All indications are that we are in first gear of the next hospitality business cycle and transactions are finally starting to pick up.
Despite inflation, tariffs, higher interest rates and many other headwinds, the industry cannot continue to offer a worn-out product in this competitive environment fueled by social media posts and more than 100 new brand introductions. In March, at the NEWH Leadership Conference in Washington D.C., Marriott stated that 77% of their premium branded hotels are due or past due for a renovation in the next 3 to 5 years. This is not unique to Marriott, and the capital expenditure tsunami is coming.
As I reflect on the last 40 years of hospitality industry business cycles, let’s examine some of the differences and similarities about the start of this post-COVID Recovery.
The cycles of ‘86, ‘91, ‘01 and ‘08 were followed by mostly “V-shaped” recoveries for our industry within 18 to 24 months. For our current post-COVID recovery, we are more than 72 months or 6 years since the March 2020 COVID closures, and are just beginning to see our industry recover. This is in sharp contrast to the normally very closely aligned airline industry, which had very strong profits in 2023 and 2024, and in 2025 hit the all-time industry record of about $40 billion in profit, a 50% increase from the 2019 pre-COVID results of $26 billion. For our hotel industry the slow recovery is not pretty, as many participants in the capital stack, owners and lenders, are facing major haircuts to exit a property, and in some cases of total capitulation, they are handing the keys back.
In past cycles, if one could buy almost any hotel at about 65% of replacement cost, it was hard to lose money. This held true for both a $10 million select service hotel that was bought for $6.5 million and a $400 million resort that was purchased for $260 million. However, in this cycle, we see many hotels that do not pencil at pricing that is as low as 20% of replacement cost. A hotel that would cost $500,000 a key to build today, still doesn't make economic sense at $100,000 per key acquisition price. Why is this well-known acquisition value metric no longer applicable? What changed this time? The answer is CapEx inflation and greater age of the physical hotel building. While there are many measures of inflation, Cleveland Fed President Beth Hammack stated on April 15, 2026, that “we’ve had a decade’s worth of inflation in five years.”
Due to the building boom of all the hotels built in the 1980s prior to the 1986 Tax Reform Act, a lot of the existing hotel real estate is now circa 40 years old. Benjamin West’s area of the CapEx process, furniture, fixtures and equipment is about the same if the hotel is 10, 20, 30, 40 or 50 years old.
But many of these 1980s assets are at the end of their useful building life. So, even if the location is still providing good demand generators and the location metrics are positive for a hotel, it is the physical building CapEx costs that make or break the economic business case, not FF&E. Window seals, boilers and chillers, kitchen and laundry equipment, plumbing and electrical needs, roofs and parking lots, elevators, ADA compliance and ever increasing brand standards are the key items. In prior cycles, most of the CapEx dollars could be spent on FF&E and other immediate guest facing areas. Now a vast majority of the budget must be invested in something the guest does not even see. However, if you don’t have timely hot water and adequate HVAC, no guest will care how nice the furniture and artwork package is in the rooms.
Whereas FF&E costs are relatively the same regardless of where a hotel is located (minor differences in freight), the labor portion of the CapEx process, and all the GC costs, vary greatly by location and overall labor demand in each specific market. Labor for hotels is competing with labor for data centers and other forms of real estate and labor shortages today are very real in many markets.
From 2019, I would estimate FF&E product costs (assuming consistent design and brand standards) are up about 25%. However, overall labor costs are up significantly more, usually around 40% to 50% over the same period. With the major building systems’ CapEx needs on a 40-year-old building, FF&E may be as low as 15% to 20% of the overall renovation budget.
So, although tariffs and fuel surcharges must be budgeted for, in this cycle, FF&E is usually not the buy or walk away decision point. The luxury and resort segments that appeal to the top of the “K” in the K-shaped economy combine more costly FF&E with a greater need for labor, with higher levels of trim and finishes. The luxury labor portion, which has had the largest increase, will cost a lot more today than prior to 2019.
What this means for the FF&E portion of CapEx is a sharper focus on cost. Nonetheless, be careful to not have a myopic “spreadsheet focus” on cost of FF&E products, as well as the fees of the CapEx team of service providers. In the last cycle the buzz words that led many people down the wrong path were “factory direct” and “25% less than all the others” as firms “tried to get in the door.” This cycle, “AI-powered” and “AI-enabled” are the buzz words du Jour. While AI is great at making some of the administrative tasks surrounding CapEx more efficient, I think we are more than a few days away from my bot calling the seating vendor’s bot to move the 16-week lead time to 12 weeks.
CapEx is not easy. This is an 18- to 36-month partnership. Character matters. Integrity matters. Experience matters. While time is always of the essence in our industry, before kicking off the CapEx process, slow down, trust your gut, and make sure the consultants are working as your fiduciaries.
Alan Benjamin, ISHC, is founder and president of Benjamin West, the world’s leading hospitality FF&E and OS&E purchasing firm, serving owners in over 40 countries.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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