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By Dr. Bjorn Hanson, Clinical Associate Professor
NYU Tisch Center for Hospitality, Tourism, and Sports Management

Following years of record spending levels, 2009 is forecast to be the first year since 2003 that the U.S. lodging industry will spend less on capital expenditures than the prior year.

The forecast for the coming year is for capital expenditures of approximately $3.75 billion, which represents a decrease of over 30 percent from 2008. An estimated $5.5 billion—a record amount—was invested in capital improvements for existing U.S. hotels in 2008.

During the past five years, the industry has invested these record amounts on such new and improved guest amenities and services as:

• Beds and bedding
• High speed internet access
• Flat screen televisions
• Guest room design including work spaces, radio alarm clocks and sound systems (many are MP3 compatible), seating, bathrooms and lighting
• In-room amenities including irons and ironing boards and coffee makers
• Guest services and conveniences including enhanced complimentary breakfasts, check-in/check-out kiosks and expanded business centers
• Redesigned lobbies to provide for gathering spaces and sundry shops
• “Reconcepted” restaurants especially to appeal to Gen-Xers and Millennials

The forecast decrease in capital expenditure spending in 2009 reflects several factors:

1. There will be between one to three percent fewer occupied hotel rooms in the U.S. in 2009, and a lower average daily rate of two to five percent, resulting in a decline in RevPAR of between 2.5 percent and 12 percent, which is the approximate range of forecasts by industry analysts.  Most management contracts specify a portion of capital expenditures be funded as a percentage of revenue and thus this dramatic decline in revenue will lower these outlays.  Also, in a period of declining industry performance, many discretionary projects are being cancelled or postponed.  Further, many brands and management companies are waiving some new requirements to assist owners in this period of declining performance.  

2. Many major industry-wide initiatives have been completed or substantially completed, including the introduction of new beds and bedding, flat screen televisions (which generally required new furnishings to replace traditional armoires that housed televisions), wireless high speed internet access, and enhanced breakfast areas as many brands required more elaborate complimentary breakfasts.

Unlike some past periods when there were decreases in capital spending, guests are unlikely to notice any change. The U.S. lodging industry is in the best physical condition it has even been based on five years of record capital expenditures. Below is a summary of estimated U.S. lodging industry capital expenditures in recent years:

Year          Amount (in billions)
2005         $4.8
2006           5.0
2007           5.3
2008           5.5
2009           4.0        (forecast) 

These estimates are based on interviews with selected hotel executives (including brand and management company representatives) and design and construction executives, an analysis of brand standards, and other sources including press releases and media reports. 

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EDITORS: To interview Dr. Hanson about this article or for more information, please contact him at bjorn.hanson@nyu.edu or 212 998-7256.

About the Author
Bjorn Hanson, Ph.D., a clinical associate professor of hospitality and tourism management at the NYU Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management, is a hospitality and travel researcher widely respected for his industry forecasts and for having created econometric models that transformed business analysis in the field. Prior to joining NYU-SCPS, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP. 

About the Tisch Center and the NYU School of Continuing and Professional Studies
The Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management, one of several comprehensive academic divisions within the School of Continuing and Professional Studies (NYU-SCPS), offers undergraduate, graduate, and continuing education programs in hospitality, tourism, and sports business and is host to the annual NYU International Hospitality Industry Investment Conference.  Established in 1934, NYU-SCPS is among the 14 colleges and schools that comprise New York University, one of the largest private research universities in the United States.  Through its faculty, curricula, and vibrant professional and academic networks, NYU-SCPS captures the expertise of key sectors where New York leads globally: Real Estate; Hospitality, Tourism, and Sports Management; Global Affairs; Philanthropy; Communications Media, Publishing, Design, and Digital Arts; Business, Marketing, and Finance; and the Liberal and Applied Arts, among others. Rigorous and timely programs in these and related areas attract undergraduate and graduate students immersed in university life, working professionals in 14 graduate degrees, and New Yorkers of all backgrounds enrolled in approximately 2,500 continuing education courses, certificate programs, conferences, and seminars annually. NYU-SCPS is widely considered to be the most complete example of NYU’s founding commitment to be “In and Of the City”—and Of the World.