by Jen Mallia
Last updated: 11:15 AM ET, Mon April 7, 2025
2025 was supposed to be full of new hotel openings and slick renovations.
Tariffs on imports to the United States are now expected to make a dent in that momentum. Fewer hotel rooms being built could mean that the price on existing hotel rooms goes up, provided of course there is demand for them — not a sure bet in light of decreased tourism to the States.
With tariffs on concrete from Mexico and Canadian lumber, construction materials are going to cost more for Amercians. “All else equal, the cost to build a hotel could be ~5%-10% higher now (on top of the 20% tariff that was already in place for goods sourced from China).” says Michael Bellisario, a senior research analyst at investment firm RW Baird, “More key money could help fill some of that gap for developers to make the math pencil, but the more likely outcome is that fewer projects will get signed and started over the near term, in our opinion.”
The increase in costs could also lead to lengthened construction timelines, so renovations and new builds may not be finished when they were expected to be done.
In an interview with real estate and investment site CoStar, Pete Patel, CEO and founder of Atlanta-based Nexera Capital, which owns a portfolio of hotels across the U.S. said “We just had a call with one of our contractors who wants us to add a line item for tariffs, so that could change next month, but now we have to start factoring that into our project costs," says Patel, "It’s scary, we just don’t know how that’s going to end up.”
Patel mentioned the effect of fewer Canadian bookings on the fiscal outlook as well, particularly at his Seattle property. “We’ve seen a major reduction in travel from Canada, so that’s something we obviously weren’t factoring in last year, and now that’s something that’s real, and we have to factor that in as far as our growth and our revenue growth for next year,” he said.
For his part, however, Patel remains hopeful. He credits his company's ability to work efficiently with its success in select service hotels. “What I’m excited about this year is opening our hotels,” Patel told CoStar. “We have three under construction right now, and our goal is two open this year then one next year. Our pipeline is robust.”
What remains to be seen is if the weakened demand south of the border will drive hotel prices down, or if the slowdown of new hotel rooms coming into inventory will mean prices go up. Meanwhile, at the end of February, hotel demand and prices in Canada remained strong.
Topics From This Article to Explore
