U.S. hotels' operating efficiency at its highest since 1960

Apr 25, 2018, 21:47 PM by Jamie Lane


CBRE Hotels' Americas Research annually surveys thousands of hotels' operating statements for its annual Trends® in the Hotel Industry report. In advance of the 2018 edition's early summer publication, we would like to share with EA clients some observations from the survey. For data tables from the forthcoming report, email me at jamie.lane@cbre.com.

U.S. hoteliers enjoyed an eighth consecutive year of increasing profits in 2017, despite another slowdown in revenue growth. Those surveyed by CBRE Hotels’ Americas Research in 2017 averaged total operating revenue growth of 2.0%.

For U.S. hotels, achieving both revenue and profit gains is becoming increasingly difficult. Respectively, just 59% and 52% of the properties in the 2018 Trends® sample recorded growth in total operating revenue or profits—the lowest rates observed since the depths of the recession in 2009. Rising competition from new supply, muted growth in average daily rates (ADR), and upward pressure on labor costs make the current operating environment one of the most challenging in our history of tracking industry performance—going back to the 1930s. However, by limiting growth in operating expenses to 1.9%, managers at surveyed properties realized a 2.2% increase in gross operating profits (GOP) for the year.

As the tight labor market has put upward pressure on industry wage rates, hotel managers have raised staff productivity. The average hourly compensation for hotel employees rose 3.8% in 2017 (per the Bureau of Labor Statistics), while total labor costs (salaries, wages, and benefits) in Trends® sample hotels rose 1.8%—implying fewer hours worked. Hotel employees nonetheless serviced 0.4% more occupied rooms.

While hotels continue to manage their labor costs, non-labor-related expenses have increased, growing 2.0% in 2017. Utilities were the most obvious cost increase in 2017, growing by 1.4%. That rate isn’t alarming, but it was the first time since 2013 that U.S. hoteliers have not benefited from a decline in utility costs.

With annual RevPAR gains for U.S. hotels projected to range from 0.8% to 2.5% over 2018-2020, can hotels continue to achieve profit growth? For profit growth to keep pace with inflation, growth in expenses must stay under 2.6% over the next few years. This will be an enormous challenge—the annual average rate of expense growth since 1960 is 4.0%.

We are in a very interesting period for hotel owners. On the one hand, lodging revenues seem comparatively durable and hotels are achieving record level profit margins. On the other hand, slowing profit growth magnifies the looming reality of renovation requirements and other capital-intensive needs becoming more apparent as the current up-cycle persists.

2018 US Hotel Trends Preview 1

2018 US Hotel Trends Preview 2
2018 US Hotel Trends Preview 3
2018 US Hotel Trends Preview 4

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