After some very bad years following the 2008 financial collapse hotels feel safe to spend again.
U.S. hotels’ spending on making their brands more modern and competitive will hit another record high this year, but that doesn’t mean brands themselves are spending more to ensure their technology and in-room amenities are top of the line.
Hotels will spend nearly $6.4 billion (a 7% increase over last year’s $6 billion) by the end of 2015 on capital expenditures, including expenses related to increased high-speed Internet capacity, re-conceptualized restaurants, and other in-room amenities upgrades, according to a report by New York University’s School of Professional Studies.
“The expenditures in 2015 still reflect some deferred items from 2009 to 2014 as well as meeting new brand standards, ranging from new or enhanced in-room equipment to redesigned lobbies,” the report states. “In addition to brand standards influencing capital expenditures, social media postings are resulting in additional capital expenditures as owners become more aware of and respond to criticisms and unfavorable comments. This effect became significant starting around 2012 and continues to increase.”
“Although there are large investments being made in audio/visual (A/V) equipment for meeting and function rooms, the trend of outsourcing those services and receiving a commission from A/V providers for revenue generated from meetings and events continues to grow.”
The report does not break down numbers by brand or by region. Considering the asset-light strategy being pursued by brands including Starwood, Hilton, and others, much of the projected $6.4 billion is likely shelled out by individual property owners rather than brands themselves.
New York University told Skift it doesn’t have any breakdown for the capital expenditures of specific brands, but the report adds, “[the capital expenditure amount that individual property managers set aside each year] is typically three to five percent of gross revenue after stabilization of a new hotel, generally by three years for limited or select-service hotels and by five years for full-service hotels.”
“Many brands and management companies deferred some new brand standards and upgrade requirements involving capital expenditures to help owners through the period of decreased financial performance from 2009 to 2011. Even as revenue per available room and profits recovered, many owners were still experiencing difficulty from decreased profits or losses from prior years until the last year or so. With few exceptions, this flexibility ended in 2013 and 2014,” the report states.
History of U.S. Hotel Industry’s Total Capital Expenditures, 2005-2015
|Year||Amount (in billions $)|
Source: New York University School of Professional Studies
Note: According to the report these totals are based on interviews with selected hotel executives (including brand and management company representatives), design and construction executives, an analysis of brand standards and other sources including press releases and media reports.
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Photo credit: Lobby of the Hotel Vetro in Iowa City, Iowa. Alan Light / Flickr