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U.S. Lodging Industry Capital Expenditures Forecast to Decrease Again in 2010

TREND ANALYSIS REPORT (June 2010)

By Dr. Bjorn Hanson, divisional dean and clinical professor,
NYU Tisch Center for Hospitality, Tourism, and Sports Management

U.S. lodging industry capital expenditures are forecast to decrease in 2010, following a decrease in 2009 for the first year since 2003, following years of increasing and record “cap ex” spending.

The forecast for the coming year is for capital expenditures of approximately $3.0 billion, which represents a decrease of 9.9 percent from 2009 levels, following a decrease of 40 percent in 2009. An estimated $5.5 billion—a record amount—was invested in capital improvements for existing U.S. hotels in 2008.

Record expenditures on new and enhanced amenities

During the prior four years (2005 to 2008), the industry invested record amounts on such new and improved amenities 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

Continued low occupancy and recent investments drive the 2010 decrease

The forecast decrease in capital expenditure spending in 2010 reflects several factors:

  • Occupancy will remain below 60 percent, which has occurred during only four periods in the past 80 years, and profits declined in total over the two years 2008 and 2009 by approximately 50 percent based on estimates by NYU.  In periods of declining industry performance, many discretionary projects, and even some items that might be noticeable to guests are cancelled or postponed.  Also, unique to this cycle is that many brands and management companies are waiving some existing and new requirements for capital expenditures to assist owners in this period of decreased performance.
  • Many major industry-wide initiatives have been completed or substantially completed in recent years, 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 (many brands required more elaborate complimentary breakfasts).  Thus the industry entered this difficult period following a period of many upgrades and renovations.

Estimated “cap ex” spending 2005 through 2010

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   3.3
2010   3.0  (forecast)

Note: 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. 

About the Author
Bjorn Hanson, Ph.D., divisional dean and clinical 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.