Here’s a look at what’s to come in the new year and what owners should be preparing budgets for in 2020.
Budget season is upon us, and the outlook for 2020 is mixed at best.
Estimates for industrywide revenue-per-available-room growth continue to decrease, while operating costs (notably labor) are expected to increase due to ongoing low unemployment and rising wages. While many have written on their observations of these issues, this article is intended to be a 20/20 hindsight look at what owners should be focused on in the year ahead, and what we will be talking about next year as it relates to performance compared to budget expectations.
ADR growth may be elusive overall, but gains will be realized in certain segments.
On a macro level, industry forecasts anticipate a decline in occupancy (due primarily to the impact of new supply), but an increase in average daily rate. At the property level, the focus will be on specific segments which can realize above-average ADR growth. Examples may include shifts within the other discount segment. Many hotel operators track numerous channels and rate codes within the other discount segment. Owners should challenge operators to dissect this business by sub-segment and examine the rate, cost and how subtle shifts in mix can improve net ADR.
Other income will be greater than expected.
As top-line growth remains a challenge, hotel operators (with nudges from owners) will continue to push areas such as cancellation and attrition revenue (for both group and transient guests), parking revenues and—dare we say it—resort/destination fees. With a strong emphasis on guest transparency surrounding these fees and a clear value proposition, the implementation of these fees can help to offset increasing operating costs and boost bottom-line performance.
Hotel performance will vary widely by submarket and competitive set within an MSA.
In the absence of strong growth, owners will be laser-focused on RevPAR index and year-over-year change. While broader market performance may be in line with industry forecasts, local submarket and competitive-set performance may differ significantly from the broader MSA, and these spreads can be significant. Factors influencing this variation may include new supply—a big issue in some submarkets, less so in others—group patterns, like citywide demand since even the size of a citywide can have differing effects on a submarket; and new demand generators that continue to create localized demand.
Desperation in staffing will lead to creativity, and in some cases, difficult decisions.
At some point, hotel operators will need to better factor labor shortages into business decisions and displacement analyses. In some cases, “true” labor costs (which may include overtime) may impact decisions to take or reject low-rated business. We have started to see hotel operators push back (or in some cases, actually ask for more money) for client requests that may have been given in the past, such as multiple meeting space setups or late check-outs that require added manpower to resell rooms but have labor-cost implications. Owners will need to continue to push hotel operators to be creative in their business approach in 2020.
Like a New England weather person, hopefully the forecast for 2020 will be sunnier than expected, and the extended outlook for 2021 will be sunny as well.
Larry Trabulsi is a board member of the Hospitality Asset Managers Association (HAMA), and EVP of CHMWarnick, the leading provider of hotel asset management and owner advisory services. The company asset manages more than 70 hotels comprising approximately 29,000 rooms valued at roughly $15 billion, and currently advises on development projects valued at over $2 billion. CHMWarnick’s hotel owner advisory services include asset management, hotel planning and development, acquisition due diligence, owner-entity accounting, management/operator selection and negotiation, capital planning and disposition strategy. For more information, contact 978.522.7000 or visit www.CHMWarnick.com. For the latest company news, follow CHMWarnick on Twitter @CHMWarnick and LinkedIn.
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