Hotels Hold Rates High Amid Elevated Labor Costs

Business travel volume may be on the comeback trail but still remains below 2019 levels, and hoteliers in the meantime have successfully maintained high average daily rates to counteract lower occupancy levels, analysts said this week during Atlanta’s Hunter Hotel Investment Conference.

“We’re moving in the right direction,” hospitality research firm STR SVP of sales and marketing Vail Ross said after comparing current Monday-through-Wednesday hotel volume with that of 2019, offering a look at a traditional business travel window. “We are hopeful that some of those travelers are coming back with offices opening, a little bit more corporate travel out and about. We suspect and are hopeful that that will continue to rise as well.” The luxury and upper upscale tiers to date in 2022 have sold around 1.6 million room nights of group business, “getting close to about 80 percent to where we were in 2019 with group demand,” Ross said. “Still not back there but getting in the right direction.”

In the meantime, US daily rates have proven resilient. “We’re getting closer to some all-time highs, especially as it relates to ADR,” Ross said. “ADR is continuing to grow, and that has been that silver lining we hear within the industry – that we’ve really been able to maintain rate. And while occupancy levels are not as strong, they are definitely moving in the right direction.”

Higher rates have helped hoteliers challenged by higher labor costs and an inflationary market.

Kalibri Labs CEO and co-founder Cindy Estis Green during the conference noted that even though there are fewer employees overall, “We are now at about 45 percent [of total hotel expenses] being labor cost, compared to 38 percent in 2019. ” She also looked at uneven occupancy. “If we look by location type, it’s the rural area, the interstate, the smaller towns that have gotten most of their business back at or above 2019 levels. And that’s just the nature of their demand, which is less dependence on corporate and group travel. ”

There is also a disparity in wage growth between hospitality employment and other industries, Estis Green said.

“As of February, hotel wages were up 14 percent year over year,” noted CBRE Hotels Research head of hotels research and data analytics Rachael Rothman. Even with that, hospitality is still 12 percent below what frontline retail workers in the US “We will look to see another year and possibly another two years of steep gains in terms of labor costs for hotels.”

“Construction cost inputs are at almost record highs,” added Rothman. One cost factor is construction wages that are 9.1 percent. “We are full employment in terms of construction. There’s a tight labor market, it’s going to cost you more to build your hotel. ”

“We are definitely having less hotel rooms under construction,” acknowledged STR’s Ross, “and less rooms that are in final planning than where we were this time last year. If we look a little bit further out into the planning phase, we are up about 5 percent in those rooms compared to where we were this time last year. ”

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