LAST YEAR WAS the ninth in a row to see increasing profit for U.S. hotels, according to CBRE Hotels Americas Research. However, CBRE’s research shows those profits are becoming harder to achieve.
Total operating revenue increased by 2.6 percent in 2018, for the average hotel in the survey sample, according to CBRE’s 2019 edition of “Trends in the Hotel Industry” report. The growth in operating expenses was limited to 2.8 percent, allowing a 2.3 percent increase in gross operating profits at the properties included in the report.
Compared to the 4 percent average seen over the past 40 years, the growth in expenses was only 2.8 percent. However, it is higher than the average annual growth rate of 1.8 percent achieved in the past two years.
Nearly 60 percent of the surveyed properties achieved revenue gains in 2018, but only 54.3 percent realized GOP growth. That makes 2018 the first year since 2009 that expense growth exceeded revenue growth and consequently reduced the GOP margin, said Mark Woodworth, CBRE’s senior managing director.
“This is indicative of the struggle managers are having sustaining the effective cost controls that have been in place since the great recession,” he said.
Last year also witnessed a 3.1 percent rise in the labor expenditures, greater than the 2.4 percent rise for all operating expenses.
Among all the properties, limited-service hotels achieved the greatest GOP increase. The hotels converted a 4.3 increase in revenue to a 3.5 percent gain in GOP. However, these hotels also saw the highest rise, 4.9 percent, in operating rates among all the property-types in 2019.
Resorts also recorded a 3.5 percent rise in GOP during 2018, with a strong 4.1 increase in ADR and a slight 0.1 decline in occupancy.
CBRE’s March 2019 edition of Hotel Horizons forecasts a 2.5 percent increase in RevPAR this year, and another 2 percent in 2020.
“While profit growth has slowed, it should be noted that current GOP margins are 500 basis points above the long-run average and at their highest level since the 1960s. Therefore, if underwritten properly, owners should be receiving nice returns on their investments. Even the slightest gains in profits going forward will maintain these returns,” said John “Jack” Corgel, professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE.
Experts also predict the expense growth to be limited to less than 4 percent to achieve any nominal growth in GOP.
“U.S. hoteliers have kept expense increases under 4.0 percent for the past three years, so believe limited gains on the bottom-line are likely this year and next. However, it will take the extraordinary effort operators have shown to continue to effectively manage costs and, in turn, grow profits,” said Woodworth.