This paper aims at providing new micro-economic insights on how the different sources of innovation, both internal and external to the firm, contribute to determining the economic performance of Italian hotels, extending the current literature on industrial agglomeration to the accommodation sector at the firm level. To achieve this goal, we use georeferenced data on the consolidated accounts of Italian hotels for the period 2011–2019 and we estimate a spatial stochastic frontier model. Our results indicate that the performance of Italian hotels is mainly boosted by skilled labour and qualified human resources considering internal factors. On the other hand, we find that the innovative activity performed by neighbouring hotels spreads across space generating both agglomeration and competition effects. Our findings can be useful for policy makers and accommodation managers to improve hotels’ production processes by taking advantage of innovative practices and spatial interactions.