Trend Analysis Report
September 7, 2011
By Dr. Bjorn Hanson, Divisional Dean, Clinical Professor, HVS Chair
Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management
NYU School of Continuing and Professional Studies (NYU-SCPS)
Following years of increasing and record expenditures until 2008, U.S. lodging industry capital expenditures decreased in 2009 and 2010. For the first year since 2008, “cap ex” spending is forecast to increase in 2011 but will remain at low levels.
The forecast for the coming year is for capital expenditures of approximately $3.5 billion, which represents an increase of 30 percent from 2010 levels, following decreases of 40 percent in 2009 and an additional 18 percent decline in 2010. An estimated $5.5 billion --a record amount-- was invested in capital improvements for existing U.S. hotels in 2008 compared with $2.7 billion in 2010.
During the period 2006 to 2008, the industry invested record amounts including on such new and improved guest amenities and services listed below, so hotels were generally in possibly the best physical condition ever when capital expenditures declined.
- 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/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 Millenials
- Added or enhanced fitness facilities
- Added or enhanced technology for meeting rooms and ballrooms
However, after near record low levels of spending on a per room basis, many hotels require reinvestment.
The forecast increase in capital expenditure spending for 2011 reflects several factors:
- Occupancy will remain at or below 60 percent, which has occurred during only four periods in the past 80 years, and profits declined in total in 2008 and 2009 by approximately 50 percent. Although profits increased in 2010, profit levels are at 18-year lows on a per room basis. In periods of declining industry performance, many capital maintenance projects, and even many of those noticeable to guests, are cancelled or postponed.
- Unique to this cycle is that many brands and management companies waived some new and existing requirements for capital expenditures to assist owners in this period of decreased performance, but they are beginning to be more strict and aggressive about brand standards and maintenance.
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 2.7
2011 3.5 (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.
EDITORS: To interview Dr. Bjorn Hanson about this research or for more information, please contact Cheryl Feliciano at cheryl.feliciano@nyu.edu or 212-922-9103.
About the Author
Bjorn Hanson, Ph.D., divisional dean, clinical professor, and HVS Chair of the hospitality and tourism management program at the NYU-SCPS 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.