The amount spent on capital expenditures (“cap ex”) for the U.S. lodging industry is forecast to exceed the prior record level spent in 2014, for a new record level of US$6.4 billion, which is an increase of 7%, according to an annual report authored by Bjorn Hanson, Ph.D., clinical professor at the NYU School of Professional Studies, Tisch Center for Hospitality and Tourism.
Capital expenditures, costs incurred with the purchase and installation of capital assets to maintain and enhance hotels, have increased every year in the U.S. since 2010.
The expenditures in 2015 still reflect some deferred items from 2009 to 2014 as well as meeting new brand standards, ranging from new or enhanced in-room equipment to redesigned lobbies. (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 2009 to 2011. 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 in 2013 and 2014.)
Although total 2013 U.S. capital expenditures were a new record, the nominal amount per available room was still slightly less (approximately 3%) than in 2008. The 2014 amounts were a record level for both real and nominal values, and new records forecast to be spent in 2015.
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. This effect became significant starting around 2012 and continues to increase.
Capital expenditure priorities include improved guest amenities and services such as:
- Increased high speed internet capacity/bandwidth including in lobbies, meeting rooms and restaurants, as well as guest rooms
- Reconceptualized restaurants and food concepts, especially to appeal to Millennials and to reduce operational costs
- New or enhanced in-room amenities including irons/ironing boards, coffee makers, upgraded radio/alarm clocks/sound systems, iPads, art and decoration packages
- Flat screen televisions, often larger sizes
- Technology, including upgraded revenue management systems and systems/equipment to support social media initiatives
Three of the newer and more expensive capital expenditure programs required by many brands include:
- Significant changes to bathrooms, especially replacing tub/shower units with walk in showers
- New or enhanced fitness facilities
- New versions of redesigned lobbies, primarily to appeal to Millennials, but also to compete with the many new competitor lobby models
Although there are large investments being made in audio/visual (A/V) equipment for meeting and function rooms, the trend of outsourcing those services and receiving a commission from A/V providers for revenue generated from meetings and events continues to grow.
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.