As hoteliers prepare their budgets for 2026, the road ahead is filled with cost increases.
While increasing revenue would be a welcome way to address rising expenses, that’s not necessarily the case for many hotel owners and operators. Instead, they are trying to reduce expenses where they can and otherwise adapt to a more expensive operating environment.
Among the multiple areas where hoteliers expect expenses to increase, the cost of labor, renovations and food and beverage are among the highest.
Higher labor costs
Hospitality is a service industry, and as such, the largest ongoing cost will always be labor.
The big and continuous or multiple wage increases seen in recent years have passed, said Chad Sorensen, managing director and CEO of hotel asset management firm CHMWarnick.
“But the damage has already been done, right?” he added.
Now it’s a matter of competing within the marketplace, he said. Growth in wages isn’t coming from having to give bumps in pay for certain positions. Instead, it’s keeping up with the cost of living and inflation.
Looking at it from a macro level, the second half of 2025 will show year-over-years savings related to labor increase compared to the first half, he said.
“As we think about 2026, you really do need to look at it on a granular basis, quarter by quarter, especially what you’re compared to year over year because the metrics are different depending on which quarter you’re looking at,” he said.
Along with state and local minimum wage increases each year, hotel companies need to retain their current employees, said Greg Presnol, vice president of operations at third-party manager Palette Hotels.
“It’s definitely more expensive for us to be able to back fill an employee or lose someone than it would be to keep great people, so our budget assumes higher hourly rates pretty much on the average,” he said. “More structured with incentive pay, stronger benefit contributions, and we treat labor at Palette as an investment in service consistency, not just a line item where we try to squeeze it out.”
Wage increases have been stabilizing, but hotel companies are inviting new people into the industry, said Nick Johnson, senior vice president of full-service and lifestyle hotels at hotel investment and management company First Hospitality.
“We’re still kind of in that rebuild or building back our labor base in hospitality, so that’s certainly a component,” he said, adding there are many factors at play. “It’s certainly where our focus really remains, on how to manage that.”
To adapt to all expected cost increases, First Hospitality worked up a 2026 readiness plan, he said. The company established a new commercial strategy that focuses on all areas of revenue, such as room upgrades and connecting room premiums and outside sources of revenue. On the expense side, they engaged in early conversations with vendors to try to maintain cost levels heading into next year.
“We’ve had some great relationships with partners on our ability to stop, to mute the expense side of the [profit and loss] growth,” he said.
As part of this readiness plan, there’s a financial vertical that focuses on activities on the forecasting side that it pulls into its daily operations, he said. It occurs in daily, weekly and monthly cadences, allowing general managers, regional operations managers and the finance team to get close to each hotel and each hotel’s strategy to ensure they don’t have any surprise expense increases.
“We’ve gotten to a five-day financial close at the end of each month that’s really done through being proactive in the current month with how much we are building for the financial close,” he said.
That has allowed them to react more quickly to the P&L after it’s been produced, he said.
Renovation projects
The hotel brands have been pushing for renovations to take place and stay on top of brand standards, Sorensen said. Generally, ownership groups are adhering to that and reinvesting in their properties.
“There is just, again, more scrutiny around the actual physical product and making sure that if they’re putting dollars in certain areas, that they’re truly needed,” he said.
Owners and asset managers are looking through the lens of a hotel’s current condition and whether it would be acceptable in five or six years, he said. If the answer is yes, then it becomes a qualified discussion with the brand that brings all parties together to make logical decisions.
“It's always complicated, but it's probably more complicated now than ever because you do throw in the uncertainty with the tariffs, and that uncertainty is continuing to keep costs elevated and rising,” he said.
On the construction side, there’s been no relief on that front, and most aren’t holding out hope that costs will get better, he said. Construction costs have stabilized, but they’re at a level significantly higher than they were a few years ago. Availability is better now, but construction labor wages are higher.
“You do get a little more negotiating power from an owner’s perspective, but it’s not significant,” he said. “The wage rates are still high, and you’re still paying to have quality partners on renovation jobs.”
There will be higher repair and replacement costs through the furniture, fixtures and equipment piece of the budget, Presnol said. Basic maintenance is more expensive than it was 12 months ago. There’s a higher cost for materials, contracted labor and most anything else in that space.
“Owners are definitely feeling that,” he said. “We can’t just defer maintenance forever without it showing up in our guest scores or rate resistance for a hotel.”
For 2026, Palette proactively increased its property-level repairs and maintenance and capital expenditures assumptions instead of pretending last year’s numbers will somehow hold up, he said.
“We’re definitely budgeting more on realism and not on hope,” he said.
Food and beverage costs
Increases for food and beverage items doesn’t have a clear culprit to point to, Sorensen said.
“I don’t feel there’s the egg situation going on as much in this environment,” he said.
There’s a general instability in a lot of different products, and that goes along with the overall instability, particularly as it relates to tariffs, he said. Managing that requires a lot more time, energy and analysis while also being more flexible with menus at outlets as well as in banquets and catering.
In the food and beverage space, the cost of ingredients, disposables and third-party service contracts all came in higher this year, Presnol said.
“We do not see that rolling back, obviously, with tariffs and other things going on out there, but we’ve responded to that by tightening and engineering and simplifying and pushing contribution margin instead of just top line F&B revenue,” he said.
At some select-service hotels, the company has shaken things up a bit to protect flow through without hurting any of the guest experiences. They’ve looked at how they can change the footprint but still deliver on the service component, which remains an important factor today.