At this month’s 45th Annual NYU International Hospitality Industry Investment Conference, NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality and Ernst & Young LLP presented findings from the NYU and EY 2023 Hospitality Executive Financial Survey. The NYU SPS Tisch Center and EY US gleaned responses from CFOs at 30 leading travel and hospitality companies for the survey.
“Our work with EY US 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,” said Bruno Eeckels, clinical associate professor/academic director, NYU SPS Tisch Center, and contributor to the report. “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.”
Sean Hennessey, associate professor, NYU SPS Tisch Center of Hospitality, and a contributor to the report, added, “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.”
“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/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 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. Survey highlights include:
Top-line performance: While consumers confront higher ADRs 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 RevPAR growth in 2023 to be a combination of ADR and occupancy.
- The top three factors driving RevPAR performance in 2023 are:
1. Leisure travel
2. Group travel
3. Business travel
Operational: 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.
- Top two industry trends causing the most strain on hotel net operating income:
1. Labor shortage
2. Interest rates/financing
· Tactics that companies are implementing to mitigate the impact of challenges:
· 35% of respondents say they are raising pay to attract talent.
· 20% of respondents say they are going to have a greater reliance on technology.
· 20% of respondents say they are going to adjust the amenities offered to customers.
· Brand standards:
· 100% of respondents say they will reinstitute all brand standards, including requirements to complete deferred CapEx by 2025.
Transactions and capital markets: 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%) of survey respondents expect hotel transaction volume (number of transactions) to be below 2022 sales volume, 23% expect it to be at 2022 levels and 13% anticipate it to be above last year’s volume.
- Top three factors impacting transactions in 2023:
1. Interest rates
2. Valuations/pricing expectations
3. Ability to secure financing - Two-thirds (66%) of respondents said they expect limited hospitality platform or entity transaction activity due to interest rates and economic factors in 2023.
