Hotel CapEx slated to be at record numbers through 2024…
As we begin to pick up the pieces from the effects that Covid-19 has had on the hotel industry we are confronted with a new set of challenges and opportunities. Three approved vaccines, pent-up need for travel and the desire to get back to a sense of “normalcy” will all lead to a much-needed rehabilitation for all facets of travel. While hotels have seen only a fraction of normal wear-and-tear on their interiors, elements like roofs, HVAC and other exterior pieces have been maturing normally and need their scheduled maintenance and upkeep. According to the U.S. Lodging Industry Capital Expenditures Trend Analysis Report by Bjorn Hanson, capital expenditure spending is forecast to increase by approximately 70% in 2022 and is slated to be at record numbers through 2024.
The factors leading to this expected expenditure increase of CapEx are discussed in Alan Benjamin’s (IHSC) article: Special CapEx Considerations for the COVID-19 Era. According to Benjamin, there are four major components at play:
- The emergency reallocation of CapEx funds for many hoteliers in 2020. According to Benjamin, many lenders granted permission to use the 4% CapEx reserve for more immediate expenditures.
- The scheduled CapEx needs of hotels opened or renovated in the past 5-7 years are coming due.
- The importance of optics and the perception of cleanliness for guests who are becoming more discerning and critical along with having access to instant feedback and rankings on social media.
- The swift reinforcement of brand standards following the relaxed regulation during the height of the pandemic.
All these circumstances put together are projecting a record-breaking injection of CapEx in the near future. According to a recent article written by Harvey Chipkin- HNN contributor, the following areas are being prioritized for capital expenditures in 2022 (ranked from most-to-least): deferred maintenance, further reconfiguring of food and beverage outlets, compliance with brand standards, increased high-speed internet capacity, electronic door lock and access systems, and further enhancements to health systems and practices. (For more specifics, read the full article on costar.com)
To make the matter of CapEx and improvements more complicated is the supply chain crisis that is affecting not only FF&E but many other products around the world. To this Benjamin offers words of encouragement:
“Is it overall the most difficult supply chain to navigate that I have seen in 30+ years? In a word, yes. However, one has to be careful to not be overly negative; the supply chain is open, with millions of dollars in FF&E and OS&E still being purchased, shipped and installed every day. While things are certainly taking much longer, they are still getting done.”
Benjamin suggests that hotel owners need to be more proactive in their procurement of supplies and to set plans and teams well in advance for these upgrades and similar undertakings:
“This is a time to be flexible, creative and, most importantly, calm. A level–headed approach to projects, collaboration as a project team and “overcommunication” has never been as important. Remember, if “Plan A” does not work, there are 25 more letters in the alphabet!”
Although the amount of travel hasn’t reached pre-Covid numbers, people are still driven to get out, vacation and meet each other face to face. This need will be the primary drive for the next cycle of CapEx and is likely to lead to record numbers. With brands tightening up on their requirements, regularly scheduled maintenance and maintenance that was deferred due to the pandemic, and supply chain issues, many hotel owners will need to prioritize and should be prepared to make necessary repairs or upgrades.
