In the ever-evolving hospitality industry, the question of how to effectively compensate hotel operators remains crucial. While the basic premise of paying managers for their management skills holds true, the prevalent incentive fee structures may no longer adequately align with market realities, particularly for owners.
Hotel professionals have a responsibility to mentor today's emerging leaders to be effective lodging professionals. We cannot be effective in mentoring these professionals unless we know what expectations they will likely face in their career.
If your hotel uses in-house software to manage procurement, leadership may be reluctant to adopt a cloud-based solution—especially if an on-premise system has served you well for many years. This mindset is likely to put your hotel behind competitors in the near future if it hasn’t already.
It is common knowledge that in order for a lodging operation to be successful, market conditions that contribute to that success must be in place well before the operation opens its doors. While these conditions may be primary to the operation's success, there are secondary economic factors that should also be present before the property is operational.
Effective procurement departments have a significant positive impact on hotel performance. To endure persistent industry challenges—such as price volatility, tight profit margins, evolving guest preferences, and labour shortages—hoteliers must fine-tune their procurement operations to ensure greater efficiency, agility, and cost savings.
As we navigate the ever-changing landscape of the hospitality real estate market, our team at CBRE Hotels remains committed to providing you with the insights and guidance you need to make informed decisions. In this edition of our newsletter, we'd like to share some key observations from the front lines and offer our perspective on what lies ahead.Some of the most significant trends I've noticed in middle-market hotel investment sales, where we are the market leader, in recent months:
Cash is King. That’s an old expression but it’s also one that still rings true today. Everyone likes cash even if we don’t carry so much with us personally anymore. It’s important to recognize that some people will help themselves to your cash if you let them. That might sound extremely clinical and you’re right it is, but it’s also a fact. The only way to minimize your risk is to have a set of controls in place to keep honest people honest and the less than trusty, on their back foot.
In recent years, hoteliers have entered a period of unexpected disruptions. To address these changes, leading chains and independent operators are looking to integrate modern technologies into their operations and guest offerings. According to Deloitte, over half of hoteliers expect automation to improve their bottom lines as well as guest experiences.
As the travel market continues to evolve, with occupancy levels exhibiting extraordinary growth in most major markets around the world, today’s hoteliers are facing an array of challenges in managing their operations efficiently. From guest experience enhancement to the digitization of financial and operational management, ensuring the seamless integration of disparate property systems has become paramount for success. Particularly within a hotel organization’s finance and accounting departments, the importance of system integration cannot be overstated. Ensuring that all elements of the tech stack complement each other’s capabilities not only streamlines critical property processes, but also enhances accuracy, transparency, and overall productivity.
CFOs are on the move. Since 2022, the hospitality sector has witnessed a dramatic shift in its financial leadership environment. Data shows that during the first six months of 2023, 103 CFO (Chief Financial Officer) changes occurred in Fortune 1000 companies.[1] This number represents a 30% increase from the 79 changes in the same period in 2022. From a hospitality perspective, this CFO “carousel” and the high demand in 2023 for CFOs and other finance executives is unlike anything the industry has ever experienced. The demand for top talent has risen across all disciplines, but 2023 was definitely the year of the CFO. Surprisingly, we didn’t see as much movement in marketing, which usually shows very high turnover.
Over the past four years, utility costs at U.S. hotels have increased at a pace greater than total operating revenue. As a result, utility department expenses increased from 2.9 percent of total revenue in 2019 to an estimated 3.3 percent in 2023. As hotels have struggled to recover from the pandemic, any rise in cost ratios is an area of concern for owners and operators.
The Atlanta Marriott Marquis was bustling this week with another successful Hunter Hotel Investment Conference. Kudos to the Hunter and Marriott teams for executing an extraordinary event! Some key takeaways from the HVS brokerage and consulting staff members who attended the conference are summarized in this article.
As Sophisticated Lodging Professionals, you know the Tax Savings strategy and benefits of a Quality Cost Segregation Study. You know, and understand, that a Quality Cost Segregation Study looks at all Commercial Non-Residential 39-Year Property, and all Commercial Residential 27.5-Year Property, and reclassifies a percentage (%) of that Property away from long-lived 27.5 & 39-year Tax Depreciable Property to short-lived 5, 7 & 15-year Tax Depreciable Property.
For most U.S. hotel owners and operators, one of the major challenges in 2023 has been the need to control expenses amidst slowing revenue growth. Through September of 2023, the properties in CBRE’s monthly survey of hotel operating statements have seen their total operating revenues increase by 7.4% year-over-year, while total operating expenses1 grew by 10.0% during the same period. The net result was a decline in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of 0.2%.
Volatile prices, extended lead teams for goods and services, and keeping up with guest preferences are just a few challenges that continue to impact hotel supply chains years into pandemic recovery. For leading hoteliers, investing in digital procurement innovation is crucial to addressing these concerns — not just as a way to bounce back from COVID-19 but as a lasting component of business growth, resilience, and prosperity for the hotel industry.
Sourcing goods and services effectively is at the epicenter of day-to-day functions in hospitality firms and accommodations. The careful and systematic procedure of procurement not only ensures smooth operations but also reflects our commitment to delivering exceptional hospitality.
When it comes to fraud risk, one area of particular concern is procurement. In recent years, hotels have faced myriad challenges, including supply chain disruptions, economic volatility, and labour shortages. As travel volumes rebound, many hotels are concentrated on meeting evolving consumer expectations while ensuring financial stability. This focus means that many hotels are lacking in their procurement due diligence, creating lucrative opportunities for fraudsters. It’s estimated that hotels lose between 5% and 6% of their annual revenue due to fraud.
As owners, investors and operators met in Los Angeles for the Americas Lodging Investment Summit, a healthy dose of optimism permeated the conference halls and the plaza in front the Starbucks next to the JW Marriott host property.
As 2024 ramps up, the capex market in the hospitality sector is decidedly mixed. On one hand, the increased costs of capital impacting deal flow has reduced the number of transaction-related renovations and has constrained the amount of new development and construction. On the other hand, the backlog of deferred PIPs from the pandemic era cannot be deferred any longer and is providing a steady business for the capex industry.
There is a critical understanding that all hospitality financial leaders need to clearly understand and communicate when it comes to expenses. It is a simple distinction that is many times missed or not clearly understood. That is what this piece is all about: Clearing up the mystery and setting the expense record straight. Here’s the scoop!