Tariffs, Rising Costs, and What a Year of Trade Policy Has Actually Done to the Hotel Industry

By Erik Ransdell and Mike Annunziata

Strands Realty Group

April 2026

A year ago this month, the trade environment in the United States shifted in ways the hotel industry had not experienced in decades. Beginning in April 2025, a series of tariff actions introduced new duties on imported goods from nearly every major trading partner. What followed was a volatile sequence of rate changes, legal challenges, and trade negotiations that reshaped operating costs, construction economics, and travel patterns across the country.

Twelve months later, the question is no longer what tariffs might do to the hotel industry. The question is what they have done, and what hotel owners should be thinking about as a result.

The answer is more nuanced than the early headlines suggested. Tariffs did not collapse the hotel market. But they added a meaningful layer of cost pressure that arrived at the worst possible moment, compounding labor inflation, insurance increases, and a sustained decline in international visitation that was already underway. In testimony before the New York City Council in March 2026, AHLA President and CEO Rosanna Maietta quantified the challenge: “Over the past five years, hotel operating costs have increased roughly four times faster than revenue growth.” That gap is the central issue facing hotel owners across the country right now, and tariffs have made it wider.

This newsletter examines what the numbers look like today, where the cost pressure is concentrated, and what it means for owners who are evaluating their next move.

Where Tariffs Stand Today and What They Cost

The tariff landscape has changed multiple times since April 2025, and understanding the current state of play matters because the rates in effect today are materially different from where they started.

A 10% baseline tariff on imports from most countries is currently in effect under Section 122 of the Trade Act of 1974, following a Supreme Court ruling in February 2026 that invalidated the prior legal framework used to impose broader tariffs. Separately, Section 232 tariffs on metals have been in place throughout the past year and have increased significantly. Since June 2025, steel and aluminum have carried a 50% tariff rate, according to the U.S. Department of Commerce. Copper was added at 50% in July 2025. On April 6, 2026, the tariff structure was overhauled again: raw metal articles now carry a 50% duty on their full customs value, derivative products substantially made of steel, aluminum, or copper carry 25% on full value, and a transitional 15% rate applies to certain industrial equipment through 2027.

For hotel owners, one of the most consequential actions came in August 2025, when the Department of Commerce added 407 product categories to the Section 232 derivatives list. That list explicitly includes furniture, compressors, pumps, and heavy equipment. Hotel FF&E that contains steel or aluminum components is now directly subject to these duties.

The effect on input costs is already measurable. According to the Associated General Contractors of America, the producer price index for aluminum mill shapes increased 33% year over year through January 2026, the largest increase since the supply chain disruptions of early 2022. Steel mill products rose 20.7% over the same period. According to Bureau of Labor Statistics data cited by the Tax Credit Advisor, construction input prices have risen more than 43% since early 2020, with fabricated structural metal products up over 63% during that period. The HVS 2025 U.S. Hotel Development Cost Survey reported median total development costs of $167,000 per key for limited-service hotels and over $400,000 per key for full-service properties. According to the Beck Group, five-star hotel construction costs increased at roughly twice the general inflation rate for new non-residential buildings.

For owners facing a brand-mandated property improvement plan, every line item in a renovation budget has moved. For developers underwriting new construction, the feasibility math is tighter than it has been in years. And for owners simply trying to maintain their properties, the cost of replacement furniture, kitchen equipment, HVAC systems, and building materials has structurally reset higher.

The Cost Squeeze Is Real and It Is Coming from Every Direction

Tariffs are not the only cost pressure hotel owners are managing in 2026, but they have amplified pressures that were already building. The clearest way to understand the current operating environment is to look at the numbers across three categories that every owner in every market is dealing with: labor, materials, and insurance.

On the labor side, the data from 2025 is unambiguous. According to the American Hotel and Lodging Association, the hotel industry paid nearly $128 billion in wages and benefits in 2025, a figure projected to approach $131 billion this year. Data from HotelData.com, which tracks performance across thousands of U.S. hotels, shows the full-year increase in labor cost per occupied room was 12.8%, climbing from $42.82 to $48.32. In the fourth quarter alone, the year-over-year increase was 21.1%. Average wages rose between 3.7% and 5.9% depending on the role, and according to the AHLA, nearly two-thirds of hotels continued to report staffing shortages heading into 2026.

The labor pressure is national in scope, though uneven in intensity. The West remains structurally above the national median in cost per occupied room, driven by markets like California, where Los Angeles labor costs have increased 36% compared to pre-pandemic levels and the city is on track to raise the minimum wage to $30 per hour by 2028. San Diego recently approved a $25 per hour hotel minimum wage. But this is not exclusively a coastal story. Wage inflation and staffing shortages are affecting owners in Nashville, Phoenix, Austin, and markets across the Sun Belt where rapid growth has tightened labor availability.

Hotels responded to this pressure with meaningful improvements in labor efficiency in 2025, cutting hours per occupied room by 7% to 15% in key departments through better scheduling, cross-training, and technology. But even with those gains, the net effect was higher cost per stay. When both hourly rates and labor intensity move in the wrong direction simultaneously, as they did in the fourth quarter of 2025, the impact on margins is immediate.

On the materials side, furniture, fixtures, and equipment costs have stabilized but at a structurally higher level. According to industry data compiled by Hongye Furniture Group and others, FF&E pricing is now 10% to 15% above historical benchmarks, and those benchmarks are not coming back. Freight and logistics add another 12% to 18% on top of unit costs. For owners facing a PIP cycle, the cost to execute that renovation is meaningfully higher than it would have been two years ago, and the August 2025 addition of furniture to the Section 232 tariff list has added a layer of cost that did not previously exist.

Insurance adds another layer. According to GlobalData, U.S. property insurance premiums are projected to rise 8.2% in 2026, with premiums forecast to reach $546 billion nationally by 2030 at a compound annual growth rate of 6%. In markets with elevated catastrophe exposure, the pressure is more acute. California's property insurance market remains stressed following the January 2025 Los Angeles wildfires, which generated upwards of $10 billion in insured losses according to the California Department of Insurance, with the state's FAIR Plan seeking an average rate increase of 36%. But insurance cost increases are not limited to California. Florida, Texas, and other states with hurricane, tornado, or wildfire exposure are all seeing elevated premiums that directly affect hotel operating margins.

None of these cost categories exist in isolation. The AHLA's 2026 State of the Industry report confirmed that gross operating profit per available room remains at roughly 90% of 2019 levels, even as top-line revenue has largely recovered. That 10% gap is the cost story. As Rosanna Maietta noted in the AHLA's February 2026 industry survey: "Hoteliers are resilient, but the cost pressures they're facing are very real. From rising insurance and energy expenses to workforce shortages, hotels are navigating significant operational challenges."

International Travel Declined, and Hotels Across the Country Felt It

The past year also brought a significant decline in international travel to the United States, with direct implications for hotel demand in markets from coast to coast.

According to the World Travel and Tourism Council, the United States saw a 6% decline in foreign visitors in 2025, a year in which global tourism spending grew by more than 6%. The divergence is striking. While France welcomed approximately 105 million visitors and Spain exceeded 96 million, the U.S. recorded roughly 68 million foreign arrivals, well below the 79.4 million it hosted in 2019 and short of the 72.4 million it recorded in 2024, per the International Trade Administration. Tourism Economics, which had originally forecast an 8.8% increase in international visitors for 2025, revised its projection to an 8.2% decline.

Data from the National Travel and Tourism Office shows the declines were concentrated in key source markets. Canadian visitation was down 25.2% year to date through mid-2025, with land arrivals from Canada dropping 31.9% year over year in March. According to the U.S. Travel Association, Western European arrivals fell 17% that same month, the first decline from that region since 2021. Oxford Economics reported that overseas arrivals overall contracted 11.6% in March 2025.

The causes are multifaceted, ranging from trade tensions and shifting travel sentiment to higher entry costs and broader geopolitical uncertainty. Regardless of the reasons, the impact on hotel demand is real. International visitors spend more per trip than domestic travelers, and their absence puts pressure on occupancy and weakens pricing power in the segments that depend on that demand. This affects gateway cities like Los Angeles, San Francisco, New York, and Miami, but also markets that rely on Canadian drive-to traffic across the northern United States, convention-heavy destinations like Las Vegas, and resort markets that historically draw from Europe and Asia.

Performance Is Holding, but the Margin for Error Has Narrowed

Against this backdrop of rising costs and softer international demand, it would be easy to paint a grim picture. But the full-year data does not support that conclusion, at least not on the revenue side.

According to CoStar and Tourism Economics, the U.S. hotel industry recorded its first non-recessionary RevPAR decline in history in 2025, with RevPAR falling 0.3%. But the 2026 outlook has improved modestly, with national RevPAR growth projected at 0.6%, ADR rising approximately 1%, and occupancy holding near 62.1%. Amanda Hite, president of CoStar subsidiary STR, noted that top-line performance is expected to strengthen in the second half of the year, though growth will "remain moderate and concentrated among higher-tier hotels." That characterization captures the bifurcation defining this cycle: STR data through August 2025 showed luxury hotels posting 5.3% RevPAR growth, while the economy segment declined 1.8%.

The picture varies meaningfully by market, and some of the strongest performance in the country is happening in states where hotel owners are also navigating the steepest cost increases.

In California, Tourism Economics and Visit California project statewide room revenue to increase 3.5% in 2026, reaching $27.8 billion, with average daily rate expected to rise 2.2% to $195. According to CoStar, Orange County posted a 12-month average occupancy of 72.1%, well above the national benchmark. San Diego led the state at 73.9% through mid-2025, per CoStar, though trailing 12-month RevPAR declined 2.8% by year-end as softer leisure demand and reduced government travel weighed on results. Data from Discover Los Angeles shows the city recorded occupancy of 72.3% for calendar year 2025 with ADR of $203, while RevPAR held essentially flat. San Francisco posted the strongest rebound in the state, with RevPAR surging 10.5% year to date through October 2025 on the strength of a revitalized convention calendar. According to the San Francisco Travel Association, the city's 2026 forecast calls for occupancy of 66.3%, ADR of $241, and RevPAR of nearly $160, boosted by the Super Bowl and FIFA World Cup. Per CoStar, new hotel supply in Southern California has slowed significantly, with only about 1,900 rooms projected through 2027, compared to 4,600 added in the prior three years.

In the Sun Belt, the dynamics are different but the margin compression is the same. According to CoStar, Phoenix occupancy averaged 66% through November 2025, down 3.3 percentage points, with RevPAR declining 3%. The market's supply pipeline reached a 10-year high with 4,200 rooms under construction, representing 5.7% of existing inventory. Nashville and Austin continue to attract investor interest but face the same rising labor and insurance costs that are compressing GOP margins nationally.

The important takeaway is that top-line revenue is not the problem for most hotel owners. The problem is that costs have risen faster than revenue, and the result is compressed profitability even in markets where hotels are performing well. That is a structural shift, not a temporary headwind, and it applies whether you own a hotel in Southern California, the Southeast, or the Mountain West.

Where We Stand

The past year has made one thing clear: the operating assumptions that many hotel owners were using before April 2025 need to be revisited. Tariff-driven cost increases, labor inflation, insurance pressure, and the decline in international travel have collectively changed the economics of hotel ownership in ways that are not temporary. Some of these pressures may ease over time. Others are structural. And the owners who are making the best decisions right now are the ones who have current information and are evaluating both scenarios clearly.

For some owners, the right answer is to hold, optimize operations, and position for the demand cycle ahead. The United States has an event pipeline over the next three years that is unlike anything in recent memory. The 2026 FIFA World Cup brings matches to 16 host cities across the country this June and July. The 2027 Super Bowl and the 2028 Summer Olympics in Los Angeles will follow. Markets along travel corridors to these events stand to benefit from spillover demand. Hotels that are well-capitalized, operationally efficient, and competitively positioned have a strong case for holding through this cycle.

For other owners, the math may point toward a transaction. A maturing loan, a pending PIP at today's elevated renovation costs, or a tightening margin that is changing the risk profile of the investment can all shift the calculus. The hotel transaction market is gaining momentum, with U.S. deal volume increasing in 2025 and projections calling for further acceleration this year as debt markets continue to improve. Cap rates have risen to levels that are creating genuine acquisition opportunities, and buyers are actively underwriting the event-driven upside that certain markets offer. For a seller, that means there is capital in the market looking for the right asset at the right basis.

At Strands Realty Group, we work with hotel owners and investors to evaluate where their asset stands in today's environment, not last year's. That starts with understanding the real numbers: what your property's operating costs look like now, what your competitive position is relative to your market, and what the next three to five years of ownership look like at current cost levels and projected revenue growth.

If you have not revisited the value of your hotel in the past 12 months, the landscape has changed enough that it is worth a conversation. We offer confidential broker opinions of value at no cost and no obligation. One conversation can give you the clarity to decide what comes next on your own terms, whether that means holding with conviction or transacting from a position of strength.

Thank you for your continued trust. We look forward to working with you throughout 2026.