Hotel demand has returned in force, and the industry's outlook is improving. But for hotel owners, the bigger challenge may be turning that growth into meaningful profits.
Recent forecasts point to stronger-than-expected performance driven by healthy leisure demand and a faster-than-anticipated rebound in group and corporate travel. STR raised its forecast after ADR outperformed expectations through the first seven months of the year, with much of the strength coming from markets outside of World Cup host cities. Corporate and group travel, in particular, began accelerating around March and has continued to build momentum.
"We are expecting growth on growth," STR President Amanda Hite told Hotel Management, noting that demand fundamentals remain strong heading into 2027. She pointed to improving GDP expectations, continued leisure demand and a return of business travel as reasons for optimism.
Jan Freitag, national director of hospitality analytics at CoStar, sees a similar picture. Easy comparisons against softer 2025 performance, sustained leisure spending and renewed group demand are all supporting the industry's upward trajectory. "There will be more growth," Freitag told Hotel Management.
But stronger demand is only part of the story. While revenue growth is finally beginning to outpace expense growth, many owners are finding that those gains are not translating into significantly stronger margins. Hite said total U.S. hotel GOP is expected to grow, but GOP margins are still projected to decline year over year.
Hotel Profitability
According to the latest HotelData.com report, hotel profitability improved during the first half of 2026 across a sample of roughly 5,000 U.S. hotels. Gross operating profit margin increased 3.6 percentage points year over year to 44.9 percent, while RevPAR rose 8.9 percent to $144.01 and total revenue per available room increased 9.2 percent to $189.30. The gains reflect stronger room rates and revenue growth, reinforcing broader industry forecasts that call for continued momentum through next year.
The improvement, however, masks significant differences across the industry.
Luxury hotels continue to enjoy substantial pricing power. HotelData found that luxury properties increased ADR 10.1 percent and RevPAR 15.9 percent during the first half of the year, while GOP margin rose four percentage points. Economy hotels, by contrast, saw RevPAR decline 2.7 percent despite posting the strongest occupancy growth, illustrating how difficult it has become for some segments to translate demand gains into profitability.
"The revenue is not flowing to the bottom line in a way for owners to be making more money," Hite said.
According to Hite, hotel operators are doing a relatively good job managing the expenses they can directly control. Departmental profits are improving, suggesting that teams on property are operating efficiently. The real pressure is coming from undistributed expenses such as utilities, taxes and other overhead costs that continue to rise rapidly.
Cost Management
Utility costs, in particular, are becoming a growing concern. While few owners may be discussing them publicly, Hite noted that utility expenses continue to climb and are increasingly affecting hotel profitability.
Freitag echoed the need for rigorous cost management. Owners may benefit from growing demand, but they still need to closely examine labor costs, insurance expenses and other line items to protect profitability. "It's both offense and defense," he said, describing the need to maximize revenue while simultaneously scrutinizing expenses.
Owners may benefit from stronger occupancy and rate growth, but they still need to closely monitor labor costs, insurance expenses and other operating costs to protect margins. That balancing act becomes even more critical in an environment where ADR growth remains uneven across chain scales.
That balancing act is becoming especially important as ADR growth remains uneven across chain scales. Luxury hotels continue to enjoy outsized pricing power, but many other segments are seeing rate growth that is less able to offset rising operating costs.
Profitability is becoming less about filling rooms and more about operating smarter. Freitag pointed to profit-based measures such as profit per available room and, for full-service properties, total revenue per available room as indicators that may better capture a hotel's financial performance. Hotels that can generate more on-property spending through restaurants, bars and other amenities may be better positioned to offset cost pressures and drive stronger returns.
The outlook suggests demand should remain supportive heading into 2027 as business travel continues its recovery and leisure demand remains resilient. For hotel owners, however, it is not about how much revenue they generate, but by how efficiently they convert that revenue into profit. Disciplined operations and pricing power will determine who benefits most from the recovery.