Operation and Maintenance of Hotel Property – Maintaining Value
As indicated by the results of the JD Power survey, maintenance of the physical plant is necessary to maintain customer satisfaction and justify the current growth of ADR.
As hospitality industry revenues and profits increase, guest satisfaction declines. According to the JD Power 2022 North America Hotel Guest Satisfaction Index StudySM, the increase in industry fundamentals has not been matched by a corresponding improvement in guest perceptions of amenities or services. One of the biggest disappointments is the quality of the rooms and facilities. While guests appreciate the increased cleanliness brought on by COVID-19, ratings for decor and furnishings, in-room amenities, and bathroom quality declined from June 2021 to May 2022.
Like all departments, managers needed to reduce the costs of the Property Operation and Maintenance (POM) department in 2020 and control the increase in 2021. This, in turn, contributed to the emergence of deferred maintenance and the resulting decline in customer satisfaction.
To better understand recent trends in maintenance spending in U.S. hotels, CBRE analyzed the POM service costs of 2,900 properties that participated in our annual Trends® in the Hotel Industry survey each year from 2015 through 2021. In 2021, these 2,900 hotels averaged 209 rooms and achieved an occupancy rate of 54.2% with an average daily rate (ADR) of $152.70.
POM expenditure categories
Within the POM department, CBRE captures the following three major expense categories:
Labor costs and related expenses
Salaries, wages and benefits of chief engineer, maintenance department staff, contract staff, bonuses and benefits.
Activities Performed by Third-Party Providers. Typically, these are services such as pest control, elevator/escalator maintenance, trash removal, landscaping, and life safety.
Costs associated with the direct performance of tasks by hotel maintenance staff. This includes the cost of parts and equipment required for routine maintenance of items such as flooring, electrical and mechanical equipment, kitchen equipment, furniture, fixtures, paint/wall coverings and plumbing.
Not included in the POM department are capital expenditures for major renovation projects and property improvement plans, or the purchase of capitalizable equipment.
Cut, but not abolish
In 2020, POM spend at hotels in our study sample was reduced by 30.8%. However, this is a relatively limited drop compared to the 50% drop in the number of occupied rooms and the 63.9% drop in total hotel revenue during the year. With expenses falling less than revenue, POM spending jumped to 8.2% of total revenue in 2020. That’s nearly double the average departmental expense ratio of the previous five years.
Since 2020, maintenance service spend has increased 5.9% in 2021 and 5.0% through May 2022. At this rate, 2022 POM service spend is on track to exceed 2019 levels. In fact, POM spending at limited-service and extended-stay hotels returned to pre-COVID levels in 2021, reflecting their faster pace of occupancy recovery.
During the dark days of 2020, when most hotels were essentially closed or were mostly unoccupied even though they were open for business, POM’s expenses were still incurred. Since most hotel closures were expected to be temporary at the height of COVID-19, hoteliers needed to preserve buildings for reopening. Therefore, they still incurred the expense, mostly in labor to have an engineer present most of the time, if not 24/7, for security purposes, flow of water in building systems, etc., as well as essential routine maintenance such as repairing leaks. , safety or HVAC systems and equipment.
Additionally, once COVID-19 was determined to be airborne, most hotels upgraded their HVAC filters to MERV-13 or higher and made other air quality improvements. air at an additional cost.
To the extent that funding was available, many owners and management companies took advantage of the opportunity presented by empty rooms and public spaces to catch up on preventative maintenance rotations and other projects. Not only could this work be done more efficiently with the unoccupied spaces, but there was also at least one member of the engineering team on staff who could complete the work while supervising the building.
From 2015 to 2021, labor costs within the POM department averaged 50% of the department’s total spend, even in 2020 and 2021. In 2021, labor costs as a percentage of spend of the department were highest at full-service, convention, and resort hotels. Not only do these property categories generally have a higher number of bedrooms, but they also offer a greater number of services and amenities that require maintenance. Conversely, this ratio was lowest in extended-stay and limited-service facilities. These two properties frequently use part-time labor or share maintenance staff with other properties under common ownership/management in the same area.
Being the largest expense category, labor costs were cut the most in 2020. Non-managerial staff suffered the most as hoteliers used available labor funds to retain their management staff, which is more valuable and more difficult to replace. Comparing the composition of labor costs between 2015 and 2021, we see a slight increase in the use of contract labor and an increase in premiums which may reflect the incentive payments needed to attract and retain the employees. While not as severe as housekeeping labor shortages, hotels are struggling to attract and retain engineering and maintenance staff, forcing the use of labor -contractual work in this department, which was not necessary in the past.
A fixed expense
Historically, POM expenses have been viewed primarily as fixed expenses to provide a minimum level of maintenance to preserve physical assets and customer satisfaction. The relative evolution of maintenance service expenditure per available room (PAR) versus occupied room (POR) from 2015 to 2021 confirms this theory. From 2015 to 2021, total POM expenditures measured on a PAR basis have decreased by an average of 1.8% on a compound annual basis. At the same time, the compound annual growth rate of POM spend on a POR basis was 3.8%. Labor costs appear to be slightly more variable than contract services and other expenses.
The need to maintain maintenance
Hotel owners typically set aside a percentage of their profits in a capital reserve to pay for periodic major renovation projects. In 2020, many hotel owners have had to dip into their capital reserves to pay debt service. Unfortunately, for these same owners, hotel profits were still 30% below 2019 levels in May 2022, limiting their ability to rebuild the reserve.
The depletion of reserves makes it difficult to carry out major renovations. This further underscores the need to maintain the POM department’s expenses to perform day-to-day repairs. As indicated by the results of the JD Power survey, maintenance of the physical plant is necessary to maintain customer satisfaction and justify the current growth of ADR.
Robert Mandelbaum is Director of Research Information Services for CBRE Hotels Research. To compare the maintenance spend of your hotel(s), visit pip.cbrehotels.com/benchmarker. Christie Berlin is a hospitality facility and sustainability manager with over 15 years of experience. She can be reached at [email protected]. This article originally appeared in the September 2022 edition of Lodging.