Why US Hotels are Feeling the Heat Amid Supply Chain Squeeze

Rising energy costs are putting increasing pressure on hotel operators across the US, with no signs of relief on the horizon.

The combination of higher electricity, gas and water bills is squeezing profit margins, driving up customer prices and forcing hotels to re-evaluate how they manage procurement, sourcing and operational budgets.

According to CBRE, the key to navigating these challenges lies in strategic procurement, energy efficiency and sustainability. These areas are becoming more than just cost-saving measures—they’re now critical to staying competitive.

The climb of utility costs

Utility costs have been steadily rising and it’s not just a temporary blip.

US electricity prices have increased by 3.6% over the past year, outpacing general inflation. Gas and fuel costs have surged even higher at 8.4%, while water and sewage rates continue to climb, driven by ageing infrastructure and strained resources.

Robert Mandelbaum, Research Director at CBRE Hotels Research, and Alan Figot, Consulting Manager with a focus on sustainability, emphasise that these are not short-term fluctuations.

In their report, they write: "There is a persistent upward trajectory in utility prices, which makes it imperative for property managers to seek efficiency improvements proactively."

Even though temporary dips in natural gas prices have provided some short-lived relief, forecasts suggest energy costs will continue their upward trend. Growing demand for electricity—fuelled by the increasing use of electric vehicles, the expansion of data centres and the rising need for cooling due to higher temperatures—is adding to the pressure.

While the shift towards renewable energy sources like wind and solar has helped reduce generation costs, the need for substantial investments in modernising and expanding power grids is driving utility costs back up.

Robert Bernard, CBRE’s Chief Sustainability Officer, puts it bluntly: "The bottom line: hotel operators need to take proactive steps to manage their utility costs.

"Pandemic-induced market shocks, geopolitical tensions and extreme weather: these factors are driving utility costs upward and likely will be persistent."

How procurement can help cut energy expenses

Procurement teams are playing an increasingly pivotal role in helping hotels combat rising energy costs. By sourcing energy-efficient technologies and negotiating favourable contracts, they can mitigate these cost increases while supporting broader sustainability goals.

Vendor selection is a critical part of the strategy. Hotels are investing in energy-efficient equipment such as LED lighting, smart thermostats and high-efficiency heating, ventilation and air conditioning (HVAC) systems. Some are even turning to renewable energy solutions such as solar panels to reduce their dependence on traditional power grids.

Negotiating energy contracts also offers an opportunity for savings. Procurement teams can secure long-term agreements with utility providers or shift towards green energy suppliers to stabilise costs in the face of market volatility.

Additionally, partnerships with sustainability-focused vendors—who offer services like energy audits, retrofitting or carbon-neutral certifications—enable hotels to identify inefficiencies and improve performance.

Robert and Alan’s report highlights the importance of these measures: "Looking for resource conservation measures will enable operators to adeptly navigate the complexities of rising utility costs while enhancing overall operational performance."

Beyond costs

Rising energy costs aren’t the only pressure point. Hotels also face growing demands from regulatory bodies and stakeholders who expect greater sustainability efforts.

Many states and cities have introduced building performance standards, which mandate energy efficiency improvements and emissions reductions. Non-compliance can result in hefty financial penalties, adding another layer of risk for operators already juggling tight margins.

The report notes: "Recently, states and cities have enacted building performance standards that mandate energy performance and emissions reductions, as well as implementing benchmarking and transparency policies."

This evolving regulatory landscape makes it crucial for hotels to prioritise energy efficiency—not just to save money but to avoid legal and financial repercussions. On top of that, stakeholder expectations are rising. Investors, guests and employees increasingly expect businesses to demonstrate genuine environmental responsibility.

CBRE sums it up: "As hotel operators recognise that investing in energy efficiency can lower operational costs and enhance cash flow, momentum for sustainability continues to grow."

Moving forward

Many hotels have already taken steps to cut energy costs, adopting technologies like LED lighting and occupancy sensors.

However, the report identifies several opportunities for further improvements:

• Upgrading equipment: Replacing outdated heating, cooling and cooking systems with more efficient electric alternatives.
• Water conservation: Implementing greywater reuse systems, smart irrigation and rainwater harvesting to reduce water expenses.
• Energy load management: Moving beyond basic occupancy sensors to advanced energy management systems that adjust consumption in real time.
• Battery storage: Integrating energy storage solutions to improve resilience and reduce peak demand charges.
• Green infrastructure: Installing green roofs and walls to improve insulation and reduce urban heat effects.

Ultimately, while rising energy costs pose a significant challenge, they also offer an opportunity for hotels to innovate.

By rethinking procurement strategies, investing in energy efficiency and embracing sustainability, hotels can not only weather the current storm but emerge more resilient and competitive.

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