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Capital Expenditures to Increase to a Record Level In 2013

Capital Expenditures to Increase to a Record Level In 2013

Capital expenditures (“cap ex”) for U.S. hotels are forecast to exceed the prior record level spent in 2008. The forecast for 2013 capital expenditures is approximately $5.6 billion.

The increase in 2013 is 107.4 percent over 2010’s $2.7 billion. There were decreases of 40 percent in 2009 and an additional 18 percent decline in 2010 in response to decreasing occupancy, ADR, RevPAR, and profits in 2009.

The expenditures in 2013 reflect deferred items and meeting new brand standards, and although industry performance has improved (occupancy will return to close to 2007 levels, and ADR will finally exceed to the prior peak of approximately $107.50 in 2008), these amounts are a challenge for many owners: profits per room in 2012 were 6.6 percent below 2007 levels, based on STR industry profit and supply data.

Although total 2013 U.S. industry capital expenditures will be at a record level, the nominal amount per available room will be slightly less (approximately 3 percent) than in 2008.

Capital expenditures include improved guest amenities and services such as: High speed internet access and increased capacity; Guest services and conveniences including enhanced complimentary breakfasts, check-in/check-out kiosks, and redesigned business centers; In room iPads; Redesigned lobbies; Guestroom design including work spaces, radio alarm clocks and sound systems (many are MP3 compatible), seating, bathrooms, and lighting; Beds and bedding; Flat screen televisions; Added or enhanced technology for meeting rooms and ballrooms; In-room amenities including irons/ironing boards and coffee makers; Reconcepted restaurants; and added or enhanced fitness facilities

Unique to this recent cycle has been that many brands and management companies waived many new and existing requirements involving capital expenditures to help owners through this period of decreased financial performance. This flexibility has changed, and brands and management companies are now requiring these improvements to maintain quality and brand.

In addition to brand and management company influence, social media postings are resulting in additional capital expenditures as owners respond to criticisms and unfavorable comments.

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