Sustainability offers industry opportunity to reinvent itself

Hotels play an important role in reducing the world’s carbon emissions because they are the most energy and water intensive of any commercial building type globally. Not only will a commitment to sustainability help to slow climate change but declining to do so has the potential to result in elevated operational costs, reduced consumer demand and decreased asset value.

Following the unparalleled impact to lodging demand, the industry proved its resilience in 2021 with U.S. revenue per available room reaching 83 percent of 2019 levels. While demand returned earlier than anticipated, the industry continues to struggle generating steady profit, with gross operating profit per available room only recovered 71 percent relative to 2019 driven by growing costs, lack of ancillary revenues and a significant labor shortage. As the industry looks to right-size profits, sustainability should come to top of mind.

Aside from labor, utilities and property maintenance represent the greatest variable cost in hotels (12.1 percent of sales in the U.S.). The execution of even the simplest sustainability measures can reduce utility costs up to 40 percent while also increasing the lifespan of portions of the asset. With owners and operators looking to alleviate mounting margin pressures, it’s time for the industry to incorporate these opportunities.

In addition to cost mitigation, hotels have the potential to increase consumer demand and cultivate higher market share via a stated commitment toward sustainability. Booking.com recently surveyed 29,000 travelers and found 64 percent preferred a sustainable accommodation, if given the choice. This has encouraged third-party reservation sites to incorporate sustainability metrics into their booking engines. While comprehensive data is not yet available, early trends show that customers will actively select a sustainable hotel in markets with multiple options.

Since 2016, green certified commercial real estate assets have sold for an average of 11.5 percent more than those without such certifications. This “green premium” is quickly becoming part of the conversation during hotel acquisitions and is expected to play a larger role with the Uniform System of Accounts for the Lodging Industry’s introduction of required sustainability disclosures beginning in 2024. These metrics are expected to create improved transparency across the lodging industry with respect to energy, waste and water usage. This change is predicted to result in more sustainably focused investments with investors potentially shying away from hotels that do not meet certain criteria.

At a time when the lodging industry is looking to reinvent itself, sustainability offers an opportunity to expand profitability, increase investor returns and, most importantly, mend the planet on which we live.

Zach Demuth is head of Americas Hotels Research, JLL Hotels & Hospitality.