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Lodging Sector Squeezes Out Profit Growth

Phil Hall
Apr 29, 2019
Photo credit: Getty Images/Explora_2005

U.S. hoteliers recorded their ninth consecutive year of increasing profits in 2018, albeit amid rising labor costs, according to the 2019 edition of Trends in the Hotel Industry published by CBRE Hotels Americas Research.
Last year, the lodging sector saw its total operating revenue increase by 2.6 percent for the average hotel in CBRE’s survey sample. The survey also determined that managers were able to limit the growth in operating expenses to 2.8 percent, which enabled them to see a 2.3 percent increase in gross operating profits (GOP). However, the 2.8 percent growth in expenses is less than the long-run average of four percent over the past 40 years, although it is also greater than the 1.8 percent average annual growth rate achieved the past two years. In 2018, 59.2 percent of the properties in the Trends survey sample achieved revenue gains, but only 54.3 percent saw growth in their GOP.
Among the main challenges faced by the surveyed hoteliers last year were labor costs: Last year, the combined payments made for salaries, wages, service charges, contracted labor and bonuses increased by 3.1 percent, while employee-related benefits grew by 3.2 percent. Total labor costs equaled 50 percent of operating expenses through the GOP.
“With revenue growth forecast to slow down in the foreseeable future, owners and operators are beginning to wonder how much more juice is left to squeeze out of their operations,” said R. Mark Woodworth, Senior Managing Director of CBRE Hotels Americas Research. “2018 marked the first year since 2009 that expense growth exceeded revenue growth, thus resulting in a slight decline in the GOP margin. This is indicative of the struggle managers are having sustaining the effective cost controls that have been in place since the great recession.”

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