Hospitality Update - May 2009

By Darius Helm

The hospitality sector is generally the first to feel a recession and the last to recover. When the hospitality market started to soften in mid 2008, it came as no surprise to those in the industry who were anticipating a slowdown following the cycle of growth launched by pent-up demand coupled with fall-out from the housing slump. But the credit crunch and banking crisis that followed hit hospitality hard.

For much of the hotel industry, it’s been a grim picture since then, though not without silver linings. The three key indicators of hotel business, occupancy rates, average daily rates (ADR), and revenue per available room (RevPAR), have been steadily falling across the entire scale of accommodations, which ranges from luxury, upper upscale and upscale through midscale with or without food and beverage to economy and independents.

The hardest hit sector has been luxury, which includes hotels like Four Seasons, Grand Hyatt, Ritz-Carlton and W Hotel. In that sector, according to Smith Travel Research, occupancy rates for February 2009 were down nearly 17% from February 2008, ADR was down over 14% and RevPAR was down a whopping 28.6%. Other high end hotel sectors like upper upscale, which includes Embassy Suites, Westin and Hilton, were also down severely.

The best performing sectors are generally midscale without food and beverage, also known as limited service hotels, as well as economy accommodations. For instance, from February 2008 to February 2009, occupancy rates at economy lodgings were down only 8.4%, ADR was down 4.4% and RevPAR was down 12.4%. The situation at midscale hotels without food and beverage was comparable—down 10.4% in occupancy, 3.1% in ADR and 13.2% in RevPAR.

SHIFTING PATTERNS
These midscale hotels without food and beverage, which include establishments like La Quinta Inn, Fairfield Inn, Comfort Suites and Holiday Inn Express Hotel, have been in a growth mode for a few years now and the current economic slowdown has helped that sector take even more share. The general formula of these establishments is to provide the essential in-room amenities that both business and leisure travelers demand, and that’s often technology based, like Internet connections and TVs with a broad range of on-demand features, while ensuring easy access to restaurants and entertainment, all at a much more affordable price than hotels that offer those services in-house.

Location is often key. For instance, many limited service hotels are situated within walking distance of retail centers, so guests can literally walk out the door and choose from a number of restaurants for their meals. This is often preferable for guests, who frequently would rather step outside of their hotel for their meals if it’s convenient enough.

Running restaurants within hotels can be an expensive proposition, unless it’s an upscale or luxury establishment offering brand name eateries or restaurants run by famous chefs. Sure, room service can be key for harried business travelers, but limited service hotels often offer an array of menus from restaurants that deliver right to guest rooms.

Some midscale accommodations that have historically offered food and beverage service, and even some upscale chains, have been closing down their restaurants and room service to lower their overhead and offer rates more appealing to today’s travelers. Often, hotel owners have been trading down to limited service hotels because that’s where occupancy rates are higher and consequently that’s where banks, now more cautious than ever about their lending practices, are more liable to offer financing.

In this economy, businesses don’t have the budgets they once had, and, when it comes to travel, that has been driving business in limited service establishments.

Smith Travel Research also looks at lodging activity according to six location categories—urban, suburban, airport, interstate, resort, and small metro/town—and the most recent data sheds even more light on accommodation trends. For example, hardest hit are resort locations, which one would expect in the current economy, and urban locations are also down substantially, which to a large extent reflects reductions in business travel. These days, teleconferencing is gaining significantly over traditional conferences and meetings because of the huge savings involved, even though the general consensus is that face to face meetings are ultimately far more effective.

Average daily rates are down in all six location types with the exception of interstate lodgings, which were actually up 0.3% from February 2008 to February 2009, while airport lodgings are down almost as much as urban and resort lodgings. Also faring well are small metro/town accommodations. To some extent, this data reflects the activity of road warriors like traveling salesmen, as well as shifts in leisure travel patterns—and the lower cost of gasoline compared to a year earlier is undoubtedly playing a role in boosting that trend.

CONSTRUCTION ACTIVITY
It’s not just the tighter budgets of both travelers and hotel owners that are boosting activity in limited service hotels. Design is also playing an important role. These days, luxurious high end looks can be achieved on much smaller budgets because design has improved across the entire cost spectrum and producers of interior furnishings have become more innovative. A tighter budget no longer means a prosaic look.

Ten years ago, the only lobbies with higher end stone looks like exotic marble, slate or granite were in luxury and upscale hotels. Now there are literally dozens of porcelain manufacturers that can deliver the same look at half the cost. The same is true for carpet design. Back then, a dramatic large scale broadloom design could only be achieved through the use of high end Axminster carpet. Now, not only are the Chinese producing cheaper Axminsters, but printed carpet and CYP (computer yarn placement) technologies can reproduce those same looks.

More importantly, the designs available today go so far beyond traditional Axminster looks and are so thoroughly customizable that any hotel with a carpet more than five years old is missing out on opportunities to leave a lasting impression on guests. Textured constructions like multilevel loop carpet are in high demand and it’s a growing focus among hospitality carpet mills.

Consequently, midscale hotels have been investing in remodeling to update their looks. They’re also catering to a new demographic—young travelers with a more progressive and edgy design aesthetic.

In general, the renovation cycle in the hospitality business is about five years, driven both by high traffic and the growing need to remain current. And the process of renovating hotels from start to finish commonly runs as long as two years. So even though the hospitality industry is going through a slump—by some accounts, the new construction pipeline has declined by 9% in terms of projects over the last few months—manufacturers of flooring and other interior elements have not necessarily felt as much of a pinch.

New hotel openings grew by about 3.2% last year. However, hotel transactions—the purchase of properties by hotel companies—were down from $48.8 billion in 2007 to $9.7 billion last year, and construction is at its lowest level since 2006. There are 196,000 rooms being constructed this year but most of them will be completed in the first half, and activity is poised to dry up for the balance of the year. On top of that, cancellations of new builds are also up significantly. Hard hit markets like Las Vegas have been cutting projects in half—for instance by building one tower instead of two—and in some cases have even cut in half the height of buildings midway through construction.

The good news is that some of the projects put on hold or canceled in the last six months have been restarted, and more than anything that has to do with the banks. Financing ground to a halt during the final quarter of 2008 and through the first couple of months of this year. However, some design firms are now reporting that banks are lending again. If the trend holds, that may mean stabilization by the end of the year.

TRENDS IN DESIGN
Sometimes traditional ways of doing things endure simply because no one has ever taken a close enough look at them. This is particularly true of architectural and design elements. Though some aspects of architecture have constantly evolved, other elements have remained the same simply because they were practical or sufficient.

All that has changed in recent decades, as the A&D community has helped foster awareness about the impact of design on everything from inspiration, moods and memories to efficiency and even profitability. Design enables hospitals to provide better healthcare and improve patient outcomes, it fosters auras of competence and dependability in the corporate world, and in hotels it generates feelings ranging from awe and excitement to confidence and a sense that you’re in a place where every need can be met.

As needs evolve, so does design. Recent studies have impacted the design of hotel lobbies. In the past, lobbies were large open spaces with check-in counters and other basic interfaces, and lounges were separate and distinct spaces. Tertiary spaces provided amenities like food and beverages.

These days all that is changing. Firms like Marriott have commissioned studies that reveal a demand for more unified spaces, with amenities like Wi-Fi service, beverages and social networking environments. Lounge areas are merging into lobbies, creating more modular environments, and instead of large open spaces dominated by dramatic floor designs, flooring elements are used to break up the space and signify a range of functions.

For instance, a modern lobby might have a marble floor inset with carpet here and there in small lounge areas with sofas where people can sit, chat, have drinks and go online. Kiosks and touch screen tour guides add a new level of interactivity. A broader range of flooring materials, including hardwood, porcelain and area rugs, are used to create different atmospheres.

Guest rooms are also being transformed. According to Meghann Day, a project designer for Hirsch Bedner Associates (HBA), a leading hospitality design firm that has a huge global business, guest rooms are being transformed in ways never before imagined. One of the most fascinating evolutions is in the design of the bathroom.

Most people don’t realize it until it’s pointed out to them, but the bathroom has a defining influence on the perception of a hotel room. For one thing, it’s usually the first thing people see when entering their hotel room, because it’s often right there at the entrance, and its bright lighting creates a vivid impression.

If the faucets are unique, you’ll remember them; if the floor has beautifully veined marble, it will leave a lasting impression; and if the lighting fixtures are odd and unexpected, they’ll be etched in your mind and indelibly linked to your impression of the hotel. These days the higher end hotels that HBA designs are even going as far as shifting the bathroom to the center of the room so you’ll navigate around it.

Traditionally, the floors in hotel rooms were covered in broadloom. One recent trend has been to use a hard surface in the entryway—stone or porcelain or hardwood. More tropical climates have traditionally used hardwood in guest rooms, and that trend has moved beyond the tropics to the point where guest rooms in luxury hotels will often have hardwood floors highlighted by area rugs or inset with carpet.

Carpet tile’s role in hospitality is often driven by its green characteristics, and it is increasingly used in public spaces, though broadloom remains the dominant carpet. Carpet tile’s functionality lends itself to use in guest rooms, but in general the higher upfront cost obviates its use. However, many carpet tile producers report that use of their products is on the rise in the hospitality sector.

THE GREENING OF HOTELS
Though sustainability is relatively new to hospitality compared to sectors like corporate and government, it’s been taking hold at a rapid pace over the last four years. According to HBA’s Day, the biggest design trend of all is the push for green design. Clients increasingly understand the sound economics behind sustainable design, hotel guests increasingly demand it, and most experts agree that the hotel brands themselves derive considerable benefit from brand identities linked with sustainability.

The use of natural materials and products with low environmental profiles is booming in the hospitality industry, and in terms of flooring that means carpet tile, bamboo, certain hardwoods and natural stone.

Two years ago there were only five LEED certified hotels, and by the end of last year there were 15, with about 600 in the process of building toward and attaining certification. Though that number pales in comparison to total number of LEED certified projects—according to the latest U.S. Green Building Council report, there are 2,122 LEED certified commercial projects and 1,304 LEED certified residential projects—it’s clear that the hospitality sector has made a commitment to going green. One of HBA’s latest hotel projects in Torrance, California, just achieved a Silver LEED NC rating.

The flooring industry is well positioned to help hospitality projects attain LEED ratings. The three biggest domestic hospitality carpet manufacturers, Durkan, Shaw and Milliken, all have products with a range of environmental attributes and all have vastly reduced their environmental footprints over the last several years.

This year, Shaw, which also offers hardwood, laminate, ceramic tile and area rugs, is launching a hard surface hospitality program to keep up with trends and fulfill its strategy of being a complete resource to the hospitality industry. The firm’s laminate and hardwood flooring are already being used in hospitality applications, in some cases replacing carpet in guest rooms. And at this month’s HD Show in Las Vegas the firm is coming out with five new collections from five different design resources to cater to the broad array of styling in the industry.

Durkan, which is part of Mohawk Industries, makes both printed and CYP carpet for the hospitality industry, and last year it added carpet tile to its offering. Its solution dyed Merit Modular Carpet features tufted graphic patterns at affordable price points. The line will mostly be used in public space, corridors and back of house applications. The firm also offers a comprehensive planning and estimating service that uses architectural plans with schematics of carpets to work with clients and contractors. Next up is Durkan’s web based tool for doing a lot of that work online.

Milliken makes printed broadloom and carpet tile, and over the last couple of years the firm has taken its design capabilities to a new level. The firm’s custom capabilities along with the 4,000 or so colors it offers are maximized in its Etage design process that allows for incredible layering effects unlike anything the carpet industry has ever seen. On top of that, designers can go online to create designs and order samples that will be on their desks in five days.

Several other carpet mills specialize in hospitality carpet, including Templeton Mills, Brintons, Clayton Miller, Lexmark and Burtco. Burtco’s owners are partners in CYP Technologies, which manufactures the Tapistron machine. These mills and several others, along with hard surface manufacturers, are showcasing their new products at the HD show. Turn the page for a sneak peek at new products in our Hospitality Design Preview.

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