Cap-ex spending up for the first time since 2008

Lodging capital expenditure by owners on property improvement has risen this year for the first time since 2008, signaling a potential expectation of rising rates.

“Brands were allowing owners to defer some cap ex, understanding owners were facing financial challenges,” said Bjorn Hanson, divisional dean of New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. “When owners weren’t forced to spend, they didn’t. Now, the brands say the deferred maintenance is noticeable to guests. The brands also say they’ve been patient with owners.”

While cap ex decreased in 2009 and 2010 as the result of the worldwide economic recession, spending will increase modestly in 2011, Hanson told Hotel Management. He forecasts approximately $3.5 billion in cap ex for 2011, a 30-percent increase over 2010. By comparison, $5.5 billion was invested in existing U.S. hotels in 2008, the peak of the last seven years.

“It wasn’t a big enough sample [to know where the most money was spent], but if I had to pick lobbies were first, followed by guestrooms and then curb appeal,” Hanson said.

From 2006 2008, the industry invested record amounts on amenities including flat-screen TVs and bedding, making the deferred cap ex during the following period less important to brands.

Another question of interest to owners remains: If economic growth stagnates in the coming year, will brands possibly continue to defer maintenance?

Despite the tightening of cap ex requirements, brands still will focus on the most important elements, Hanson said.

“Brands are already quietly saying there are certain things that will be required, like fixing peeling wallpaper and the like, but they are being more selective in discussions about what will really affect the guest experience,” he said.

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