With leading analysts expecting the Strait of Hormuz crisis to continue well into 2027, hospitality investors and operators continue to work in an environment of tight margins.
As reduced oil flows out of the Middle East impact everything from energy prices to bond yields and the cost of finance, monitoring the war in the Gulf region has become routine for real estate players. A global government bond sell-off prompted by soaring oil prices and energy inflation is compounding fiscal worries, while experts are not optimistic that recent pledges from the G7 nations to unlock emergency crude supplies will have a meaningful impact on fuel costs.
The Q3 edition of the Weil European Distress Index (WEDI), published recently by global law firm Weil, Gotshal & Manges, finds that corporate distress in the travel, leisure and hospitality industries moved above the long-run average in the last three months, rising sharply quarter-on-quarter and over the year. The report notes that while demand across travel and accommodation has remained relatively resilient, higher fuel, wage, energy and other operating costs are increasingly squeezing margins, alongside continued geopolitical uncertainty.
Data from Cushman & Wakefield confirms that European hotel markets recorded polarised profit trends in the 12 months ending June 2026. While Paris retains its position as the highest profit market, for example, its gross operating profit per available room softened by 6 percent. Berlin, Barcelona, Brussels and Amsterdam have all seen available room profits decline.
Lending margins
“There are two key margin pressures at play currently in the hotel market: lending margins and hotel operating margins,” says Steve Crosswell, relationship director, Leumi UK. “On the debt side, the high levels of liquidity we’ve seen since the end of 2024 have led to aggressive pricing compression, as some players have pushed hard to win market share, which clearly has been good news for borrowers.” He adds: “As a lender though, we have to remain disciplined, as the cheapest debt isn’t always the best debt, particularly for a business plan involving development, refurbishment, or repositioning, where having a lender that understands the sector can be just as important as headline pricing.”
Leumi, like many of its peers, remains open to financing hospitality, but continues to assess funding opportunities against strict criteria. “Generally, rather than specifically targeting a certain star rating or proposition, we prioritise the fundamentals of the individual asset,” he adds. “That means assessing its location, the depth and diversity of demand, and the local supply and demand dynamics, and establishing what will drive occupancy and rate over the long-term.”
He notes that on the operating side, hotels are facing a whole raft of pressures, most notably increased employment, energy, and food costs, and rising interest rates, with the latter increasingly driving decision making. “In that environment, understanding the long-term profitability of a hotel is vital. Crucially, as a lender we want to know that an asset will be able to service its debts if occupancy softens, rates come under pressure or costs increase faster than revenues,” he says.
Costs analysis
For experienced owners and operators, technology and sustainability – sometimes applied together – have become key routes for managing costs. Soaring labour expenses are linked to the wider inflationary environment, while policies across individual European nations – such as minimum wage increases in the UK or hikes to national insurance for employers – are creating crisis areas in margin control. Yet as digital applications and artificial intelligence (AI) agents become more prevalent, research shows that hiring for hospitality is expanding to include hybrid support roles, digital-first talents and personnel trained on sustainability topics. These roles not only assist with back-office AI adoption, but also monitor opportunities for efficiency.
Meanwhile, savvy operators are aware that retrofitting solutions can be almost as impactful as ground-up development when it comes to energy resilience. Accor’s 2022 overhaul of the Sofitel Barcelona Skipper added solar panels to temper energy costs; Sofitel Roma Villa Borghese has replaced traditional light bulbs with energy-saving LED lighting to target long-term savings. The sensitively renewed Fairmont Golden Prague now harnesses geothermal boreholes for heating and cooling via a heat pump, providing 97.7 percent sustainable cooling and 46.9 percent sustainable heating. Treated wastewater is recycled and used to flush toilets, while the hotel is also equipped with intelligent HVAC systems and lighting that automatically controls energy consumption based on requirements. Carbon footprint reductions and cost savings are monitored via annual energy audits. “The future of sustainability within the hospitality sector lies in positioning sustainability as a fundamental business enabler,” says Coline Pont, Accor chief sustainability officer.
The UK’s Whitbread Plc, owner of Premier Inn, the country’s biggest hotel brand, has recently honed its sustainability strategy to focus on the key areas of decarbonisation, resource use, supply chains, product quality and creating equal opportunities. “The external and internal context continue to evolve and we will adapt our approach as needed to ensure we remain focused on the most material opportunities, risks and impacts,” says Megan Adlen, Whitbread’s head of sustainability. The firm is targeting carbon net zero by 2040, with an interim goal of being net zero carbon for science-based targets Scopes 1 and 2 by 2040 from a 2016 baseline. In the firm’s latest sustainability report, it notes that “shareholder interest [in decarbonisation] is growing, with more specialist understanding within shareholders themselves and higher expectations of companies”.
Development still in play
With so many current margin pressures showing up in the day-to-day running of hotels, it would be easy to assume that development is off the menu. However, new supply is still coming online in key markets, according to Cushman & Wakefield data. While cities such as Paris, Barcelona and Prague are likely to face limited development activity, Lisbon, Dublin and Budapest are three key destinations tipped for an influx of new rooms.
Despite the often-complex outlook, Leumi remains open to lending against “the full funding spectrum”, with Crossley stressing that the firm “actually likes development, value-add and repositioning opportunities”, although he notes that the key considerations when evaluating a developer are “experience and capacity”. He explains: “Alongside that, we also want to make sure that the location in question has capacity for another hotel, so we look beyond the headline occupancy figure and assess the supply and demand dynamics, seasonality, and the demand drivers.” He concludes: “We also pay close attention to the route to stabilisation, as a hotel doesn’t become a mature operating asset on the day it opens.”