NEW YORK CITY-Capital expenditures on hotels this year are set to soar to new heights. New research by Bjorn Hanson, divisional dean and clinical professor of the New York University Preston Robert Tisch Center for Hospitality, Tourism and Sports Management, forecasts the total monies that will be spent on improvement at hotels in 2013 will reach approximately $5.6 billion, exceeding the prior record levels reached in 2008.
The increase in 2013 is 107.4% over 2010's $2.7 billion. There were decreases of 40 percent in 2009 and an additional 18 percent decline in 2010 in response to decreasing occupancy, ADR, RevPAR, and profits in 2009.
This year's expenditures reflect deferred items and the requirement many hotels are facing to meet new standards, Hanson says. Many brands and management companies waived new and existing requirements involving capital expenditures to help owners through the lean years, but they're now mandating the changes.
“Owners can no longer say 'that's not a reasonable request,'” Hanson tells GlobeSt.com. However, some are still reticent to spend, leading to them “negotiating the timing of the expenditure.” Such hoteliers are looking to be conservative either because they're not yet in the clear or because, in spite of healthy occupancy rates and ADR levels, profitability remains weak.
“Owners are getting close to what their earnings were before but that doesn't mean they want to spend yet,” he says. For those concerned about profitability, they're wise to worry. Profit per room in 2012 were 6.6% below 2007 levels. Still, industry profits as a whole are expected to spike by 10-15%, setting a new record.
Most of the changes being requested by hotel companies involve improved guest amenities and services such as high speed internet access and increased capacity, enhanced complimentary breakfasts, check-in/check-out kiosks, redesigned business centers and lobbies, in room iPads, reconcepted restaurants, added or enhanced fitness facilities, in room iPads and a number of in-room design upgrades.
And one other factor that's a new wrinkle in the marketplace is spurring owners to make these upgrades, Hanson says. Social media posts on travel sites can make or break a hotel, so the improvements can remedy problems that get discussed in travel forums and create a marketing opportunity.
“This is the first year I'd say this: the risk of having negative comments is too much of a risk,” he asserts. “If it shifts even 2% of market share and ultimately warrants the need to offer discounts, it was an unwise choice by the hotelier not to make the expenditure.
In addition, Hanson notes, “This gives owners the chance to respond to negative comments with the news that they've made the requested upgrades.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
