I t’ s easy to enjoy a luxury hotel. Building them is hard. According to the HVS U. S. Hotel Development Cost Survey 2025, the average cost to develop luxury hotels was recorded at more than $ 1 million per key. It’ s no surprise that this category of hotel reflected the lowest number of developments, considering the arithmetic of making luxury projects feasible, given the high project costs. About that cost. Luigi Major, managing director, advisory of HVS Americas, uses napkin
|
math to explain how a luxury hotel can pencil out for a developer. It’ s not scientific, he said, but it basically holds true. Namely, for a luxury hotel that runs around 65 % occupancy, if it’ s going to cost $ 1 million per room to build it, then an average daily rate of $ 1,000 is needed to make it work. Essentially, 1,000 times the rate.
Data from CoStar show that luxury average daily rates have increased since their COVID lows, but $ 1,000 per night they are not. Year-to-date June 2025 shows luxury ADRs in
|
The Ritz-Carlton Residences, South Beach is a 15-story tower with 30 branded residences that is slated for completion in 2027.
the U. S. at $ 398. In Major’ s estimation, luxury projects that can creep closer to that $ 1,000 ADR are resorts that attract leisure travelers who are more willing to pay higher rates in contrast to urban luxury hotels that typically have a higher concentration of business
|
travelers and a rate cap. The dual-located Montage and Pendry in La Quinta, Calif., that is currently under development after being stalled due to COVID, is the type of project, Major cited, as being able to succeed on a higher ADR.
Notable in HVS’ survey
|
Luxury Hotels |
Land |
Building & Site Improvements |
Soft Costs |
FF & E |
Pre-Opening & Working Capital |
Developer Fee |
Total |
Average |
$ 138,972 |
$ 799,766 |
$ 153,653 |
$ 96,752 |
$ 24,855 |
$ 34,653 |
$ 1,183,362 |
Median |
$ 116,782 |
$ 620,471 |
$ 153,957 |
$ 94,613 |
$ 28,639 |
$ 35,949 |
$ 1,057,494 |
% of Total * |
10 % |
68 % |
11 % |
8 % |
2 % |
2 % |
100 % |
Source: HVS |