At the 45th Annual NYU International Hospitality Industry Investment Conference held earlier this month, the NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality and Ernst & Young presented findings from the NYU and EY 2023 Hospitality Executive Financial Survey during the Hospitality Midyear Performance: CFO Perspective session.
To develop the report, the NYU SPS Tisch Center and EY sourced responses from chief financial officers at 30 travel and hospitality companies.
“Our work with EY U.S. on this year’s survey shows that while the hotel industry has been nimble in reacting to outside pressures to get its financial performance back on track, more challenges lie ahead, and the industry will need even more creativity to continue its recovery post-pandemic,” Bruno Eeckels, clinical associate professor and academic director at the NYU SPS Tisch Center—and a contributor to the report—said in a statement. “The three top concerns for hospitality CFOs and senior management include interest rates, the looming recession fears and the state of the hospitality labor market.”
“Although recessionary fears and unfavorable interest rates may dampen transaction activity, survey respondents remained confident that the improving operational trends will sustain the lodging sector’s trend of profit improvement,” Sean Hennessey, associate professor at the NYU SPS Tisch Center of Hospitality and another contributor to the report, added
“Working alongside NYU SPS has helped us better understand where the hospitality industry is experiencing friction,” said Umar Riaz, EY Americas Real Estate, Hospitality & Construction consulting leader and EY Americas Hospitality sector leader. “Recognizing that pent-up demand is still a major factor in play for consumers—despite hurdles like an economic downturn and inflation—hospitality CFOs finding solutions to their problems today will be worthwhile long term.”
Survey Highlights
The NYU and EY 2023 Hospitality Executive Financial Survey was created to gauge the perspectives of leading hospitality CFOs on the industry’s outlook, key growth drivers, and challenges and opportunities for industry stakeholders. Among the survey highlights:
1. Top-line Performance Improves
While consumers confront higher average daily rates and even fewer amenities that now come at a price, there still seems to be a steadily growing pent-up demand for travel:
Nearly half of hotel CFOs expect the key driver of revenue per available room growth in 2023 to be a combination of ADR and occupancy.
The top three factors driving RevPAR performance in 2023 are:
- Leisure travel
- Group travel
- Business travel
2. Labor and Finance Woes
Even though RevPAR recovery exceeds expectations, labor shortages still create challenges for hotels. The industry is adapting to meet challenges by adjusting amenities, outsourcing more and increasing reliance on technology. The top two industry trends causing the most strain on hotel net operating income are the ongoing labor shortage and interest rates/financing.
Tactics that companies are implementing to mitigate the impact of challenges:
- 35 percent of respondents say they are raising pay to attract talent.
- 20 percent of respondents say they are going to have a greater reliance on technology.
- 20 percent of respondents say they are going to adjust the amenities offered to customers.
100 percent of respondents say they will reinstitute all brand standards, including requirements to complete deferred CapEx, by 2025.
3. Transactions Likely to Slow
Hotel transaction activity is forecast to slow down in 2023 due to inflationary impacts and the rising cost of debt due to interest rate increases. In addition to making deals more expensive, rising interest rates could boost pricing expectations for sellers, potentially putting deals out of reach for prospective buyers.
Nearly two-thirds (63 percent) of survey respondents expect hotel transaction volume (number of transactions) to be below 2022 sales volume, 23 percent expect it to be at 2022 levels and 13 percent anticipate it to be above last year’s volume.
Top three factors impacting transactions in 2023
- Interest rates
- Valuations/pricing expectations
- Ability to secure financing
Two-thirds (66 percent) of respondents said they expect limited hospitality platform or entity transaction activity due to interest rates and economic factors in 2023.