U.S. Lodging Industry Capital Expenditures Increasing to Record Level in 2016 of $6.6 Billion
 
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U.S. Lodging Industry Capital Expenditures Increasing to Record Level in 2016 of $6.6 Billion

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TREND ANALYSIS REPORT
October 31, 2016

By Bjorn Hanson, Ph.D., Clinical Professor
NYU School of Professional Studies
Jonathan M. Tisch Center for Hospitality and Tourism

The amount spent on capital expenditures (“cap ex”) for the U.S. lodging industry is forecast to be at a record level of $6.6 billion in 2016, approximately $1,350 per available room. Capital expenditures have increased every year since 2010.

Capital expenditures are costs incurred with the purchase and installation of capital assets to maintain and enhance hotels. For example, wall covering and carpeting are generally included, but painting is generally not.  New construction, room additions, and “rebuilding” a hotel to be a significantly different property are not included as capital expenditures for this analysis. The cost of many new brand standards, such as redesigned lobbies, new bedding, and converting tub/shower combinations to walk-in showers are capital expenditures.

Capital expenditure priorities include improved guest amenities and services such as:

  • Redesigned lobbies with congregation areas, entertainment systems, and connections for computers and digital devices
  • Increased high speed internet capacity/bandwidth in lobbies, guest rooms, meeting rooms, and food and beverage outlets
  • New restaurant, food and beverage, and service concepts
  • New or enhanced in-room amenities including irons/ironing boards, coffee makers, upgraded radio/alarm clocks/sound systems, iPads, art, and decoration packages
  • Larger flat screen televisions and in-room entertainment systems
  • Technology, including upgraded revenue management and property management systems, life safety systems, and equipment to support social media initiatives

Among the newer and more expensive capital expenditure programs required by many brands include:

  • New lobby designs and concepts including eliminating a traditional front desk, creating congregation areas with increased bandwidth and electrical connections for computers and digital devices
  • Replacing tub/shower units with walk-in showers, usually for King bed rooms
  • Mandatory increases in high speed Internet capacity – typical costs are $50,000 to $100,000 per hotel
  • RFID electronic card key systems – typical costs are $250 to $750 per guest room

There continue to be large investments being made in audio/visual (A/V) equipment for meeting and function rooms, but the trend is for outsourcing those services (and expenditures) and receiving a commission from A/V providers, typically 50 percent.

A trend that became significant in recent years and that continues to influence capital expenditures is what guests post on social media about property condition, amenities, and design.  This form of guest satisfaction information and the public nature of the comments, especially unfavorable comments and criticisms, are resulting in additional capital expenditures as owners and managers respond.

Many brand and independent management contracts establish percent of revenue either to be invested in a reserve for replacement fund or to be currently spent on capital expenditures. These percentages of gross revenue are typically three to five percent after stabilization of a new hotel, generally three years after limited service hotels are placed in service, or five years for full-service hotels.

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

Year

Amount (in billions)

2015

2014

$6.25

  6.0

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 a clinical professor with the NYU School of Professional Studies (NYUSPS) Jonathan M. Tisch Center for Hospitality and Tourism. 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.  He has served as divisional dean of the School’s Preston Robert Tisch Center for Hospitality, Tourism, and Sport Management and as co-interim dean of the NYU School of Continuing and Professional Studies (now the School of Professional Studies). Prior to joining NYU, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.

 

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