Gauging Sentiment and Prospects in the Hospitality Industry – A New Study by NYU SPS Jonathan M. Tisch Center of Hospitality & Boston Consulting Group

The NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality collaborated with Boston Consulting Group (BCG) in order to conduct a survey of hotel owners, management companies, and other industry stakeholders to gauge their sentiment and prospects for the hospitality industry.

They released a white paper, titled “Hotel Borrowing Costs are Rising – But So Are Occupancy Rates” which projects positive outcomes for the industry based upon rising guest demand. The report highlights the fact that new construction is down to 2015 levels but the rising demand is likely to help offset many of the challenges the industry is facing and bolster key industry metrics, such as occupancy rates, average daily room rates (ADRs), and revenue per available room (RevPAR), while

Leading hospitality brands and organizations rely on the research conducted by the NYU SPS/BCG collaboration. The Tisch Center of Hospitality and BCG have been collaborating on critical research on the latest industry challenges and opportunities from the past 3 years.

“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.”

Highlights of the Survey:
Here is a brief summary of the findings from the survey:

Guest Demand: 

• 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: 

• Even though hotel industry participants expect the inflation rate to drop below 5% by the end of 2024, they are still concerned
• The industry is approaching a trigger point. A summary of recent hotel financings show spreads topping out at 400 basis points above the secured overnight financing rate (SOFR), which itself is approaching 5%. When borrowing costs exceed 8%.
• 89% of respondent hoteliers consider rates above 8% unacceptable for taking out a loan.

Persistent Labor Challenges:

• 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,
• 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.

 

About the NYU SPS Jonathan M. Tisch Center of Hospitality
The NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality 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.

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.

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.