The NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality and Boston Consulting Group (BCG)
New York, June 5, 2023- The NYU School of Professional Studies Jonathan M.
Tisch Center of Hospitality and Boston Consulting Group (BCG), one of the world's leading management consulting firms, recently collaborated on a survey of hotel owners, management companies, and other industry stakeholders to gauge their sentiments and prospects for the hospitality industry.
The resulting white paper, titled "Hotel Borrowing Costs are Rising - But So Are Occupancy Rates," projects positive outcomes based upon rising demand that will bolster key industry metrics, such as occupancy rates, average daily room rates (ADRs), and revenue per available room (RevPAR) while new construction is down to 2015 levels.
Title NYU SPS Jonathan M. Tisch Center of Hospitality Collaborates with Boston Consulting Group on Survey to Gauge Sentiment and Prospects for Today's Hospitality Industry Survey Finds While Occupancy Rates, ADRs, and Revenues Are Up, New Construction is Down to 2015 Levels.
While NYU predicted far from gloom and doom for the hospitality industry in 2023, here are a few smoke signals to consider from the survey.
A. Guest Demand: A Major Source of Optimism
• More than 70% of survey respondents anticipate demand will at least
somewhat increase by the end of 2023, and 42% expect significant
increases in 2024.
• Hoteliers are looking for nominal revenue increases of 4.6% to 5.1%
in 2023. Those expecting a significant increase in demand anticipate
revenues to rise by about 12%.
• Real growth rates seem likely to exceed the rate of inflation. The
revenue increases will be driven by both volume and price.
• Hoteliers expect room rates to rise by 8.3% to 8.8% over the next 18
months, expanding gross margins by about six percentage points.
B. Interest Rates: The Biggest Threat for Investors Interest
• Even though hotel industry participants expect the inflation rate to
drop below 5% by the end of 2024, they are nonetheless wary.
• High-interest rates spook investors in hotels as in other commercial
property sectors. In the current environment, 82% of hotel owners
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view the hotel industry as less attractive than other investment classes.
• The industry is approaching a trigger point. A summary of recent
hotel financings shows spreads topping out at 400 basis points above
the secured overnight financing rate (SOFR), which itself is
approaching 5 When borrowing costs exceed 8%.
• In this survey, 89% of hoteliers consider rates above 8% unacceptable
for taking out a loan.
C. Persistent Labor Challenges Add to Investor ReFcence
• Prolonged staffing shortages add to investor concerns; 70% of hotel
owners view the hotel industry less attractive if labor problems
persist.
• More than 60% of respondents reported that they are somewhat or
severely short-staffed, which NYU SPS/BCG estimate costs hoteliers
about seven percentage points of revenue and two points of
operating margin.
• More than 75% of respondents experienced modest labor
productivity gains in the last three and are optimistic about improving
employment going forward. More than 60% expect continued
improvements in 2023, and 100% expect significant improvements in
2024.
• Two challenges still need to be solved in this area: the number of jobs
openings and decreases in real potential for industry workers.