Hotel investment cycles are tightening, regulatory pressures are accelerating and corporate procurement priorities are changing. Against this backdrop, developers confront a calculation that has moved from the margins to the center of underwriting: Does investing in energy and carbon efficiency make financial sense or is it just checking a box?
An analysis conducted by JLL with input from Marriott International may provide some answers. The research analyzed archetypical urban luxury resorts, premium and upper-midscale new builds and midscale conversions across the U.S., Canada and Europe, modeling potential impacts on utility savings, asset value, Net Operating Income (NOI) and competitive positioning. The findings suggest that with the right CapEx package, sustainability has the potential to provide measurable savings across four areas: asset value, operational costs, occupancy protection and certain regulatory risk mitigation.
Asset Value and Operational Economics in Real Terms
Exit values provide insight into the impact. Based on JLL’s energy and financial modeling, which leveraged JLL proprietary and industry data for U.S. & Canada, upper-midscale properties incorporating energy efficiency measures during development indicate potential year-10 exit value increases of up to 19 percent compared with business-as-usual projections. For a typical 120-key property valued at $15.5 million today, JLL’s modeled assumptions indicate that projected year-10 exit prices could potentially reach $25 million with efficiency measures implemented during development, compared with $18 million for higher-emission assets without efficiency measures implemented during development.
The downside risk of doing nothing is equally real. Luxury assets could face potential exit value declines of up to 16 percent if sustainability considerations are not considered, while upper-midscale properties could potentially see reductions of up to 13 percent. Even midscale conversions may face potential 8 percent reductions in year-10 exit values compared with net present value baselines.
According to JLL analysis, buyers may adjust underwriting to account for higher retrofit costs in the future, increased regulatory exposure, where applicable and potential financing constraints associated with higher-emission assets. JLL anticipates potential cap rate adjustments of up to 10-20 basis points if sustainability factors become more material to investors over standard hold periods.
Operational savings can hit the income statement promptly. JLL’s modeling suggests upper-midscale properties have the potential to cut annual utility costs by up to $220-270/key with marginal CapEx of $1,600-2,000/key, representing 1.3 percent to 1.6 percent of net property value with an estimated seven-year simple payback. Upscale brands with energy-intensive restaurants and meeting spaces may see savings reach $400-480/key annually from similar CapEx levels.
The Waikiki Beach Marriott Resort & Spa demonstrates these economics in practice. In 2025, the property invested $1.44 million in HVAC optimization, refrigeration enhancements and low-flow aerators, generating annual estimated operational savings of $770,000. Such savings are estimated to be realized in 1.9 years.
Midscale conversions can follow a similar pattern, with properties modeled to reduce utility costs by estimated $210-260/key annually through initial investments of $1,000-1,800/key. Urban luxury developments are modeled to deliver $1,000-$1,500/key in annual savings, with investments ranging from approximately $7,000-8,000/key, achieving six-year payback periods and estimated energy reductions of approximately 22 percent to 27 percent.
JLL estimated that integrating energy and carbon efficiency measures during design and construction can deliver the lowest-cost path to meeting performance targets. By contrast, future retrofit CapEx can reach two to five times initial marginal costs according to JLL’ s extensive project development experience, potentially eroding operational savings that could otherwise accrue over standard hold periods.
Corporate Demand is Already Shifting Booking Patterns
Sustainability-related procurement criteria are becoming increasingly relevant to property-level energy and sustainability performance. In their 2026 Sustainable Procurement Insights Report, the Global Business Travel Association states that "a strong majority of travel programs (61 percent) are asking suppliers about their sustainability practices - an 8 percent increase from 2024”. This indicates a move over time to increased bookings with hotel suppliers that have more sustainability practices.
Midscale and upper-midscale properties may face heightened exposure because they can depend heavily on corporate and group bookings, sometimes representing 60 percent to 80 percent of total occupancy. Properties lacking strong energy efficiency data and verified lower emissions may increasingly get excluded from RFP processes, according to JLL’s analysis and review of 2024 RFP libraries. As corporate travel managers seek to reduce their Scope 3 emissions, hotels unable to demonstrate strong carbon intensity performance or third-party sustainability certifications may risk occupancy erosion.
The shift extends beyond corporate customers. In addition, booking platforms like Egencia now offer carbon emissions tracking and award sustainability badges that may steer travelers toward lower-carbon options at the point of decision.
According to JLL’s Jakob Rametsteiner, Director, Strategic Hotel Advisory: "We anticipate professional hotel investors will increasingly differentiate between strong and weak hotels from an energy resilience perspective. This won't happen overnight—but when a hotel trades, our research has demonstrated that the next buyer's confidence in underwriting strong occupancy levels will be shaped by whether that asset is energy-resilient or not. Based on current trends we have seen, that buyer’s confidence will be most tested for hotels that depend heavily on corporate travelers."
JLL projects that, in some markets, buyers at year 10 will likely underwrite higher occupancy for energy-efficient properties—up to 5 percent for upper-midscale and up to 3 percent for upscale brands. This occupancy premium could affect exit valuations beyond significant operational savings alone.
Regulatory Timelines and Financing Access are Compressing
Building Performance Standards now operate in major markets across the U.S. with potential penalties for non-compliance. For example, New York City's Local Law 97 completed its first year of compliance in 2025, with significant non-compliance for the hotel industry beginning in 2030. As Building Performance Standards are expected to expand to more municipalities, some hotel owners may face penalties that could impact NOI for non-compliance.
Investment lifecycles of five to 10 years may collide with these regulatory checkpoints. Properties developed today using conventional approaches could face exposure within standard hold periods as subsequent compliance tranches begin to take effect. Upper-midscale and midscale properties may avoid first-tranche fines due to relatively efficient operations compared with full-service hotels, but potential exposure could begin starting around 2035.
The financing sector has adapted accordingly. Many lenders are increasingly asking for sustainability disclosures during underwriting and price risk based on assessed long-term performance. These conversations happen at the term sheet stage and failure to embed sustainability in new developments may risk less favorable financial terms. C-PACE financing continues to offer long-term, fixed-rate, low-cost capital with loan-to-cost ratios of 25 percent to 35 percent, plus transferability, non-accelerating terms and reduced weighted average cost of capital. The JW Marriott Dallas Arts District secured $19 million in C-PACE financing for energy and carbon efficiency measures, while the AC Hotel Las Vegas Symphony Park and Element by Marriott Las Vegas Symphony Park dual-branded development received $40 million through the C-PACE program CIRRUS Low Carbon verification.
Four Pillars and a Closing Window
JLL’s business case is designed to focus on measurable outcomes: higher asset values, reduced operating expenses, protected long-term occupancy and potential mitigated regulatory and financing risk. Integrating energy efficiency measures during design and construction can capture marginal cost advantages. Alternatively, achieving equivalent energy and carbon performance once a property reaches stabilized operations requires capital investments that erode the favorable economics demonstrated in this research.
Properties meeting current high-performance standards may reduce exposure to valuation adjustments as investor expectations and regulatory baselines shift upward. Across segments, the industry benchmark continues to rise, driven by corporate procurement requirements, regulatory frameworks and evolving buyer underwriting criteria.
For hotel owners and developers, JLL's research is designed to provide a framework for decision-making. Properties positioned to meet the evolving sustainability standards governing transactions over the next decade may avoid repricing risk while capturing operational advantages and occupancy protection. Developers evaluating which support evaluating specific interventions can engage JLL's Sustainability Consulting practice to model project-specific scenarios and optimize the path to performance.
This article was originally published in the August/September edition of Hotel Management magazine. Subscribe here.