REPORT FROM THE U.S.—The cost of hotel renovations is increasing at a time when brands are battening down on such improvement projects, leaving some owners struggling to scratch together financing.
As the required projects are pushed forward, hotel construction companies are noting, cost-saving trends enacted by hoteliers as they embark on renovation and construction work. While the costs for actual decorative items and building materials haven’t gone up or down, hoteliers are saving by going with standard pieces rather than premium items, said Warren Feldman, senior VP with Jonathan Nehmer + Associates, which released the “2012 Hotel Cost Estimating Guide” in July with HVS.
“Whereas in the past you might have been more driven to have a custom piece in your guestroom because you were trying to differentiate yourself in the market, right now you probably … want to pick up a stock item that isn’t as costly,” Feldman said.
For example, rather than choosing fabric of a premium color, he is finding more clients are picking up stock fabrics instead.
“Just little decisions like that. That’s where our clients are finding they save money,” Feldman said.
Michael Johnson, CEO of Satori Construction and Renovation, a contractor for construction services in the hospitality industry, said clients are more selective now than they were several years ago.
“We’re seeing a lot of, ‘What do I absolutely have to change?’” he said of how clients are approaching the renovation process.
“A lot of people are only doing the bare minimum. They’ll change out the carpet, but they’ll leave some fixtures. They’ll pick and choose,” Johnson said.
Kevin Gallagher, operations project manager for Marcus Hotels & Resorts, said the trend he has seen this year within the seven to 10 projects his company has completed is the high cost of shipping.
Sourcing is an important factor to consider when making product decisions, especially cased goods, Gallagher said.
Sometimes purchasing a product overseas can be less expensive, but the shipping can be incredibly costly, he said.
Gallagher recommends looking more into domestic products. “Although the product itself may be more expensive, it is often offset by that cost of shipping.”
Another important cost-saving factor to consider is product durability, he said.
For example, using porcelain rather than real stone or wood has worked out well in Marcus Hotels & Resorts properties. Not only is the product less expensive, it lasts longer if it is in a high-traffic area of the hotel, Gallagher said.
Labor costs down
A cost that has gone down is the price of labor, sources interviewed for this report said.
“We saw small decreases in some of the more labor-intensive things because labor costs are actually down,” Feldman said. “With the economy, there are more people fighting for work, so they are less apt to get you with hard pricing.”
Hard vinyl installation jobs and painting have gone down because the price that is charged for those jobs has gone down. “It’s not actually a good thing,” Feldman said.
With so many people having difficulties obtaining work, what Johnson is finding is many contractors who used to build hospitals and schools are trying to get into the hotel business as well to increase their workload.
“A lot of the larger hotel companies and project managers are finding that they are hiring people that are not getting the rooms done as fast they need to, and they are having to come back and repair things that weren’t done correctly in the first place. That ends up bumping up the price anyway,” Johnson said.
What hoteliers need to keep in mind is their product perishes every single night, he said. Delays because of mistakes in the renovation process can be compared to throwing that product away.
“A lot of people just look at the price that the contractor gives them. What they forget to take into account is the lost revenue they aren’t getting from those rooms … if they have to close them down again in two weeks,” Johnson said.
The trend David Roedel, business development team leader at Roedel Companies, is seeing is the tendency for clients to ask for more last-minute projects.
Trying to speed up the process is only more detrimental in the long run, Roedel said.
“I think when you try to compress the timeline … those are the times when you get into trouble,” he said. “That can include cost overruns and time overruns.”
With hotel-specific contractors not as available these days, it seems like things are picking up in the construction space, Roedel said.
“There are a few companies that have held off as long as they felt comfortable,” Johnson said. But with announcements brands have made in the last few months, he thinks owners will be investing in bigger projects going into 2013.
During the past couple years, the majority of everyone’s work has been renovations, Feldman said. And the company’s yearly cost estimating guide, which has been published for four years now, has been based on that.
“What we are hearing from people now is if we can create something similar to this for new builds because there’s a lot of uncertainty right now of what it’s going to cost,” Feldman said.