Hotels 2025: The Margin Squeeze That's Quietly Reshaping Hotel Investments

I've been watching something interesting happen in the hotel market that most brokers aren't talking about yet. While everyone's focused on RevPAR numbers and occupancy rates, there's a quiet profit squeeze happening that's about to separate the sharp operators from the also-rans.

Here's what I'm seeing—and why it matters for your next hotel deal.

On paper, hotels look stable for 2025. RevPAR growth projections range from flat to +2%, occupancy is holding steady around 62-63%, and transaction volume is up 25-30% from last year.

But dig deeper into the operating statements, and you'll find the real story: operating costs are eating profits alive.

Insurance premiums jumped 15.3% through October 2024—and that's the industry average. If you're looking at midscale or economy properties, you're staring at increases over 19.6%. Add payroll costs up 5.5% and utility bills climbing mid-single digits, and suddenly that modest RevPAR growth doesn't look so attractive.

Here's the reality check: In today's hotel market, expense management matters as much as revenue optimization. Maybe more.

While suburban and drive-to markets are struggling with 1.3-1.8% RevPAR growth, urban properties are pulling ahead at 2.8%. The reason? Three demand drivers that aren't going away:

I'm telling my hotel investors to follow the money—and the money is flowing back to urban markets. The spread between urban and suburban performance is the widest I've seen, and it's only getting wider.

Case in point: That trophy property you passed on because the basis seemed too high? Someone just bought Sunseeker Resort in Charlotte Harbor for around $200 million. Build cost? $720 million.

Smart money isn't waiting for perfect deals. They're buying quality assets at massive discounts to replacement cost while capital structure stress creates opportunities.

Here's what lenders are actually doing right now:

The best part? Refinance activity is up 20% year-over-year. That tells me two things: 1) Capital is available, and 2) Existing owners are getting comfortable with current rate levels.

Translation: If you've got a solid hotel deal with realistic projections, you can get it financed. Period.

Luxury properties are crushing it (+2.9% RevPAR growth projected), but here's the segment that's really catching my attention: select-service and extended stay.

Why? Three reasons:

Private equity groups are specifically hunting select-service portfolios right now. They see the same thing I do: superior profit margins in a market where margins matter more than ever.

If you're selling a hotel:

Stop waiting for RevPAR to hit your dream numbers. Buyers are getting realistic about 2025 projections, but they're also getting serious about closing deals. Focus on:

If you're buying hotels:

This is your market. Sellers are more realistic, financing is available, and the replacement cost advantage is the biggest I've seen in years. Target:

Forget about aggressive RevPAR growth assumptions. Here's what actually pencils in today's market:

Bottom line: If your deal doesn't work with conservative revenue assumptions and realistic cost inflation, it's not a deal worth doing.

Here's what has me excited: The gap between replacement cost and transaction prices is massive.

Quality hotel assets are trading 40-50% below what it would cost to build them today. Add improving demand fundamentals in urban markets, disciplined new supply, and available financing, and you've got the makings of a compelling investment thesis.

But here's the catch—this opportunity window won't stay open forever. As more buyers recognize the value proposition, pricing will adjust. The time to move is now, while sellers are still motivated and financing terms remain attractive.

The hotel market in 2025 isn't about hitting home runs with massive RevPAR growth. It's about hitting consistent singles and doubles while controlling costs and leveraging the replacement cost advantage.

For hotel owners: Focus on operational excellence and realistic pricing. The buyers are out there, but they're sophisticated. Come to market with clean books and realistic expectations.

For hotel investors: Urban markets, select-service properties, and anything trading significantly below replacement cost should be on your radar. The fundamentals are there—you just need to underwrite conservatively and execute quickly.

The margin squeeze is real, but it's also creating the best investment opportunities I've seen in the hotel sector in years. The question isn't whether to play—it's how fast you can move while the window remains open.

Need help evaluating a hotel opportunity or positioning a property for sale? Let's talk. In this market, having the right data and realistic expectations makes all the difference.

Brett Vogeler
Business & Commercial Real Estate Broker
"Straight shooting advice in a complex market"

P.S. - If you're sitting on a hotel investment you've been thinking about selling, now might be the time. Buyer appetite is strong, financing is available, and the replacement cost advantage won't last forever. Give me a call—let's see what your property is really worth in today's market.

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