Hotels face thin margins, JIT risk

Hotels are still selling rooms. That part is not broken. The problem is that more of each room dollar is getting eaten before it turns into profit. That is the real story behind the “thin margins” talk — not some sudden collapse in demand, but a business where revenue growth has cooled while labor and operating costs keep climbing. By late 2025 and into 2026, hotel owners were openly shifting from “grow the top line” to “protect the margin.” (hvs.com) ### Why are margins getting squeezed? Because costs are rising faster than revenue. CBRE’s sample of 2,600 U.S. hotels showed total revenue up 2.3% in 2024, while expenses above gross operating profit rose 4.1% and expenses below GOP rose 3.6%. That means even a hotel that looked stable on occupancy and rate could stil(hvs.com)ly higher expense base. (cbre.com) ### Which costs are doing the damage? Labor is the big one, but not the only one. Wages are up because hotels are still short-staffed and competing for workers in a tight labor market. On top of that, operators have been dealing with higher insurance, utilities, food inputs, commissions, and brand-related costs. Some operators were talk(cbre.com)even if room revenue is holding up. (costar.com) ### Is staffing still really a problem? Yes — just less catastrophic than it was a year earlier. AHLA’s February 20, 2025 survey said 65% of hotels still reported staffing shortages, down from 76% in May 2024. More than 70% said they had open jobs they could not fill, and the most common gaps were in(costar.com)issing. (ahla.com) ### Where does just-in-time risk come in? Hotels do not usually talk like factories, but the operating logic is similar. Many properties run lean on linens, amenities, food inputs, maintenance parts, and labor coverage because carrying extra inventory or extra staff costs money. That works fine until one supplier slips, one truck is late, one housekeeper calls out(ahla.com)ble to the guest — no clean rooms yet, no replacement part, no breakfast item, no one at the desk. The margin model leaves less room to hide the miss. (hvs.com) ### Are all hotels equally exposed? No. Select-service and extended-stay hotels tend to hold up better because their operating model is leaner by design. JLL’s 2025 outlook framed those segments as more resilient and more profitable than full-service hotels, with record RevPAR of $78 in 2024 and profit characteristics (hvs.com)te when labor or supplies wobble. (jll.com) ### Why can’t hotels just raise prices? Because the easy post-pandemic pricing power is fading. HVS says the RevPAR surge has largely normalized, and CBRE warned that sluggish revenue growth means hotels can no longer count on ADR increases to absorb every cost increase. Basically, the old fix — charge a bit more and move on — does not work as cleanly now. (hvs.com) ### So what actually helps? Boring things help. Better forecasting. Smarter labor scheduling. More reliable suppliers. Regional inventory buffers for items guests will notice if they disappear. Tight process control on housekeeping, maintenance, and food ordering. When margins are fat, sloppiness is survivable. When margins are thin, operational quality becomes a profit lever — and a brand-protection tool. (hvs.com) ### Bottom line? The hotel risk is not just “demand might weaken.” It is that a business already dealing with slower revenue growth now has less cushion for wage shocks, supply hiccups, and service failures. In that kind of environment, resilience is not a luxury add-on. It is the margin. (hvs.com)