Study shows CapEx spending hits record highs

NATIONAL REPORT — CapEx spending for the U.S. hotel industry hit a new high in the past year, with the percentage of revenue spent on capital projects reaching 9%, according to the newest ISHC CapEx study.

On a per-available-room basis, CapEx spending also hit a new record of $5,147, which increased 5.5% over the average from the same CapEx study in 2018.

Repairs and maintenance expenses as a percentage of total revenue were 4.4%, which aligns with industry averages and the averages in CapEx 2018 (4.1%) and CapEx 2014 (4.6%) studies.

However, repairs and maintenance expenses per available room ($2,461) declined compared to the prior survey ($2,595). The study says the decline is attributed to fewer guests having fewer maintenance issues and the fact that hotels cut back on staffing and discretionary spending during the past few years.

The pandemic has “changed the capital spending landscape, unlike any other singular event in history,” according to the study.

“Today, the traveler has exceedingly high expectations and a critical eye fueled by social media posts and viral comments. This is potentially accelerating the CapEx cycle beyond the industry’s standard timeline milestones,” Alan Benjamin and Sarah Churchill of FF&E consultancy Benjamin West said in a report. “With record-level demand for CapEx expected to be stronger than ever after the pandemic, it is crucial to assemble the project team early and to plan way ahead on all projects.”

The report also said the most important issue to decide in the pre-project planning stage is an estimated “cost-per-key” overall project budget. 

The report continued by suggest the single most dangerous question in terms of CapEx spending surrounds the cost-per-key budget.

About the study

The CapEx 2023 study was produced by the International Society of Hospitality Consultants (ISHC) in partnership with the Hospitality Asset Management Association (HAMA). This is the study’s sixth edition.

ISHC and HAMA collaborated on compiling and analyzing the data with Tennessee-based STR, a division of the CoStar Group.

The study collected data from over 700 hotels in the United States, covering capital expenditures and repair and maintenance data from 2018 to 2022 for three property types: full-service, select-service and extended-stay. Of the hotels in the study, 412 were defined as full-service, 60 were select-service, and 300 were extended-stay. The average age of hotels was 25.5 years.

Pandemic’s effect on CapEx study

Not surprisingly, COVID significantly impacted capital spending. Because hotels were closed for parts of 2020-21 and overall revenue fell, this significantly inflated capital spending as a percentage of total revenue, with 2020 being an extreme outlier (18.2% in 2020 and 8.7% in 2021).

If the 2020-21 numbers are excluded, the CapEx 2023 spending as a percentage of total revenue dropped from 9% to 7.9%, which falls between the numbers recorded for the same study in 2014 (8.3%) and 2018 (7.6%).

However, if you remove the 2020-21 data, the per-available-room metric for the latest CapEx study spikes from $5,147 to $6,440. The report concluded that the 6% increase is similar to the rise in commercial construction costs during that timeframe.

Capital spending analysis

Full-service hotels had the highest percentage of revenue for capital spending in the latest study (9.2%), which was partially due to that segment of hotels having the largest revenue decline during the period. Extended-stay hotels saw a sharp decline in capital spending as a percentage of total revenue (12.5% in 2018 to 7.9% now). This was due to that segment recovering the fastest during the pandemic and not having as sharp of revenue declines.

Today, the traveler has exceedingly high expectations and a critical eye fueled by social media posts and viral comments. This is potentially accelerating the CapEx cycle beyond the industry’s standard timeline milestones.

Alan Benjamin and Sarah Churchill

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Hotels built before 1990 require 11.6% of their revenue to be invested in upkeep, while hotels built between 1990-2000 require 9.1% of their revenue for CapEx.

The study found that hotels 16 to 20 years of age spend 9.2% of their revenue on upkeep, higher than 21 to 25 years old (9.1%).

Properties in resort locations spent the highest percentage of revenue on capital projects (10.6%), which is up significantly from the 2018 survey (7.9%). Airport hotels spent the lowest percentage on CapEx (7.2%). Urban hotels had the lowest percentage in the 2018 survey (6.4%), but that number increased dramatically in the 2023 survey (9%).

Private equity and REITs spend more than the industry average in capital expenditures, which aligns with the 2018 study. Capital spending per available room for REITs stands at $6,542, which exceeds the industry average by 27%. 

Capital spending by property type

Unsurprisingly, full-service hotels have the highest level of capital spending as a percentage of total revenue. Those numbers came in at 9.2% and $6,160 per available room, representing a 4.6% increase from the previous study.

Spending for select-service properties rose significantly in the 2023 study, with the percentage of revenue spent on capital projects hitting 7.3%, the highest in the survey’s history. That number was $2,334 per available room, a 51.7% increase from the 2018 study.

Despite spending for extended-stay CapEx lowering significantly in the latest study (7.9%) compared to the previous study (12.5%), it’s still the second-highest number on record.