US Tariffs and the Hospitality Industry: Their Impact and What to Watch Next

At the same time, higher input costs, supply chain disruptions, and a softening in select demand segments are real considerations reflecting a changed reality, particularly in border states and international gateway markets. Owners, developers, brands, and lenders have moved from uncertainty to adaptation and innovation: diversifying supply chains, phasing property improvement plans (PIPs), and leaning into domestic demand to preserve margins and momentum.

View our previous alert Hospitality Trends: 10 Legal Issues for Companies in 2025 here.

The Policy Backdrop and Market Sentiment

US tariff rates remain at multi‑decade highs, with tariff rates between 10%-50% generally applying to all countries under the International Emergency Economic Powers Act (IEEPA). In many cases, these IEEPA tariffs need to be considered in relation to Section 232 commodity-specific tariff regimes that have been typically set between 25% and 50% (e.g., steel, aluminum, copper, and lumber materials), and pre-existing China-specific tariffs under Section 301 tariff regimes that range between 7.5% and 100%.

Adding to this complexity is the cumulative impact that can occur when multiple tariff regimes apply to one product, and the lingering question of whether certain IEEPA tariffs will be eligible for refund and what such refund mechanism will be following the US Supreme Court’s decision in V.O.S. Selections, Inc. v. Trump. Moreover, many US trading partners have responded with their own higher tariff rates that further complicate cross-border supply chains.

Equity markets initially marked down hospitality companies on construction and demand concerns. However, larger US brands with scale, premier loyalty programs, and development platforms have signaled they are positioned to capture relative share as pipelines become more selective and supply growth stays constrained. Further, the US hotel sector has seen deal volume growth of late, and forecasters expect that December’s interest rate cut will bolster new investment and transaction activity this year.

Operating Performance: Pockets of Softness

Summer travel indicators in 2025 showed fairly healthy volumes in many US markets, though operators report that price sensitivity is up, translating into stronger performance for luxury chains but flatter Average Daily Rate (ADR) in economy hotels. Luxury assets continue to do quite well, while cost-conscious consumers are prioritizing shorter trips and tilting toward limited‑service and select‑service hotels. Revenue Per Available Room and ADR have trailed the rate of inflation, an abnormal result given the overall economy’s performance.

Select regions are experiencing more pronounced pressure. Markets dependent on near‑border Canadian visitors (e.g., Michigan, upstate New York, parts of New England) have seen declines in room demand, weekend leisure softness, and cancellations of group and school travel. Similarly, European travel bookings to the United States are broadly down. European travelers are diverting to Canada, South America, and other long‑haul alternatives, a trend that has primarily affected the nation’s major urban markets as the traditional entry points for international travelers. On the other hand, travel from select countries including Japan and Argentina has increased, with certain tourism-friendly states like Florida and Hawaii seeing year-over-year overseas visitor increases.

Development and Transactions: Continuing, With Recalibrated Economics

• New builds and major repositionings are moving forward, but pro formas have tightened. Internationally sourced materials typically account for 15%-20% of a development project’s total budget. With tariffs and freight volatility, many owners are underwriting 5%–10% higher hard costs on current projects.
• The upside is that construction discipline continues to cap national room supply growth. With pipelines being developed more carefully and some projects pushed to 2026 and beyond, competitive new supply remains muted in many markets — beneficial for asset values.
• On the transaction side, deals are getting done and the outlook for 2026 has brightened. Buyers and lenders are scrutinizing exposure to tariff‑impacted costs and demand profiles, but well‑located, well‑branded assets with strong in‑place cash flow continue to trade.

Renovations and PIPs: Phasing, Value Engineering, and Contract Hygiene

Owners negotiating PIPs are facing “new math,” but projects are not at a standstill. The industry is extending timelines modestly, phasing scopes, and value‑engineering, without sacrificing brand standards, by:

• Pulling forward orders during policy pauses and re‑sequencing long‑lead items to reduce duty risk.
• Tightening vendor transparency on component origin, which can materially change the effective duty rate for items with multi‑country inputs.
• Substituting domestic or relatively tariff‑advantaged sources for select furniture, fixtures, and equipment (FF&E).

FF&E and Operating Supplies: Diversification Paying Off

Procurement teams have accelerated near‑shoring strategies, broadening supplier benches and building redundancy for mission‑critical categories that were once heavily reliant on China. Moreover, purchasing through big brand suppliers, which have outsized influence over suppliers, has added pressure to keep costs lower. Even where list prices have stepped up, operators are prioritizing certainty of delivery and predictable lead times.

For restaurants and bars, tariff effects on imported wines, spirits, and specialty ingredients are being managed through menu engineering, domestic substitutions, and curated surcharges where appropriate. The net effect is pressure on food and beverage margins; concepts are adjusting and guests remain receptive to well‑communicated changes.

What Owners, Developers, and Lenders Are Doing Now

• Re‑Underwriting Capital Plans: Assuming higher hard costs, stretching contingencies, and sequencing PIPs to limit out‑of‑service exposure while preserving brand compliance.
• Contract Alignment: Updating purchase agreements, construction contracts, and vendor master service agreements to address tariff triggers, pass‑through mechanics, and change‑order protocols.
• Supply Chain Mapping: Gaining clarity on component origin, tariff classification, and other US Customs and Border Protection entry details to optimize duty exposure and avoid inadvertent trans‑shipment risks.
• Market Strategy: Reallocating marketing from softening cross‑border channels to other international and domestic demand; spotlighting cruise, sports, and entertainment calendars.

Outlook: Brighter Days Ahead

The combination of disciplined supply, resilient domestic demand, and proactive operator solutions is offsetting higher cost structures and select demand headwinds. The most acute pressure will likely remain concentrated in border markets and major international gateways tied to Canada and Europe, as well as in renovation‑heavy portfolios where PIP timing coincides with tariff volatility. Industry participants who stay nimble on sourcing, disciplined on project phasing, and transparent with capital partners should find that the current environment remains navigable. Looking ahead, large-scale events like FIFA’s World Cup, the 250th birthday celebration of the United States, and the 2028 Los Angeles Olympics should provide meaningful demand catalysts for US host markets and help offset tariff-related softness. Pent-up investor demand, boosted by rate cuts, should lead to higher transaction volumes in 2026.

Practical Takeaways

• Expect continued fee and timetable variability for imports. Lock pricing at customs clearance, where possible, and maintain multiple qualified suppliers per category. For US importers of record subject to these tariffs, as well as suppliers and customers that indirectly absorb the costs, there are critical US Customs law issues to consider, including US Supreme Court litigation that could affect potential refund options for certain tariffs.
• Build 5%–10% hard‑cost cushions into new development and major renovation budgets, and pre‑plan substitutions that preserve design and brand intent. Note that the country of origin, tariff classification, or other details relating to your import may result in higher or lower tariff rates that should be carefully reviewed.
• For food and beverage operations, diversify category mix (e.g., with domestic substitutes), conduct menu engineering, and ensure distributor agreements explicitly address tariff-driven price changes and allocations.

We are continuing to monitor tariff developments and their practical effects on the hospitality industry by segment and market. If you would like to discuss implications for a specific asset, portfolio, or pipeline, please contact our Hospitality team.