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Hotel Revenue Growth Has Peaked

ATLANTA—As total operating revenues for lodging operators are experiencing slower growth compared to the past few years, expenses are ticking up, says R. Mark Woodworth with CBRE Hotels.

By Paul Bubny | paulbubny | | Updated on May 24, 2016
CBRE Hotels' R. Mark Woodworth Woodworth: US hotels reached the top of the current business cycle in 2015.
ATLANTA—US lodging operators would do well to contain operating expenses in view of a slowdown in the sector’s revenue growth, CBRE Hotels said Tuesday. Drilling down into the top-line figures, though, shows that room revenue isn’t the only income stream that hotel operators can rely on—and increasingly, growth has come from outside that source. “After five years of strong increases in occupancy, ADR and profits, US hotels reached the top of the current business cycle in 2015,” says R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas research. Accordingly, it’s no surprise, he adds, that total operating revenues for the segment grew just 5.3% from 2014 to ’15, compared to year-over-year growth of 6.9% the year prior. “What stands out as a concern for hotel owners and operators was the 4.7% increase in expenses, especially during a year when inflation was just 0.1%,” says Woodworth. Salaries and wages paid by hotel operators increased 5.2% Y-O-Y, while management fees increased 4.9%, franchise fees rose 6.7% and credit card commissions were up 7.0%. As another indicator, CBRE Hotels’ latest Trends in the Hotel Industry report notes that just 56.9% of the hotels in the report’s sample posted a Y-O-Y increase in occupancy, compared to 70%-plus in each of the previous few years. “This clearly is an indicator that hotels are approaching the top of the cycle when occupancy is at near capacity levels, and in certain markets the negative consequences of new supply growth are being felt,” Woodworth says. Conversely, says Woodworth, over the past year the sector saw “continued improvement in the growth of other hotel revenue sources beyond the rental of guest rooms.” Food and beverage revenue rose 6.6%—partly explaining the increase in credit card commissions paid out by operators—while miscellaneous income grew by 25.4% during the period.  

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