Survey Finds While Occupancy Rates, ADRs, and Revenues Are Up, New Construction is Down to 2015 Levels
June 6, 2023
NYU SPS Jonathan M. Tisch Center of Hospitality Collaborates with Boston Consulting Group on Survey to Gauge Sentiment and Prospects for Today’s Hospitality Industry
New York, June 6, 2023–The NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality and Boston Consulting Group (BCG), one of the world's leading management consulting firms,recently collaborated on a survey of hotel owners, management companies, and other industry stakeholders to gauge their sentiment and prospects for the hospitality industry.
The resulting white paper, titled “Hotel Borrowing Costs are Rising – But So Are Occupancy Rates,” projects positive outcomes based upon rising demand that will bolster key industry metrics, such as occupancy rates, average daily room rates (ADRs), and revenue per available room (RevPAR), while new construction is down to 2015 levels.
For the past three years, the Tisch Center of Hospitality and BCG have collaborated on critical research on the latest industry challenges and opportunities. Leading hospitality brands and organizations have come to rely on the insights from NYU SPS/BCG collaboration to help better inform their current and future business decisions.
“We expect this year’s report will arm industry stakeholders with valuable information to help move their businesses forward,” said Sean Hennessey, associate professor at the NYU SPS Tisch Center of Hospitality and contributor to this white paper. “While inflation increases operating costs, it can also help accelerate room rate growth. Further, interest rates rise in an inflationary environment, which affects the feasibility of new construction. On balance, the profitability outlook is attractive,” added Hennessey about the survey findings.
“Uncertainty, inflationary fears, and elevated interest rates will likely be with us for a while,” said Tom McCaleb, managing director and partner at BCG “All can have a chilling effect on hospitality investment. Despite these concerns, our latest work with the Tisch Center shows that strong room demand will keep the hospitality industry an attractive investment for the foreseeable future.”
While the NYU SPS/BCG analysis is far from gloom and doom for the hospitality industry, here are a few top-line results from the survey:
- Guest Demand: A Major Source of Optimism
- More than 70% of survey respondents anticipate demand will at least somewhat increase by the end of 2023, and 42% expect significant increases in 2024.
- Hoteliers are looking for nominal revenue increases of 4.6% to 5.1% in 2023. Those expecting a significant increase in demand anticipate revenues to rise by about 12%.
- Real growth rates seem likely to exceed the rate of inflation. The revenue increases will be driven by both volume and price.
- Hoteliers expect room rates to rise by 8.3% to 8.8% over the next 18 months, expanding gross margins by about six percentage points.
- Interest Rates: The Biggest Threat for Investors
- Even though hotel industry participants expect the inflation rate to drop below 5% by the end of 2024, they are nonetheless wary.
- High interest rates spook investors in hotels as in other commercial property sectors. In the current environment, 82% of hotel owners view the hotel industry as less attractive than other investment classes.
- The industry is approaching a trigger point. A summary of recent hotel financings shows spreads topping out at 400 basis points above the secured overnight financing rate (SOFR), which itself is approaching 5%. When borrowing costs exceed 8%.
- In this survey, 89% of hoteliers consider rates above 8% unacceptable for taking out a loan.
- Persistent Labor Challenges Add to Investor Reticence
- Prolonged staffing shortages add to investor concerns; 70% of hotel owners view the hotel industry less attractive if labor problems persist.
- More than 60% of respondents reported that they are somewhat or severely short-staffed, which NYU SPS/BCG estimate costs hoteliers about seven percentage points of revenue and two points of operating margin.
- More than 75% of respondents experienced modest or better labor productivity gains in the last three years and are optimistic about improving employment going forward. More than 60% expect continued improvements in 2023, and 100% expect significant improvements in 2024.
- Two challenges still need to be solved in this area: the number of job openings and decreases in real earning potential for industry workers.
View the complete NYU SPS Tisch Center/Boston Consulting Group Survey.
About the NYU SPS Jonathan M. Tisch Center of Hospitality
The NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality, now celebrating close to 30 years of academic excellence, is a leading center for the study of hospitality, travel, and tourism. Founded in 1995, the Tisch Center was established in response to the growing need for hospitality and tourism undergraduate and graduate education. Its cutting-edge curricula attract bright, motivated students who seek to become leaders in their fields.
Through its undergraduate degree in hotel and tourism management, its graduate degrees in hospitality industry studies, tourism management, and event management; a plethora of Professional Pathways programs; and its world-renowned hospitality investment conference, students gain the knowledge and the skill sets that enable them to manage change, to communicate, to thrive in complex work environments, and to advance the businesses of hospitality, travel, and tourism. The Tisch Center recently launched the Hospitality Innovation Hub (HI Hub), which will foster entrepreneurship and creative solutions for the industries it serves. The state-of-the-art facilities offer students, start-ups, established industry partners, and investors opportunities to learn, discover, innovate, and invest.
For more information about the NYU SPS Jonathan M. Tisch Center of Hospitality, visit sps.nyu.edu/tisch.
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.