Following a slight year-on-year increase in February, occupancy levels for the U.S. hotel industry declined in the first two weeks of March, signaling potential vulnerability amid new travel restrictions and heightened international warnings.

The declines were modest, but there are long-term implications for international inbound travel, particularly in regions bordering Canada and Mexico.

Recent reports of potential expanded U.S. travel restrictions have triggered concerns, along with revised travel advisories from countries like Germany and the UK, which warn of potential detention and stricter border controls.

Jan Freitag, national director, hospitality analytics at CoStar, highlighted the past “chilling effect” of such policies.

“Even though you may be able to travel from country X, Y, Z in the Middle East, you were maybe a little less inclined because you weren’t sure if you were allowed in the country,” Freitag said.

This uncertainty, he argued, could deter international tourists, pushing them toward destinations with perceived smoother entry processes, such as Canada, Mexico, or the Caribbean.

“There is now a little bit more of a fear, that fear of uncertainty,” he said.

A Mixed Bag of Occupancy Trends

CoStar’s latest data reveals a mixed picture. While February saw a slight year-over-year occupancy increase of 0.5% to 59.1%, subsequent weekly data through March paints a slightly less optimistic scenario.

Occupancy declined by 1.4% in the week ending March 8th and further by 3.5% in the week ending March 15, when compared to the same weeks in 2024.

It is difficult to pinpoint the reason for the decline, and Freitag points out that the impact is not uniformly distributed across major cities.

While major cities fluctuate with events, the border regions show a more direct sensitivity to travel policy changes.

“We are monitoring very, very closely the sub-markets and small cities along the Mexican border and along the Canadian border,” he said.

“There was a pattern early after the inauguration, in sub-markets that border the Canadian border, and that have land crossings, the occupancy on Saturday night, which is normally the leisure day, when people would drive for vacation, that seemed to have had a slight decline in occupancy.”

According to CoStar, of the 1,306 hotels within 50 miles of the Canadian border, demand was down 4.8% for the week ending March 15, compared to declines of 1.9% and 2.6% in the prior two weeks.

Similarly, of the 916 hotels within 50 miles of the Mexican border, demand was down 3%, following declines of 4.2% and 0.3% in the preceding weeks.

Though multiple factors influence demand, these demand declines highlight the vulnerability of border hotel demand to U.S. policy changes.

Long-Term Implications

The long-term outlook hinges on the duration and severity of the potential restrictions and responses.

The restrictions, according to Skift Research, would impact a few percentage points of inbound tourism — which itself represents a single-digit share of the total U.S. travel industry. This means that the ban’s direct impact might be negligible.

Hotel operators aren’t seeing a big pullback, according to the nearly dozen sources Skift has been tracking.

However, potential labor shortages due to stricter immigration policies could further strain the hotel industry, leading to increased operating costs. 

As Freitag pointed out, a decline in revenue coupled with rising expenses could significantly impact hotel profit margins.

“We might have a top-of-the-line revenue decline, and the middle of the P&L [profit and loss] increases in cost, and that obviously together, then means margins are under pressure,” he said.

The strengthening of the U.S. dollar could deter some international travelers and encourage U.S. travelers to go abroad, further hurting occupancy rates.

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