The New Cost Reality

The hotel industry has been on a roller coaster for a while now, but the past 18 months have brought a different level of cost pressure to the ride. There is a new cost reality. It’s not just one thing–It’s labor, insurance, inflation, utilities, and now, piled on top of all of that, it’s tariffs. The rising costs of supplies, renovations, and tech upgrades are all hard to swallow.

Profitability is now less a matter of scale and more a matter of agility. Luckily, Texas hoteliers are resourceful. Here’s a look at what’s driving costs right now, how to plan your pivots, and what your fellow operators are doing to keep business steady.

What’s Happening with Tariffs

​In early 2025, the U.S. government implemented sweeping import tariffs — a 10% baseline on goods from most countries, with significant rate hikes on imports from specific trade partners. For the hospitality industry, which depends heavily on imported goods to operate and renovate, this is a significant hit.

​Here’s where you’re probably feeling it:

Furniture, Fixtures & Equipment (FF&E)

While we often recommend room and equipment refreshes and upgrades, if you’ve tried pricing them out lately, you’re probably suffering from some sticker shock.

​A significant portion of hotel-quality furniture and fixtures — particularly for mid-scale through upper-upscale properties — is manufactured overseas. Domestic production capacity for these items hasn’t scaled quickly enough to keep up with the shift in demand.

Food & Beverage

This is pretty obvious, but Texas hotels with restaurants and bars are catching it from both sides. Tariffs on imports from Mexico and Canada have driven up the cost of items like avocados, fresh produce, beef, and, yes, tequila. For Texas properties showcasing a regional  Tex-Mex flavor, this is particularly frustrating.

Construction & Renovation Materials

Lumber, steel, aluminum, and basically any materials used in meaningful capital improvement projects have all been affected. If you’re working through a Property Improvement Plan or planning any significant renovations, you’ve probably already had the uncomfortable conversation with your contractor about revised estimates.

It’s Not Just Tariffs

• ​Tariffs are the topic, but they’re hitting an industry that was already navigating elevated costs across the board:
• Labor costs surged roughly 11% in 2024 alone, and while the rate of increase has moderated, wages aren’t coming back down.
• Insurance premiums continue to climb, particularly in Texas, where weather-related risk has made carriers increasingly cautious.
• Utility rates remain volatile.
• Brand and OTA fees keep ticking upward.

Meanwhile, revenue growth has slowed from the post-pandemic surge. RevPAR is still growing — industry forecasts for 2026 are actually more optimistic than they were six months ago — but measured growth won’t make up for structural cost increases across every line of your P&L. These tight margins affect properties of all sizes and scales.

​How Operators Are Responding

The hospitality industry in general has moved past the “panic” phase and into the “adapt” phase. Operators who are holding their ground right now are doing some of these things:

Lock in Pricing During Policy Pauses

​Trade policy has been completely unpredictable. Procurement teams are taking advantage of any window of tariff relief or policy pause to lock in contracts and orders for high-cost items — particularly FF&E for planned renovations. If you’re on a renovation timeline, work with your purchasing agent to map out which items are long-lead and whether you can order them ahead.

​Diversify Your Supplier Base

Reliance on a single supplier or country is risky. Many hotel operators are actively pursuing and building relationships with domestic suppliers and exploring alternative international sources in countries with lower tariffs. It takes work upfront, but it reduces your vulnerability to the next policy shift and builds you a bigger bench of suppliers for the future.

Get Surgical With Your Budget

Review your costs, line by line, to determine where they have crept up, by how much, and over what time span. This is a great place to employ AI to aid in analysis, modeling, and predictions. More on AI later.

​Phasing and Value-Engineering Renovations

Instead of delaying capital projects entirely, consider a phased approach to spread cost exposure over time. Work with partners who understand the challenge to prioritize value without sacrificing standards.

Lean Into Technology

Use AI-powered tools to optimize staffing, reduce food waste, forecast demand, and automate back-office functions. These aren’t things of the future; they’re operational tools available now that can significantly offset labor and operational costs and clarify the big picture of what you are dealing with.

Texas Hit a Little Harder

​The tariff situation is affecting Texas more than most other states. Our proximity to Mexico means our supply chains for food, produce, and materials are more affected by it. At the same time, the Texas economy is still strong. Continued population growth, business relocation, and a healthy convention market continue to drive demand that many other markets would envy.

​Dallas leads the entire country in projected new hotel openings for 2026. But while the basic economic fundamentals are strong, demand doesn’t automatically offset higher costs. You still need to stay vigilant and agile to navigate this environment intentionally.

​THLA is actively engaged on the policy and advocacy front, working with the American Hotel & Lodging Association to push for relief where possible and to ensure Texas operators have a voice in ongoing trade conversations. We’re also building resources to help members manage this environment more effectively.

​Texas hoteliers are tough. We’ve weathered hurricanes, a pandemic, a power grid crisis, and more. We’re here to help you adapt, stay connected and informed.