U.S. Lodging Industry Capital Expenditures Increase to Another Record Level in 2014
 
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U.S. Lodging Industry Capital Expenditures Increase to Another Record Level in 2014

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By Bjorn Hanson, Ph.D., Clinical Professor
Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management
NYU School of Professional Studies

The amount spent on capital expenditures (“cap ex”) for the U.S. lodging industry is forecast to exceed the prior record level spent in 2013, for a new record level of $6.0 billion, an increase of seven percent.

There were decreases of 40 percent in 2009 and an additional 18 percent decline in 2010 in response to decreasing occupancy, ADR, RevPAR, and profits in 2009, but expenditures have increased every year since 2010.

The expenditures in 2014 reflect deferred items from 2009 to 2012 and meeting new brand standards, ranging from new or enhanced in-room equipment to redesigned lobbies. Performance has improved:  occupancy will return to close to 2007 levels (exceeding 63 percent), and ADR will increase the most since 2007 (approximately 6.5 percent).

Although total 2013 U.S. capital expenditures were a record, the nominal amount per available room was slightly less (approximately three percent) than in 2008.  The 2014 amount will be a record for both real and nominal values.

Capital expenditures include improved guest amenities and services such as:

  • Increased high speed internet capacity/bandwidth
  • New or enhanced in-room amenities including irons/ironing boards and coffee makers
  • Redesigned lobbies
  • Guest room design including more efficient work spaces, radio alarm clocks and sound systems (many are MP3 compatible), seating, bathrooms, lighting, iPads, etc.
  • Flat screen televisions (larger or new)
  • New or enhanced technology for meeting rooms and function rooms
  • Reconceptualized restaurants
  • New or enhanced fitness facilities

Unique to this recent cycle was that many brands and management companies waived many requirements involving capital expenditures to help owners through the period of decreased financial performance from 2009 to 2011.  Even as RevPAR and profits recovered, many owners were still experiencing difficulty from decreased profits or losses from prior years. This flexibility has changed, and brands and management companies are now requiring these improvements to maintain quality and brand standards.

In addition to brand and management company influence over capital expenditures, social media postings are resulting in additional capital expenditures as owners become more aware of and respond to criticisms and unfavorable comments.

Below is a summary of estimated U.S. lodging industry capital expenditures by year:

Year

Amount (in billions)

2014

$6.0 (forecast)

2013

5.6

2012

5.1

2011

3.75

2010

2.7

2009

3.3

2008

5.5

2007

5.3

2006

5.0

2005

4.8

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., is clinical professor with the NYU School of Professional Studies Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management.  He 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, he held the position of global industry leader, hospitality and leisure, at Pricewaterhouse Coopers LLP.

About the NYU School of Professional Studies
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