U.S. Lodging Industry Capital Expenditures Increasing to Record Level in 2017 of $6.85 Billion
 
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U.S. Lodging Industry Capital Expenditures Increasing to Record Level in 2017 of $6.85 Billion

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TREND ANALYSIS REPORT

October 30, 2017

By Bjorn Hanson, PhD, 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 US lodging industry is forecast to be at a record level of $6.85 billion in 2017, an increase of about 3.8 percent and approximately $1,400 per available room.  U S lodging industry RevPAR (room revenue per available room) is expected to increase between 2.0 and 2.5 percent, so cap ex could increase between 60 and 70 percent more than the percent increase in RevPAR.

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, 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.

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 a variety of seating areas, small retail areas, large screen televisions, and workstations
  • Replacing tub/shower units with walk-in showers, usually for king bed rooms
  • Technology to support social media
  • Increasing 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

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

  • Redesigned lobbies
  • 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, and art and decoration packages
  • Larger flat screen televisions
  • Technology, including upgraded revenue management and property management systems, life safety systems, and equipment to support social media initiatives
  • Upgrading audio/visual (A/V) equipment for meeting and function rooms, although the trend is for outsourcing those services (hotels receive commissions, 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.            

Many brand and independent management company management contracts establish percent of revenue either to be invested in a reserve for capital replacement fund or to be spent in the current year on capital items. 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)

2017     
2016     
2015
$6.85
6.6
6.35

2014
2013    

6.0
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, analysis of brand standards, and other sources including press releases and media reports.

About the Author

Bjorn Hanson, PhD, is a clinical professor with the NYU School of Professional Studies 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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