Page 95 - 2018 Hotel Cost Estimating Guide

GOLDILOCKS
by Alan Benjamin, ISHC President of Benjamin West
As the stock market continues its tumultuous swings, my forecast for the lodging industry has not changed since the ALIS Conference in LA, the annual January gathering of the industry. Leading Owners, Asset Managers, Operators, and Developers are almost uniformly describing this current period in the hospitality industry as the “Goldilocks” period. As an industry, the overall hospitality business is neither too hot nor too cold. We are “cooking along” and overall, doing well. Whenever we discuss the hospitality industry we need to remember that ours is still a street corner by street corner business and, therefore, we must acknowledge that some markets and sub-markets are experiencing declining REVPAR and softer projections, while others are having record results.
Despite the volatile global markets, the start of the unprecedented government deleveraging, and the corresponding potential increased inflation, and other political and economic factors (as well as the constant threat of black swan events that can rock any boat), the overall mood in business is one of optimism. Tax reform has passed, and many multinational firms are repatriating billions of dollars back to the USA. An immediate benefit of tax reform is that some US firms are passing on a portion of the repatriated funds and their tax related net income increases to their workforces with wage increases and bonus payments. Both the repatriated dollars and the direct injection of cash to consumers’ wallets should increase the available funds for lodging dollars in the leisure and business travel segments. In addition, the weaker US Dollar, which has softened over 10% against both the Euro and the Pound, should help foster international demand.
Coupled with increased demand, for the first time since the “2008 Great Recession” and “2009 Recovery” we see new supply trending down slightly. Therefore, despite the statistic that we have averaged a recession in the USA every seven years since WW II, here we are past year nine of the recovery with both the economy and the hospitality industry firing on all cylinders. Even some known threats to demand, such as Airbnb, seem to be slowing their negative effects in many markets.
Where does a “Goldilocks” hospitality industry put the FF&E industry?
Coming off a record period of FF&E and overall Capex demand the last 3-4 years, I see continued robust growth and strength, and have a very bullish forecast for the 2018-2019 period. A slight tapering of new supply growth may contract FF&E demand slightly, starting in the 2020-2021 period. However, the renovation market, which has always been much larger and a more accurate indicator of FF&E demand, shows no signs of any slowdown. Regardless of segment, brand or independent, and without regard to location, every owner and asset manager is planning their Capex cycle investments. In fact, in some of the markets with softening REVPAR, the owners with capital will spend more now to aggressively position their asset to grab a larger piece of a smaller pie. Hence, don’t be surprised by an uptick in Capex in markets that are not in the top performing markets. Furthermore, with nationwide increases in labor and other operating costs, many asset managers are looking past the brand and schedule dictated renovation cycles to specific ROI projects that will help their assets stand out from the crowd, increase their guest satisfaction ratings,
and augment their hotel’s bottom line.
We cannot ignore the FF&E and overall Capex demand generated by the unprecedented brand proliferation that shows absolutely no sign of abating. While it doesn’t seem possible that the major brands can further divide customers into smaller segments, not only are the major brands introducing new sub-brands this year, there are also brands that are not currently prevalent in specific regions of the world embarking on global expansions.
Advice for owners and asset managers...
The advice for owners and asset managers is the same I have during every busy cycle: production lead time for the top vendors we all want to use will never be longer. A great purchasing firm will get you to the head of the line, but overall, time will be the “currency” and will be just as important as traditional dollars during this period. Many owners would be surprised by the limiting effect that giving your Capex team just four weeks less to perform has on the team’s ability to fully and globally source for the best FF&E quality and value. Please hire the entire team: the Project Manager, GC, Architect, Interior Designer, Purchasing Agent and Logistics Firm as early as possible. Once you do hire them early, make decisions quickly to take advantage of the timely engagement of the team.
For the 2018-2019 period, if you are working on a new build, lock down your scope and budget. If you are embarking on a renovation, have your PIP negotiated. For any and all projects, hire your team early. Make sure that team is the best team for each project. There is no project, large or small, that should suffer from anything less than the “A” Team.
Here’s to a great 2018!
About the Author
Mr. Benjamin is one of the world’s leading hospitality Furniture, Fixtures and Equipment (FF&E) experts. Mr. Benjamin is the third generation of a family that has served the interior needs of the hospitality industry since 1931. He is president and founder of Benjamin West, the FF&E and OS&E purchasing firm currently working in 38 countries, and based in Boulder, Colorado, with additional offices in Chicago, Dallas, Hong Kong, London, New Delhi, and Sao Paulo.
JN+A and HVS DESIGN | HOTEL COST ESTIMATING GUIDE 2018
95