A recent survey by the Hospitality Asset Managers Association showed more than 90% of those surveyed are worried about how growing labor costs will affect hotel performance in the years ahead.
WASHINGTON—The combination of new supply and low unemployment is putting a pinch on hotels, as hoteliers are left to compete for an ever-shrinking pool of available employees.
Labor costs ranked as the top concern in the Hospitality Asset Managers Association’s Spring 2019 Industry Outlook Survey, with 92.2% of those surveyed saying they expect labor costs to “negatively affect (their) portfolios’ results over the next three years.” Supply growth was the only other potential concern identified by a majority of respondents (52.2%), and it was marginally ahead of the health of the U.S. economy (47.8%).
Speaking with Hotel News Now during the association’s 2019 spring meeting, members of HAMA said labor issues will be especially acute in markets seeing heavy supply growth.
“Nashville is growing significantly, and there are just not enough people to qualify as room attendants to fill all those spots,” said Larry Kaminsky, EVP of Fulcrum Hospitality. “So a lot of contract labor is being used to compensate.”
Tim Dick, HAMA president and director at Duff & Phelps, noted in some situations the labor environment is so tight that even contract labor isn’t an option and he said the “incredible increase” in labor costs has been a regular topic of discussion at industry events, including the recent Hunter Hotel Conference.
“Everyone is talking about the lack of labor,” he said.
Dick said it isn’t just a matter of competing for talent with other hotels.
“We compete with the needs of hospitals, restaurants, retail. It’s a competitive environment,” he said.
Over the collective-bargaining hump
If there’s a silver lining in the difficult labor environment, it might be that the industry might be past its most difficult wave of union contract negotiations. HAMA members noted those deals tend to come up around the same time in a three-year cycle, which led to a rash of strikes across the country in late 2018.
Larry Trabulsi, EVP at CHMWarnick, said there are somewhere in the range of 11 to 15 major agreements coming up for negotiations in top 25 hotel markets across the U.S., although he is hopeful the process is more peaceful than what was seen in 2018.
“It will be interesting to see if (negotiations are as acrimonious), but the early indicators would be that it won’t be,” he said. “There were specific management companies targeted in the last wave.”
Kim Gauthier, SVP at HotelAVE, said it’s important to remember union negotiations are far from the only indicator of where things are trending in terms of labor costs.
“It’s not contracts driving the costs as much as changes in the minimum wage,” she said. “It started in Seattle than came across the country in a wave.”
She also noted it’s been hard to predict exactly where minimum-wage increases will hit next, citing the example of how Montgomery Country, Maryland, was the first place in the Washington, D.C., area to push for higher minimum wage.
Matthew Arrants, EVP of Pinnacle Advisory Group, said he’s concerned about the implications of labor cost increases in light of the hotel industry and the broader economy’s lengthy growth cycle.
“There’s been a substantial increase (in labor expenses), and we’re not done,” he said. “So what scares me now is the prospect of a recession.”
Hiring issues across the board
HAMA members also noted they aren’t just having issues filling their lowest positions, but they are having similar issues finding good talent to fill important management rolls, which once again comes down to the competing dynamics of supply growth and low unemployment. Trabulsi said this could have long-term effects.
“I can easily find 100 open assistant direct of finance positions,” he said. “And those are the people who become our future directors of finance. We’re seeing it at all layers.”
He noted the issue is so acute that the power of the brands hasn’t been as helpful as it was in the past in luring potential employees, and companies are having to rely on “third-party headhunters” with increasing regularity.
“And paying (those employees) more doesn’t necessarily fix the problem,” Dick said.
Arrants said his properties have had particular difficulty finding qualified GMs, and Kaminsky noted the problem is only heightened when trying to lure employees markets with higher costs of living, like New York.