxury and resort assets seeing robust revenue and profit surges, while economy and midscale segments experienced significant contraction.
Among the six property categories tracked by CBRE, only resort and all-suite hotels achieved profit growth in 2025. By chain scale, only luxury and upper-upscale hotels posted profit increases. The gains in resort and the luxury/upper-upscale chain scale segments were primarily driven by above-average revenue growth, which supported stronger flow-through. Interestingly, the all-suite category, despite a modest decrease in total revenue, realized profit growth by effectively offsetting revenue declines with meaningful reductions in both Departmental and Undistributed expenses.
Segment-level performance further underscores this emerging value divide. Resort and luxury properties were the standout performers in 2025, delivering strong GOP increases, primarily supported by robust rate strength and high ancillary spending.
This widening performance dispersion is increasingly reflected in buyer sentiment. Investors continue to favor product types with lower operational complexity and more predictable cash-flow profiles, while large convention and full-service hotels with labor-intensive formats and high degrees of functional obsolescence face heightened scrutiny. Consequently, transaction activity has notably decelerated in the limited-service, extended-stay, and middle-market segments, precisely because these asset types are now experiencing the most pronounced profitability declines, despite their historical appeal for operational simplicity.
Revenues
Traditionally, rooms revenue represents the greatest and most profitable revenue stream for hotels. However, for the U.S. hotels in CBRE’s sample, rooms revenue grew by only 1.1 percent in 2025. This weak growth is attributed to a 0.1 percent increase in average occupancy and a 1.2 percent rise in ADRs. Factors such as weak economic indicators, shifts in corporate and group traveler patterns, and sluggish inbound international travel have collectively contributed to this stagnated occupancy. Without occupancy growth, hoteliers have largely lost their leverage in price negotiations.
To offset modest growth in rooms revenue, hotels actively diversified their revenue streams. In 2025, Food and Beverage revenue increased by 4.3 percent, predominantly driven by food sales in hotel restaurants and local catering, complemented by modest alcoholic beverage sales and notable increases in ancillary F&B sources like service charges and meeting room rental. Revenue from other operated departments (e.g., parking, retail, spa, golf) increased by 7.8 percent, and Miscellaneous Income grew by an impressive 10.9 percent. This reflects hoteliers’ creative strategies, including partnerships for unique packages and experiences, to generate commission income and resort/destination fees.
Operated Departments
Given the variable nature of most expenses within operated departments, our analysis utilizes a dollar per-occupied-room (POR) basis. In 2025, total operated department expenses increased by 2.9 percent POR. After accounting for the minimal 0.1 percent increase in occupied rooms, this 2.9 percent POR increase was primarily driven by rising costs across food, operating supplies, and guest amenities. Labor costs, representing over 50 percent of operated department expenses, contributed significantly to this increase.
Hotel labor costs rose 2.9 percent POR, while broader leisure and hospitality wage rates grew by 4.2 percent during the same period. This suggests hotels are achieving greater productivity from a leaner workforce, an efficiency that inherently has its limits.
When assessing labor’s impact on operating performance and asset value, careful attention must be paid to the labor model, particularly for full-service hotels. Sensitivity analyses are crucial to stress-test future wage growth assumptions and their direct impact on profitability.
Undistributed Departments
Undistributed department expenses are overhead costs that benefit the entirety of the hotel. Most of these expenses are fixed, but there are some variable expenses that have shown an influence on changes in undistributed department expenses. In aggregate, total undistributed department expenses increased by 3.2 percent on both a dollar per-available-room (PAR) and POR basis in 2025.
Within undistributed departments, administrative and general expenses saw the smallest increase at 1.8 percent, followed by sales and marketing at 3.2 percent. This is due to credit card commissions and franchise fees making up a considerable percentage of total expenses in these departments. Since these are largely revenue-based, the limited growth in rooms and total operating revenue effectively reduced their overall increases.
The 4.6 percent increase in expenses in the information and telecommunications department highlights the proliferation of the use of technology throughout the hotel, reflecting both the rising cost of new systems and the growing reliance on digital infrastructure across hotel operations. Looking ahead to 2026, IT costs are expected to rise further as the industry accelerates investment in artificial intelligence and automation technologies. Consequently, value underwriting should consider the likelihood of higher IT costs in near-term projections, while factoring in potential return on investment in long-term operating performance.
Property operations and maintenance costs rose by 3.8 percent and are heavily influenced by the rise in the cost of replacement parts and materials. The 5 percent increase in utility costs reverses the trend of subdued utility expense growth in 2024.
Ownership Expenses
Below the GOP line are expenses that are typically negotiated and paid by the owner, including management fees, rent, property taxes, insurance, and other ownership costs. These expenses are also offset by the inclusion of non-operating income from certain commercial leases and other miscellaneous sources.
These expenses are largely fixed and under less control by management, as they are mostly contractual in nature. Base management fees are typically based on changes in revenue, while incentive management fees are charged as a percentage of profits. With total revenue growing 2.6 percent and limited profit changes, it is somewhat of a surprise that management fees for the sample increased by 3.8 percent. The change for the overall sample is largely influenced by the higher fee payments generated by the overperforming resort and luxury hotels.
Further exacerbating margin pressures, Non-Operating Income and Expenses rose by an above-inflationary 4.1 percent, fueled mainly by an increase in Rent expenses of 17 percent.
While ownership-related costs are generally fixed and higher, 2025 did see some beneficial reductions, notably a 5.3 percent decrease in insurance premiums and a 3.7 percent decrease in other expenses. Despite this recent decline, however, insurance costs remained double the levels paid by hotel owners in 2019.
Property taxes, rising by 2.4 percent, also outpaced profit growth—a particularly concerning trend for owners whose asset values have stagnated or declined amid soft revenue and profit performance. This issue is acutely felt in the Midscale segment, where property taxes surged by 12.3 percent even as GOP and EBITDA fell by 5.7 percent and 8.7 percent, respectively. This clear disconnect presents a potential opportunity for owners to successfully appeal property tax assessments and achieve cost relief. From a valuation underwriting standpoint, factoring in the possibility of a successful appeal merits careful consideration.
Summary
The Q4 2025 edition of CBRE’s Hotel Horizons U.S. national forecast report projects RevPAR growth of a mere 1.2 percent in 2026 and 1.7 percent in 2027. At these low revenue growth levels, sustaining profitability will remain a significant challenge for the U.S. lodging sector. While history confirms operators’ adaptability through innovative revenue strategies and rigorous cost controls, the industry has fundamentally shifted, and traditional valuation underwriting methods are no longer viable.
With structurally higher operating costs and modest revenue forecasts, cash-flow projections must rigorously reflect these tighter margins. Blanket assumptions for revenue and expense growth are inadequate. In this increasingly fragmented market—where luxury and resort assets are thriving while economy and midscale struggle—it is critical to drill down into submarket and specific asset-class performance to develop a truly informed perspective of value.
