Recent room development plans unveiled by Hilton Hotels Corp. and Marriott International indicate that the U.S. hotel market, with strong revenue growth and limited opportunities for new property construction, this year will see an unprecedented boom in renovations and amenity upgrades.
"The industry will spend a record $4.5 billion on renovations and upgrades during this calendar year," said Bjorn Hanson, head of PricewaterhouseCoopers' hospitality and leisure practice. "This does not include additions of rooms or new construction."
"It's been a tough market since 9-11 and I think a lot of them slowed down their renovations," said Earl Foster, senior vice president of Partnership Travel Consulting. "They were always on a cycle with the renovations. Now, it's rebounded—and then some. They're making a profit, a good profit, and they recognize that they need to keep their properties maintained if they want to maintain those profits."
Hilton late last month announced widespread upgrade plans and new room designs for properties within its Hilton Hotels & Resorts portfolio. The company said it would spend more than $500 million to renovate more than 70 hotels throughout the U.S. this year.
In addition to its overhaul of guest rooms at selected properties, investments also are earmarked for revamped beds, new bath accessories and other amenities chainwide.
"It's clear that there was some holding the purse strings a little closer as there was a downturn in the market post-9/11," said Jeff Diskin, senior vice president, brand management, Hilton Hotels. "As things have gotten better, there was some pent up demand in terms of investing in the facilities. Also, it's just time to do it. We're at a time where people's expectations of what hotels are continue to rise."
With progress taking shape on corporate-owned hotels, the company said that beginning in 2006, it will enable hotel owners to choose from three new room prototypes via the Internet—in urban/contemporary, traditional and resort styles—which properties can modify and customize to specific tastes.
"With so many hotels undergoing renovations, it made sense for us on a go-forward basis to always maintain model rooms and put them online," Diskin said.
Hilton also is making more widespread changes to its properties. The company said that by the end the year, 95 percent of its corporate properties and 50 percent of managed and franchised properties will boast Hilton's new Serenity Bed.
Meanwhile, Hilton this summer will roll out brandwide new bath amenities and bathroom accessories including trays, soap dishes, tissue box covers, and trash cans. Additionally, the company said it would be adding to all of its properties new coffee makers, alarm clocks, ice buckets and trays as well as coffee service trays.
Marriott also has been aggressively overhauling the look and feel of guest rooms across several brands. Through a series initiatives announced this year, the company is rolling out new bedding, televisions and new room designs for several brands.
"We and our owners are making significant new investments in our product—our new bedding package, our Internet and technology offerings, and totally new room designs," J.W. Marriott, Jr., chairman and chief executive officer of Marriott International said in a statement last week. "We will continue to innovate our guest room product, and we have new and exciting ideas for lobbies and other public spaces and in our food and beverage concepts."
Marriott is in the process of adding bedding to 628,000 beds in 2,400 hotels across its brands worldwide. Marriott last week also said it expects to renovate 150 Courtyard hotels by year-end.
Meanwhile, the company in March unveiled to more than 800 of its general managers and executives new room designs for its Marriott and Renaissance brands
(BTN, March 21)."Owners can take elements of the new room, either in its entirety or elements of it," a Marriott spokesperson said. "There are renovation cycles. Owners know that they have these renovation cycles and therefore need to have capital available for the renovation when it comes up. No matter what the economy is, the renovations continue."
A Marriott spokesperson last week said the Cleveland Marriott Downtown is the first property to begin renovations and the first of the redesigned rooms will appear this month, with completion slated for October.
Meanwhile, Marriott said that its extended stay brand, Residence Inn, is in the process of "refreshing" properties throughout North America.The company said it already has renovated 70 hotels, with 30 more to go this year.
As demonstrated through its Residence Inns brand, the company said renovated rooms have yielded stronger revenue. "Those reopened for at least four months have nearly an 11 percentage point higher average guest satisfaction score and 12 percentage point higher RevPAR growth than non-refreshed properties," the company said in a statement last week.
While travel managers typically favor upgraded properties in efforts to provide travelers comfort, cost-consciousness continues to dominate decisions, leaving buyers resentful when improvements serve only as a justification to raise rates.
Hilton asserted that it is not making its adjustments as a basis for rate increases, but said some travelers and their companies are willing to pay more for such amenities.
"We would be looking to do these sort of things if we were not in an upswing market, but others would argue that with demand outpacing supply, do they need to do it?" Hilton's Diskin said. "As a company that is dependent on customer relationships, it's important to create as much value for your investment as possible. That said, if you create more preference, people are willing to pay more to get the guest experience that they're looking for."
PwC's Hanson said renovations, depending on circumstances, could lead to rate increases, but not by default. "There is some correlation between rate increases and spending," Hanson. "After a room renovation, rates are usually higher, but the industry is in the phase of the cycle that portend rapid rate increases— our forecast is for 4.3 percent—and rate increase will contribute 61 percent of the increase in RevPAR. Many brands implemented new standards—coffee makers, irons and ironing boards, etc.—in advance of the increases in rate, so some owners are viewing the rate increases as a return on investment."
Many travel buyers—as well as hotel RFPs—inquire as to the condition of rooms and properties, yet seldom does this factor amount to be the primary consideration.
"Travel managers can't afford to put in their program properties that aren't maintained because the travelers would get on them pretty quick," PTC's Foster said. "That's an ongoing thing. It is something they look not just at bid time but all throughout the year."
"We do look how the rooms are kept up, but it's certainly not the main priority for contracting," said one large market travel buyer. "We know it's impacting pricing but we know at the same time they've been making profit over profit. There are price hikes and unfortunately they are the way of the world and we try to keep that to a minimum or work on the soft-dollar side."
Renovations and amenity upgrades ultimately are good for business and many hoteliers claim they yield incremental income, but hotels said that taking room out of inventory to make necessary enhancements can be a detriment to earnings in the short term.
Even midprice and economy brands have gotten into the act of upgrading amenities and heightening brand standards. Choice Hotels International last month said it is said it is expanding its breakfast menu this year, adding a proprietary line of bath amenities and looking toward upgrading bedding for its Comfort Inn and Comfort Suites brands. Red Roof Inn earlier this year announced new services and amenities including new bedding. Hilton Garden Inn, a midprice brand, earlier this year launched a menu of new standards that included upgraded beds and flat panel televisions
(BTN, March 21).