NEW YORK — The total amount of U.S. lodging industry capital-expenditure spending is forecast to increase by approximately 70% in 2022 from the record lows of approximately $2 billion in 2020 and 2021 to $3.4 billion in 2022, after an unprecedented decline in response to demand and the financial effects of COVID-19.
That is according to the U.S. Lodging Industry Capital Expenditures Trend Analysis Report by Bjorn Hanson, an adjunct professor at the New York University School of Professional Studies' Jonathan M. Tisch Center of Hospitality. The report is based on extensive interviews with operators, press material, information around brand standards and other data.
Capital expenditures are defined in the report as costs incurred with the purchase and installation of capital assets to maintain, renovate and enhance hotels. For example, wall coverings and carpeting are generally included as capital expenditures. Smaller improvement like painting generally are not. New construction, room additions and major construction to convert a hotel to a significantly different property were not included as capital expenditures for the report.
For 2022, the areas investors are prioritizing for capital expenditures are, in approximate most-to-least common rank order: deferred maintenance, further reconfiguring of food and beverage outlets, compliance with brand standards, increased high-speed internet capacity, electronic door lock and access systems, and further enhancements to health systems and practices. Hanson said deferred-maintenance spending “is definitely number one.”
Hanson said that going into 2021, the industry was in “the best physical condition it had ever been.” Unlike at the beginning of previous downturns, the industry was able to withstand deferred maintenance for the period of the pandemic. He said in the three years prior to 2020, many improvements visible to guests were made — including redone lobbies, high-speed internet, in-room entertainment technology, electronic door locks and more. According to the report, capital-expenditure spending in 2019 was $7.3 billion; in 2018 it was $7 billion; and in 2017 it was $6.9 billion.
For 2020 and 2021, capital-expenditure priorities were heavily pandemic related. They included: cleaning and sanitation equipment; semi-permanent signage, mostly related to health instructions; reconfiguring food-and-beverage areas such as installing partitions between seating tables/seating areas; converting complimentary breakfast areas from buffet-style service to pick up of “grab and go” items; installing or reconfiguring outdoor dining areas; installing sophisticated filter systems; purchase of personal protective equipment; and electronic door lock/access systems.
Increased high-speed internet capacity has been a long-term trend, Hanson said, but in general guests are spending more time in guest rooms and consuming more internet capacity, so this has been one of the high priorities at a time of decreased capital expenditures. Hanson said that when occupancies dropped dramatically during the pandemic, internet usage actually held steady or increased because guests spent so much time in their rooms.
There are some important subtleties behind the data, according to Hanson:
- The amount spent on capital expenditures in 2020 was affected by the timing of COVID-19. It was not recognized until around March of that year how financially important it would be to decrease expenditures, so there were several months of normal spending levels.
- When hotel owners and managers stopped or canceled capital-expenditure projects during 2020, there was what some called a “skid factor” — some projects were in process and needed to be completed and some were committed and could not be canceled.
- During 2021 and planning for 2022, there were and continue to be supply-chain problems. Some expenditures are not being made or are delayed because of lack of availability of materials or equipment.
- There have been dramatic increases in the cost of some materials and equipment, contributing to the increased amounts to be spent. In other words, Hanson said, just because hotels are spending more, they are not able to buy what they could have in recent years for the same money.
- One of the emerging trends in guest-room design that was being increasingly implemented before COVID-19 was to remove or reduce the areas of wall-to-wall carpeting, instead installing hard-surface floors for the guest-room entrance area only or installing hard surface flooring throughout guest rooms except around the perimeter of the bed(s). Because of sanitation concerns and increased priority for surfaces that both can be and have the appearance that they can be more sanitary, this trend will accelerate as capital expenditures resume, Hanson said.
For the same reason, sanitation and the replacing of shower/tub combination units with walk-in showers will accelerate as capital expenditures resume because of lower capital cost for bathroom renovations and lower operating costs, Hanson said.
The combination of replacing carpeting with hard-surface floors and shower/tub units with walk-in showers were and will continue to cause the most dramatic noticeable changes in the appearance of hotel guest rooms in the U.S., according to the report, which compared the change to the removal of cathode ray tube televisions and the armoires that housed them were removed and replaced with flat-screen televisions.
For the past two years, according to the report, hotel brands and management companies have been more understanding than at any time in history that property owners are facing severe operating conditions and financial challenges and continue to allow relief from the introduction of new brand standards and allowing waivers for many existing brand requirements. But starting around the third quarter of 2021, brands have become more demanding about projects and brand standards requiring capital expenditures.
A trend that has become increasingly influential affecting capital expenditures is the use of social media comments for individual hotels and brands about property conditions, amenities, design, competition and services. The report found social media comments related to capital expenditures have decreased, possibly because consumers understand the financial challenges for hotel owners, and because more consumer attention may be focused on health and sanitation issues.
“That will not continue,” Hanson said, as guests begin to return to expecting higher standards.