U.S. hoteliers enjoyed an eighth consecutive year of increasing profits in 2017 despite another slowdown in the rate of revenue growth, according to the recently released 2018 edition of Trends in the Hotel Industry by CBRE Hotels’ Americas Research.
Total operating revenue increased by 2% in 2017 for the average hotel in its survey sample. By limiting the growth in operating expenses to 1.9%, managers at the surveyed properties realized a 2.2% increase in gross operating profits for the year.
By matching the 2% gain in revenue with a smaller 1.9% rise in expenses, the GOP margin for the Trends sample increased to 38.3% in 2017. This is the highest profit margin recorded by CBRE since 1960.
The tight labor market has put upward pressure on industry wage rates. Per the BLS, the average hourly compensation rate for hospitality employees rose 3.8% in 2017. For the hotels in the survey sample, total labor costs (salaries, wages, and benefits) increased by 1.8%. This implies a reduction in the number of hours worked.
While labor costs continue to be controlled, an increase in non-labor related expenses was observed in 2017. During the year, labor costs increased by 1.8%, and all other costs rose by 2%. Some of the greatest increases were observed in the undistributed departments where in aggregate, expenses grew by 2.2%. Compared to the operated departments, undistributed costs are relatively fixed in nature and therefore less controllable by management.
There were some non-labor related costs that rose more than revenue in 2017. These include technology related expenditures, franchise fees, credit card commissions, and the cost of complimentary food, beverage and services. Below GOP, management fees and property taxes also increased at a greater pace than the 2% growth in revenues.