Hotel CapEx Hits New High

NEW YORK CITY—Capital expenditures for the US lodging industry are projected to set a new record this year, according to an analysis by Bjorn Hanson at New York University's Tisch Center for Hospitality and Tourism. The $6.4-billion tally, which Hanson derived from interviews with key hotel executives and from other sources including media reports, represents an increase of 7% over 2014.

“Although total 2013 US capital expenditures were a new record” at $5.6 billion, “the nominal amount per available room was still slightly less (approximately 3%) than in 2008,” writes Hanson, clinical professor at the Tisch Center. “The '14 amounts were a record level for both real and nominal values, and new records are forecast to be spent in 2015.” CapEx in the hotel sector has increased each year since 2010; it had also increased annually between 2005 and '08 before plummeting about 40% in the wake of the credit crisis.

Hanson cites three new areas of focus for expenditures: significant changes to bathrooms, especially replacing tub/shower units with walk-in showers; new or enhanced fitness facilities; and new versions of redesigned lobbies. The new concepts are intended primarily to appeal to Millennials, “but also to compete with the many new competitor lobby models,” observes Hanson.

There's another Millennial influence on CapEx levels, according to Hanson. “In addition to brand standards influencing capital expenditures, social media postings are resulting in additional capital expenditures as owners become more aware of and respond to criticisms and unfavorable comments,” he writes. “This effect became significant starting around 2012 and continues to increase.”

The current year's capital spending still reflects some deferred items from 2009 to '14 as well as meeting new brand standards, according to Hanson. “Many brands and management companies deferred some new brand standards and upgrade requirements involving capital expenditures to help owners through the period of decreased financial performance from '09 to 2011,” he observes. “Even as RevPAR and profits recovered, many owners were still experiencing difficulty from decreased profits or losses from prior years until the last year or so." With few exceptions, "this flexibility ended" over the past couple of years.