Operating Costs 2025 Trends Driving Hotel Profit Margins Down

Hotel operating costs rose faster than revenue in 2024, reducing profit margins and challenging financial sustainability in 2025.
Labor remains the largest and fastest-growing expense, requiring tighter oversight, cross-utilization, and productivity tracking.
Guest service and loyalty-related costs are rising sharply, driven by third-party bookings and brand standards.
Owners and operators must evaluate tech investments, renegotiate contracts, and focus on right-sizing operations to control expenses.

Key Takeaways

Margins Under Pressure

According to CBRE’s February 2025 Hotel Horizons® forecast, hotel profit margins continued to shrink in 2024 and are expected to decline further in 2025. A combination of slow revenue growth and surging costs—both operational and ownership-related—are driving this trend across all major property types.

Bar chart comparing year-over-year changes in total revenue, GOP-level expenses, and EBITDA-level expenses by US hotel property type in 2024, showing expense growth outpacing revenue across most categories.

Expense Growth Exceeds Revenue

Expenses above GOP rose 4.1% in 2024, while expenses below GOP grew by 3.6%—both outpacing total hotel revenue growth of just 2.3%. This dynamic hit full-service properties hardest, while limited-service and extended-stay hotels fared slightly better.

Departments Facing Cost Pressures

Bar chart showing 2024 year-over-year changes in US hotel rooms department expenses per occupied room, with agency commissions and complimentary F&B leading the increase.

Rooms: Agency commissions rose 6.0%, driven by increased third-party bookings. Complimentary food and beverage costs climbed 3.9%, tied to loyalty program demands and brand standards.
F&B: Despite a 2.3% decline in food and beverage purchases, labor (+4.5%) and supplies (+9.4%) drove cost increases, especially as group business returned with buffet-heavy offerings.
Undistributed Expenses: Credit card commissions rose by 4.4% and franchise-related fees climbed 3.9%, both outpacing revenue growth. Technology and IT expenses jumped 5.1%, largely due to new system implementations. Maintenance costs also increased by 5.0%, driven by higher labor and supply costs, as well as deferred capital expenditures. One bright spot in the data was utility costs, which saw a more modest rise of just 2.0%.

Bar chart displaying 2024 year-over-year changes in US hotel food and beverage department expenses, with labor and supply costs rising despite reduced beverage revenue.

A Persistent Challenge

Labor, the single largest cost driver, rose 4.8% in 2024. Operators are paying 22.1% more than in 2019 for 7.4% fewer hours worked. Contract labor and understaffing have driven inefficiencies, directly pressuring hotel profit margins. This has prompted asset managers to call for detailed position-by-position reviews and cross-utilization of staff to enhance productivity and financial performance.

Inflation Bites Hard

Owners also face rising below-GOP costs:

Insurance premiums jumped 17.4%, continuing a multi-year trend of double-digit increases.
Property taxes increased 4.3% as municipalities seek post-COVID revenue.
Management fees grew just 1.1%, and fewer operators qualified for incentive-based compensation.

Bar chart depicting 2024 changes in US hotel non-operating expenses, with insurance premiums showing the highest increase at 17.4%, far exceeding revenue growth.

A Call to Action

To maintain sustainable hotel profit margins, CBRE Asset Management offers targeted strategies:

Labor: Oversight must intensify. Evaluate labor productivity by shift, position, and manager ratios. Prioritize cross-utilization and right-size operations.
Guest Service Costs: Commissions and loyalty perks must be scrutinized. Prioritize genuine service delivery over costly gifts and freebies.
Corporate Resources: Use brand-level buying power to secure better terms on contracts, supplies, and labor.
Technology: Treat IT as capex. All investments must be justified by measurable returns and replace outdated systems.

What to Watch in 2025

The path forward involves more than cost-cutting. The goal is to adopt smarter business practices—eliminating waste, improving labor efficiency, and restoring hotel profit margins to sustainable levels in an increasingly expensive operating environment.