Hoteliers adjust to US government slowdown

NATIONAL REPORT – It’s no secret government policy changes have shifted the ways domestic organizations operate in 2025. For U.S. hotels, slowdowns of government-related business have impacted a variety of stakeholders in the space, and depending on the portfolio, some more than others.

Observers cite several government-related headwinds, notably among them less domestic government travel overall and policy revamps affecting North American and international travel.

In a mid-year report from Kalibri Labs, the data-cruncher noted government-related travel experienced steep decline with actual transient per diem bookings down -11% YoY as of May 31, down from a -9% drop it reported in a white paper in April.

While government-segment travelers represent just over 3% of U.S. hotel demand, the report also noted, “their impact is far more pronounced in certain markets—where in many cases they account for as much as 12% of total room nights.”

It cited the steepest declines in government room nights (YTD 5/31/25) in Washington, D.C., Maryland, Virginia and the Hawaiian Islands, all at -26%, and San Diego at -24%.

According to Kalibri, “Reductions in government demand often signal broader shifts affecting federally affiliated travelers such as government contractors, military personnel, grant recipients, and their associated leisure or business stays. These guests may book through a wide range of rate categories—including corporate, Rack/BAR (best available rate), OTA and loyalty member rate—highlighting the importance of interpreting rate segment data in the broader context of demand drivers and traveler affiliation.”

Tales from the front

“We are seeing notable declines in government travel,” said David Duncan, CEO and president of First Hospitality in Chicago. “Our portfolio is down in government revenues 16% YTD.”

He cited several market influences affecting demand. “Chicago is one of our major markets and [it is] impacted by Canadian travel declines. Last year, we had the Democratic National Convention and Republican National Convention in our markets, which caused a surge in government travel leading up to the events. With those events not occurring again this year, that demand has diminished in Milwaukee and Chicago; and government spending cuts have significantly impacted our 'fedrooms' bookings,” Duncan said.

With more than 45 U.S. properties, Dallas-based NewcrestImage is finding the biggest impact on government-business demand stemming from fewer trips being approved as federal agencies tighten travel budgets.

What used to be a steady layer of government occupancy is now less frequent and often shorter in length. That ripple effect is felt mostly in markets close to government hubs, which has implications for both occupancy and pacing. On top of that, international and cross-border travel has slowed with policy changes and visa delays, further cutting into what was once a dependable segment.

Mehul Patel

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“What used to be a steady layer of government occupancy is now less frequent and often shorter in length,” said Managing Partner Mehul Patel. “That ripple effect is felt mostly in markets close to government hubs, which has implications for both occupancy and pacing. On top of that, international and cross-border travel has slowed with policy changes and visa delays, further cutting into what was once a dependable segment.”

David Buddemeyer, founder and president of Driftwood Hospitality Management, Miami, agreed the government belt-tightening and stricter authorization rules are the biggest single driver of headwinds.

“Hotels that are highly dependent on group bookings from a government agency where the funding is tied up may [make] future bookings uncertain,” Buddemeyer said. “Additionally, last-minute cancellations could continue to pose a threat to the business. Travel declines aren’t just coming from the more social and education-based government agencies; it's reached into military, space and healthcare fields just as much.”

Co-Founder and President of Chartres Lodging Group Maki Nakamura Bara observed the properties that are most impacted by the government-business slowdown trends are their larger hotels that rely on multiple segments, including transient government and group government business. She indicated declines are coming from the U.S. Department of the Treasury (primarily IRS and Bureau of the Fiscal Service), U.S. Department of Health and Human Services and U.S. Department of Veterans Affairs.

The most significant impact stems from reductions in directed or controlled travel, according to Paul Breslin, managing director at Horwath HTL.

“When agencies restrict travel for conferences, training or workshops, it directly translates into fewer room nights,” Breslin said. “While the hotel industry traditionally remains apolitical—embracing a ‘love all, serve all’ philosophy—policy shifts inevitably influence travel behavior. Much like corporate cost-cutting strategies, government mandates to reduce travel budgets have a ripple effect, diminishing hotel revenues and, ultimately, asset values.”

Also in the slowdown mix is the continuation of hybrid work, which has reduced large training events, observed Hotel Equities President and CEO Ben Rafter. Additionally, tighter adherence to government per diems that limit rate flexibility, combined with a greater emphasis on essential-only travel, have helped reshape government-demand dynamics in certain markets, he noted.

“We’ve been tracking these trends for some time and built them into our planning,” Rafter said. “Our revenue teams and sales strategies already account for this softer demand profile. By getting ahead of the shift rather than reacting to it, we’ve been able to stabilize performance and reassure our partners that their assets remain well-insulated, even as federal travel policies evolve.”

Making adjustments

Exactly what’s going to evolve at this point remains fodder for conference chatter as hoteliers look for some predictability around the traditionally stable revenue generator they’ve known, to adjust their tactics.

Top-performing operators are proactive. They strengthen relationships, refine their value offerings and leverage platforms like the GSA and other government portals to market effectively. The government itself provides tools to help hotels connect with travelers on official business—hoteliers just need to use them strategically.

Paul Breslin

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“Historically, government travel has been driven by official duties such as military operations, personnel training, recruitment, legal proceedings and administrative functions,” Breslin said. “Encouragingly, the core reasons for government travel remain intact. The purpose hasn’t changed—only the volume and discretion around it.”

Fedrooms, the FBI and Department of Defense [aka Dept. of War] are major government travel demand generators for First Hospitality, according to Duncan. “While that has not changed significantly, we have been leaning in to more local or state government travel to replace federal government demand generators,” he said.

Driftwood Hospitality Management operates in several markets anchored by military bases and major defense contractors, which have been a strong source of hotel demand, Buddemeyer said. Recently, however, the company has seen “a noticeable shift in the volume of projects the government is contracting with these partners.”

For NewcrestImage, the slowdown is greatest in its select-service and extended-stay hotels, Patel said, and it is the same for Hotel Equities.

Location. Location. Location.

The impact of slower government-related business is more closely tied to location than to hotel type, asserted Breslin. “Whether full-service or select-service, properties situated in areas that traditionally serve government travelers are experiencing similar declines. The geographic footprint—rather than the brand tier—is the key determinant,” he said.

Government-related travel accounts for less than 5% percent of overall demand across Noble Investment Group’s portfolio, according to Steven Nicholas, managing principal and head of asset management.

“While it is down in some markets, the effect varies depending on the departments and agencies present in that specific location,” Nicholas said. “Most of this business is tied to published per diem rates, so the strength of the local market and the relative competitiveness of the per diem dictate which hotels capture that demand. In general, select-service hotels are more exposed, but the impact has been market-specific rather than uniform across regions.”

In markets that historically have done business with the Department of Defense/War, Hotel Equities is seeing growth, occasionally into the double digits, according to Rafter. “The positive performance in the DoD market highlights a key difference in booking patterns and mission requirements compared to other federal agencies. This arm of the federal government shows growth YoY,” he said.

Geographically, the sharper pullbacks are in capital-adjacent and government-heavy markets, especially in the South and Northeast, where per-diem business has historically been stronger,” Patel said. “These insights underscore the importance of managing the brand and location mix carefully, something we’ve always built into our portfolio strategy,” he said.

By reallocating resources, adjusting pricing, and pursuing alternative demand drivers, we can mitigate the impact of softness in one segment and maintain overall performance. This approach has proven effective in navigating both cyclical and sector-specific slowdowns.

Steven Nicholas

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For Driftwood, Buddemeyer said the vast majority of its government-related declines are along the East Coast and in a few major Midwest cities. “We aren’t seeing any impact to specific brands or chain scales, but more so geographically,” he said, adding, “a little over one-third of the hotels we support are either flat or ahead compared to 2024’s government performance.”

Toledo and Columbus in Ohio, Des Moines, Iowa, and Omaha, Nebraska, are showing consistency in favorable government travel via local or state demand generators, Duncan said.

Pushing proactive policies

When any demand segment starts to ebb, hoteliers have been quick to strategize, and the executives stressed this situation is no different.

“Top-performing operators are proactive,” Breslin said. “They strengthen relationships, refine their value offerings and leverage platforms like the GSA and other government portals to market effectively. The government itself provides tools to help hotels connect with travelers on official business—hoteliers just need to use them strategically.”

While Chartres Lodging Group has a strong presence in the military space at its properties in Hawaii, Bara said the portfolio in general does not have a high exposure to the government segment or dependency on government business.

That said, she noted, “Our transient government business at our large convention hotel is down 22% YoY and our group government business is forecasted to be down close to 30% YoY, as we’ve seen cancellations due to DOGE impacts… However, where we do see declines, we are leaning into other segments with green shoots such as the slowly increasing corporate travel segments and the leisure segment, which has remained healthy in most markets.”

“We don’t sit back when a segment softens,” Patel continued. “First, we stay close to government agencies and contractors, so we’re positioned for the rebound. At the same time, we’re diversifying demand, strengthening corporate relationships, expanding group business, and leaning into leisure packages. And across the portfolio, we’re keeping operations disciplined so every occupied room is profitable. We’re also exploring ways to reposition certain assets and capture new demand through brand mix, partnerships and local marketing. By diversifying, we’re not only filling the gap but also reducing reliance on any single demand source going forward.”

Noble Investment Group tracks performance across demand segments using several proprietary and third-party data and analytics platforms, according to Nicholas. “These insights allow our sales and revenue management teams to identify trends early and respond with targeted strategies,” he said. “By reallocating resources, adjusting pricing, and pursuing alternative demand drivers, we can mitigate the impact of softness in one segment and maintain overall performance. This approach has proven effective in navigating both cyclical and sector-specific slowdowns.”

We are seeing ADR lift at nearly double some of the industry prognosticators’ projections with rooms already on the books, and we see opportunity to significantly add to that with what is currently in our sales pipeline.

David Buddemeyer

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At Hotel Equities, Rafter said they haven’t waited for demand shifts to catch them off guard or impact them negatively. “Our commercial teams track trends closely and reallocate resources in real time to capture business wherever it is strongest, whether that’s leisure, extended-stay, project-based crews or regional group travel,” he said.

Looking ahead

Where all this leaves the companies and the industry heading into Q4 and the new year remains in flux, although several executives expressed optimism based on their own company-created tactics to mitigate the government-demand slump.

“While we understand the headlines and pundits are predicting a more challenging Q4 and early 2026, we feel confident in the 2026 outlook,” Duncan said. “While room demand may be mute in 2026, we are focused on other opportunities such as premium and ancillary room revenue.”

He noted First Hospitality has developed an extensive 2026 readiness plan across a range of disciplines, including operations, commercial strategy and accounting to ensure the organization “is well-positioned to execute on strategic priorities, capture growth opportunities, and navigate potential challenges with agility.”

Similarly, Driftwood’s Buddemeyer indicated quick pivoting and staying nimble “has set the stage for us to dial in on driving profit… We are seeing ADR lift at nearly double some of the industry prognosticators’ projections with rooms already on the books, and we see opportunity to significantly add to that with what is currently in our sales pipeline.”

Keeping KPIs steady and giving owners confidence heading into 2026 is stemming from Hotel Equities’ straightforward approach, Rafter added. “Acknowledge the soft spots, plan around them and make sure our hotels are competing hard for the segments that are growing,” he said.

He expects government demand to remain uneven heading into Q4, and adjusted forecasts to reflect that. He added the company has been shifting its business mix throughout the year and is seeing some momentum in other areas, particularly leisure and project-driven group travel, “which is helping to balance performance.”

“We’re realistic about government demand staying under pressure into early 2026, but we remain cautiously optimistic,” NewcrestImage’s Patel said.

He noted occupancy may feel some pressure, but rate growth, diversification and disciplined operations will keep margins healthy. “Heading into Q4 and beyond, our KPIs remain focused on ADR strength, pipeline growth and a balanced demand mix,” Patel said. “These shifts are not a setback but an opportunity to adapt, build resilience, and position [us] to emerge stronger and more efficient.”

Breslin suggested owners and developers should focus on innovation and best practices to capture demand from adjacent sectors. “Often, public sector organizations or contractors fill the void left by reduced government travel—identifying and serving these groups can help maintain performance,” he said.