What U.S. Hotels Are Really Telling Us

The first quarter of 2025 painted a relatively stable picture for U.S. hotels. Revenue crept up, gross operating profit margins remained intact, and costs, particularly labor—appeared manageable. But under this surface-level steadiness lies a more nuanced story, one marked by segment-level divergence and signs of strain that are impossible to ignore.

Houston’s Rodeo offers a prime example of how local demand events still move the needle. With 2.7 million attendees over 23 days, occupancy rose by 3.8 percentage points and TRevPOR climbed 6.2%. Yet most of that boost came from sheer volume. On-site food and beverage capture was limited, as guests were lured by the event’s own offerings. The lesson: major events remain critical for performance—but not every dollar spent in-market ends up on the hotel’s ledger.

With 2.7 million attendees over 23 days, the Houston Rodeo boosted occupancy by 3.8 pts and TRevPOR by 6.2%. While food & beverage capture was limited due to ample event options, the volume impact reinforces the role of major events in driving hotel performance.

Elsewhere, the pressure is less about demand spikes and more about creeping cost pressures. Ultra-Luxury and Upper Midscale hotels are experiencing a squeeze: labor costs are climbing while profitability declines. Ultra-Luxury payroll rose 1.1 percentage points while GOP% dipped 0.5 points; Upper Midscale saw payroll rise 0.8 points and GOP% fall 1.3. Upscale properties followed the same trend. These data points reveal a familiar problem—rising payroll eroding margins—particularly in the middle of the chain scale where pricing power is weaker.

HotStats YTD 2025 data shows a clear inverse trend between labor costs and profit margins in several segments. Ultra-Luxury and Upper Midscale hotels experienced rising Payroll% (+1.1 and +0.8 pts) and falling GOP% (-0.5 and -1.3 pts). In contrast, Midscale & Economy hotels saw both metrics decline equally (-0.2 pts), pointing to revenue weakness rather than labor inflation as the main concern.

But not every segment is losing margin. Luxury hotels managed to improve GOP by 0.6 points without increasing labor costs, suggesting that better revenue mix or operational leverage may be giving them a cushion. Upper Upscale hotels were also relatively stable, with only minor shifts in profit and payroll ratios. The contrast is stark—and instructive.

Then comes the outlier: Midscale and Economy hotels. In these segments, both GOP% and Payroll% declined by 0.2 points. On its face, this looks like cost containment—but the problem is more worrisome. These hotels are not hemorrhaging profit because they’re spending more. They’re losing margin because they’re not earning enough. Soft top-line growth, rate discounting, OTA reliance, or increased non-labor operating costs are likely at play.

While Payroll PAR increased by 5.5%, labor cost ratios only ticked up 0.4 pts. Margins remained stable overall, but deeper segment-level trends suggest growing disparities—especially in the midscale and economy tiers.

 This breakdown of the familiar payroll-GOP correlation marks a turning point. In much of the market, labor costs remain the dominant factor in profitability. But in lower-tier hotels, the focus must shift from cost control to revenue recovery. These properties need more than tighter staffing—they need to generate demand, capture rate, and optimize spend per guest.

The broader takeaway for owners and operators is clear: 2025 requires more than just discipline on labor. Sustaining profitability—especially in the midscale and economy classes—demands a more strategic, top-line-oriented approach. If the first quarter was steady, it was also sobering. What looks like calm might actually be the start of a new kind of pressure.

If you want to dig deeper into what’s really driving hotel performance—from top-line revenue to net operating profit—explore how full P&L benchmarking from HotStats can support sharper decisions.