Hospitality Update 2018: Hospitality sector activity is on its way to breaking records - Nov 2018
By Jessica Chevalier
Activity continues in the hospitality sector, despite the fact that its bubble was expected to burst two years ago, and, this go-round, the sector’s had an interesting run, with evolving aesthetics and material preferences influencing what’s specified where and who’s earning that business. The big questions weighing on many minds relate to how long activity will continue and what ultimately will come of hospitality’s use of hard surface flooring-will LVT’s reign continue, and will flooring sales suffer as hard surface extends the replacement cycle?
THE UNBURSTING BUBBLE
The hospitality industry has hit a nearly unprecedented run of activity since emerging from the recession. According to Jan Frietag, senior vice president of STR, a global data benchmarking and analytics firm that tracks the hospitality sector, “This year, the Unites States hotel industry through August  has had more rooms available than ever, sold more rooms than ever, generated more rooms revenue than ever, and had the highest occupancy and RevPar (revenue per available room) ever.”
Bruce Ford, senior vice president and director of global business development for Lodging Econometrics, elaborates, “We have run into an unexpected elongated trend of significant room night demand and significant room night demand growth. The long-term average for room night demand is around 2% month-over-month and year-over-year, and today it’s running over 3.5%-and has been for a while. Operating room night demand has been up 106 consecutive months. That’s not a record, but it’s getting close. If the trend continues through Q1 2019, it will set the record for the longest RevPar and average daily rate (ADR) growth ever recorded, and we began recording in 1985.”
As with the larger economy, hospitality sector activity typically runs on fairly regular cycles, but this time around, that cycle is not holding true. Currently, the market is in the ninth year of what is traditionally a seven-year cycle. “If you go back 40 years, you can see the seven-year cycle clearly,” explains David Duncan, senior vice president of sales for Mohawk’s Durkan Hospitality. “When it comes crashing down, it builds for seven, then sinks again. It’s been very consistent over the last decades. What has made this cycle different is the severity of the downturn in ’09 and very subtle growth over the prior decade. Those factors extended the cycle.”
Just as notable is the fact that the industry isn’t waiting for the ball to drop. Says Robert Stuckey, director of hospitality and retail at Shaw Contract, “There is no more talk of the bubble; the word ‘bubble’ isn’t even used anymore. It’s just a great time to be in the hospitality business. I recently attended The Lodging Conference in Phoenix, Arizona; the vibe there was super positive with regard to occupancy and rate growth, which means facilities are investing in renovations and flooring.”
While the hospitality renovation market is always more active than new construction-because the 5.5 million hotels currently online will continually be refreshed on a 12- to 13-year cycle, according to Ford-there is significant construction also taking place.
“When you look at construction report numbers, there are massive numbers of properties in the pipeline,” says Rob Cushman, national accounts and business development for Milliken.
What’s also notable is the level at which that activity is concentrated. “Sixty-nine percent of the rooms in the new construction pipeline are upscale and upper midscale new construction rooms,” says Ford-and this, the analyst believes, is the most significant story for the industry currently.
Consider two recently announced projects emblematic of this trend: Loews’ new luxury Convention Center Hotel in Kansas City, Missouri, set to launch in 2020, which will feature 800 guestrooms, a lobby bar, a signature restaurant, a three-meal restaurant, an indoor lap pool and 60,000 square feet of meeting and event space; and Omni’s Oklahoma City project, which will meet the AAA 4-Diamond rating, a standard only 2.1% of hotels meet.
In addition to all this, acquisitions, which are happening continuously in the hospitality sector, also produce business, as brands convert the acquired properties over to their signature look and style.
CULTURAL CHANGES CONTRIBUTE TO HOTEL ACTIVITY
The best news for those serving the industry is that activity is not expected to fizzle anytime soon. Ford points to the fact, first and foremost, that the general economy is strong, and also that the Great Recession didn’t impact the hotel industry directly, mostly because policies put in place by the government prevented a debt meltdown, so the hospitality industry wasn’t greatly hobbled.
Additionally, he explains, with every passing day more people become travel-aware. The next generation wants experiences, not stuff, and experiences revolve around travel and staying in hotels.
What’s more, fewer workers report to a headquarters every day. They are on the road for sales; they go to meetings. As the office becomes more mobile, this leads to more overnight hotel stays.
“So, it’s a number of factors, but the continued trend of demand growth is what is driving continuing performance growth in the hotel business,” explains Ford. “If we have long-term demand of 3.5%-a full point plus above average-we don’t have supply growth that will reach that. It’s between 2.4% and 2.6% over the next three years, so supply won’t outstrip demand any time soon.”
These cultural changes impact not just the quantity of travelers staying in hotels but also what these travelers expect from their hotel experience. Says Paul Cleary, president of hospitality business for Tarkett North America, “There is still a lot of talk about these sorts of macro-trends, and it’s about treating Millennials as a lifestyle, not just an age group.” In other words, many travelers today carry the Millennial mindset, even if they don’t technically fit into that age group. The fact is, the mega Millennial generation has changed the market for all of us. It isn’t just Millennials who want community oriented spaces and access to the latest technology-those desires have trickled up to Gen Xers and Baby Boomers as well.
Specifying in the hospitality market is akin to dealing with a multi-headed animal and trying to satisfy each of their varying tastes, says Jay Stroebel, vice president hospitality sales for Masland. The designers are focused on aesthetic appeal; the brands on aesthetics and brand consistency; and the facility owners on return on investment (ROI) and customer comfort.
“Hospitality is the most refined buying channel in all of commercial because everything has to deliver ROI-if franchisees can’t recover their investment, they won’t do it,” says Cushman. “Those that have a winning formula are getting that ROI and expanding. Hospitality isn’t the same as corporate, where a company stays in a facility for 20 to 30 years. Properties change ownership frequently at the franchisee level; people buy a facility and rebrand it as another. Owners don’t make much on day-to-day operations; it’s a matter of resale value.”
Of course, when hotel business is as brisk as it has been lately, owners are less inclined to close down a block of rooms to renovate, even though they might have the funds to do it, and that extends the renovation cycles to a degree. However, though brands may allow renovation cycles to slide in tight economic times, they aren’t going to let owners delay too long in thriving ones.
Regarding price points, Duncan reports that there is pressure, though pressure on guestroom finishes is virtually unending. “When you get into corridors, prices always have to be competitive but aren’t as tight-though the quantities are smaller,” he notes.
Stephenson adds, “Pricing for economy, mid-scale and upper mid-scale brands is extremely competitive, while luxury and full-service remain more robust, as it relates to materials and the willingness to push boundaries.”
THE LVT TREND
LVT is stabilizing at around 30% of the hospitality market, believes Cleary. And one of the appeals of LVT in that market-for both brands and franchisee owners-is the potential it has to extend the standard lifecycle of hotel flooring. It’s a great theory in concept, though, for some, the transition to a wholly new flooring surface, after decades of established practice, has been somewhat bumpy, largely with regard to acoustics and maintenance.
“There is so much misinformation in the market around performance and acoustics,” says Charley Knight, vice president of Interface Hospitality. “So much of the success of an LVT installation revolves around things like the quality of the slab, moisture levels, and whether the product is glued or floated.”
Stroebel agrees, noting that LVT is over-sold and over-promised, and brands are finding that it’s not always delivering what they expected. He adds, “Success comes down to how the building is constructed. In new construction, you can create a thicker slab. In existing facilities, you don’t know what you’re getting. And if you have a thin slab, there will be issues with noise.” Of course, given the prevalence of ownership changes in hospitality, it seems possible that this mundane yet vital information could potentially fall through the cracks, and that new franchisees of older properties might be left taking something of a chance installing LVT.
Interestingly, there are a variety of sound transference issues to consider in hospitality environments: floor-to-floor, in-room and through the door. Now that LVT has been in the hospitality market for a few years, concerns about floor-to-floor noise from LVT installations have been mitigated to a degree, report manufacturers, which have been working diligently to provide solutions via product variations, installation methods and underlayments. And a key to that success is knowledge-both for owners and the installation teams they hire.
In the case of one manufacturer, a major hotel brand that uses its LVT installs underlayment and tests the acoustic qualities of every single installation-taking no chances.
“Like any hard surface product, hotel owners must make sure they have the right installation pros to do the job properly,” says Duncan. “LVT is glue down, floating or click, and each has unique installation requirements. Finding capable installers equals success. Regarding acoustics, hotels have gone through lots of testing to make sure the product meets levels they like. At the moment, we’re not seeing many issues with acoustics-we’re hitting the standards that they want to see.”
In-room sound is another issue, as the “echo chamber effect,” as Stroebel calls it, can make for a frustrating stay experience. Franchisee owners mainly try to control that with soft surfaces-rugs, bed treatments and curtains.
The use of LVT in corridors is still less common, though it seems a natural choice to handle the wear and tear of the space. “Through-the-door noise can be harder to mitigate,” notes Stuckey.
Time has assuaged some of the stresses related to maintenance, since maintenance teams eventually master the new processes and they become old hat. On this front, educating is also highly important. Says Cushman, “For the most part, the brands have taken pains to education the maintenance staffs so that they are using the right type of cleaning products and methods and avoiding cleaners that might remove finishes. They are remediating things like scratches to restore a floor.”
However, challenges remain-particularly on the expectations front. Knight reports that many owners still believe they are getting a bulletproof floor with LVT, and that simply isn’t the case. The concern, of course, is that the whole category will get a bad reputation due to poor specification or installation.
“In choosing LVT, brands are trying to provide a standard for the brand, something consistent domestically and hopefully globally,” says Duncan. “They’re trying to look out for the interests of the ownership groups as well, extending the replacement cycle to 12 years instead of seven. LVT in the guestroom is more expensive, but it should last longer.”
Of course, longer replacement cycles aren’t good for the flooring industry and, though the wood-look LVT used in hospitality today is fairly straightforward style-wise, many still question whether it will trend out before it actually wears out. In some respects, at least, it’s incumbent on the flooring industry to drive that change.
“Everything is wood looks at the moment,” says Duncan. “But I foresee much more innovation in design because it’s easy with LVT. I can put a picture of Manhattan on LVT. There’s great opportunity for customization, and innovation drives quicker cycles.” Offering branded looks coordinated between the various spaces in a hotel, such as guestrooms, pre-function and community spaces, will create a design edge and differentiation.
That sort of design innovation would also help on another front, the category’s “race to the bottom,” which Stroebel reports is a significant threat.
While all of this is happening, it can’t be ignored that the development of LVT and similar products is taking place at a record pace, and something new is likely just around the corner. “There are technological advances every six to 12 months that are making LVTs more technically sound and durable,” says Cushman. One of the challenges on that front, however, is the fact that so much of the innovation takes place in China. “SPC is the most current product that gives you the technical aspects hotels require, but most of those are currently made in China,” he adds.
While hard surface may be trending, soft surface still has many solutions to offer the hospitality market.
On the broadloom front, the story remains somewhat the same as it has been. The category has definitely lost share to LVT, but interviewees report that some brands have loosened their short-lived LVT-only stances for guestrooms and are offering options: LVT, LVT with rugs, or carpet.
Area rugs-off the rack, custom or serged and bound broadloom-are used to warm a space visually and tactilely as well as assist with acoustics. And it is seen as a great boon that these and other soft surface elements can be changed out over the life of the LVT floor beneath to update the look of a space. Stroebel notes a preference for solution-dyed area rugs at hospitality because they are pet friendly, colorfast and cleanable.
At the luxury end of the market, rugs, especially custom pieces, are highly prized.
Mark Oldfield, senior vice president of operations for Brintons Americas, notes, “We’ve recently launched a cut-and-loop woolen Wilton product specifically targeted to the luxury guestroom market. This 100% wool floorcovering can be made to custom sized rugs, if required. Wilton-carpeted guestrooms are definitely at the top end of the scale but the look and feel of wool underfoot can elevate the guest experience considerably.”
On the carpet tile front, the story is more complicated, with some interviewees reporting that the product’s use in guestrooms has declined and others disputing that.
One individual points out that carpet tile’s success in hospitality isn’t hindered by its performance or look but by the industry’s lack of incentive to sell it. Broadloom, as the standard and lower price point product, is the path of least resistance. In other words, broadloom is easier to sell, and unless parties have a real motivation to promote carpet tile, they may not work hard to fight the broadloom status quo.
“There was a trend two years ago with hotels putting carpet tile in guestrooms, but that has reversed completely,” says Cleary. “Today, by rule, it’s either broadloom or LVT, though it is still a standard in some select-service specs. A couple of flags have added broadloom back into their programs.”
Cushman agrees that carpet tile-only specifications have all but disappeared but notes that owners haven’t been unhappy with the category, and, in fact, some really see the value in modular, as it doesn’t produce as much waste. What’s more, franchisees don’t have to take a room fully out of commission to replace a damaged tile or section.
Interface, a carpet tile specialist, reports that while LVT is surging, its carpet tile sales have remained quite strong. “A lot of our growth is coming from LVT, but it is still less LVT than carpet tile, proportionally,” says Knight. “Shockingly, we were the first to create a system where LVT and carpet tile would integrate without transitions, and the specifiers couldn’t believe what an innovation that was. By leading in that regard, it has enabled our LVT program to act as a catalyst, taking our carpet tile to places it hadn’t been before.” Knight believes that key to getting carpet tile’s foot in the hospitality door is selling it as a solution to the challenge organizations face. Knight reports that he is seeing carpet tile specified in conjunction with LVT in guestrooms as well as in corridors, ballrooms and exhibit hall spaces.
Stuckey notes that an inset carpet tile rug around the bed offers a seamless transition, which is highly desirable in preventing slip-and-fall and trip injuries.
The trade war with China is impacting the hospitality industry in a couple of ways. According to a mid-August report from TravelWeekly, “A costly slump in Chinese visitors to the U.S. is being blamed on the Trump administration’s tit-for-tat trade war with China. Year-on-year figures to August show a drop of 8.4%, falling further as new rounds of tariffs against China have been announced. The biggest impact is on bookings for group travel from China to the U.S., currently behind for the rest of 2018 by 34.4% compared to last year. Bookings by independent travelers are down 3.9%, with leisure travel being worse affected than travel for business or travel to visit friends and relatives.”
In addition, budgets will certainly be impacted by the rising cost of building materials imported from China, including lumber, steel, aluminum and gypsum, as well as finished components such as LVT, which has been making strong gains in the sector, and countertops. “We’re being pressed with tariffs,” says Masland’s Stroebel. “Not just on flooring, but on steel, concrete, roofing, windows. The whole industry is seeing the effects of a 3.9% unemployment rate. The market is tight but busy.”
While it has been reported that LVT is taking share from ceramic in some hospitality sector bathroom spaces-a design strategy that creates a unified look throughout the entire guestroom-ceramic manufacturers that serve the sector report that business activity remains strong. It is interesting to note that while LVT has been on its wild tear across the hotel world-highly touted for its waterproof characteristics, durability and resimercial aesthetics, which align it with contemporary hospitality trends-ceramic has always been waterproof, is highly durable, and has arguably the easiest maintenance profile of any product in the flooring industry. It has also been consistently innovating both with respect to format and aesthetics in ways that enable it to fit the resimercial bill-wood and fabric looks, for instance-and cater to more high-end design trends, such as the creation of more monolithic looks via larger-scale tiles and porcelain panels. Though the upfront pricing is higher than many materials, especially factoring in installation costs, the material offers a number of benefits appealing to both owners and brands. “The durability of porcelain is undeniable,” says Morgan Stephenson, director of hospitality for Daltile. “It is the least expensive option from a cost and maintenance perspective. Porcelain is stainproof, scratchproof, waterproof and fire-resistant.”
Marco Fregni, CEO of Florim, adds to that list of advantages. “Because tile is easy to clean and hygienic,” he notes, “we are seeing it being used in areas of hotels where cleanliness is a big concern, like bathrooms and changing rooms.”
Fregni points out that the hospitality market is looking for flooring materials that provide lasting durability, can stand up to heavy foot traffic, rolling loads, food consumption and consistent chemical cleaning. He adds, “But at the same time, you have to balance those criteria with what customers gravitate to, which is flooring that can fit seamlessly into a broader design vision.”
It is also true, however, that much of the tile that has long graced hotel bathrooms, especially in the lower and mid-ranged levels, is a workhorse product and not terribly appealing aesthetically. That may be a result of the avoidance of more stylish products that could trend-out or the fact that much of it was installed years ago, before the onset of digital printing and the category’s subsequent aesthetic revolution, but the fact is that today, style-wise, ceramic can do so much more.
In addition to guestroom bathroom and back of house spaces, where ceramic has long held footing, Melanie Tatum, architecture sales representative for Crossville, reports that the product is being specified for elevator lobbies and cabs, where luggage, luggage carriers and cleaning crew carts often create damage to painted or wallpapered surfaces. Here, ceramic is used as a wainscot, and Tatum reports that this isn’t happening only at high-level facilities but even at the mid-range. “We recently worked with a hotel that had to replace wallpaper three months after they put it up due to damage,” she adds.
Tatum also notes increased usage in guestrooms, front-of-house areas and tub surrounds, which today are featuring porcelain panels rather than more traditional sized tiles. She points out that panels offer a quieter installation than smaller tiles because they are cut with glass saws rather than tile saws, which don’t create dust and therefore do not require that surrounding rooms be closed. Less disruption is highly desirable at hospitality, of course, since every closed room represents dollars lost in today’s market.
Tatum also reports that, generally, many clients have changed their thinking with regard to lifecycle cost. “Ten or 15 years ago, it used to be that a client would ask ‘How much is this?’ and make their choice solely based on price,” she says. “Today, we are getting jobs with porcelain panels, which have a higher price point, because owners realize that they are saving money by not having to close down a large amount of space. At the Hyatt Regency McCormick Place in Chicago, the cost to demolish the existing terrazzo was $50 per square foot. Instead, they laid our Laminam gauged porcelain panels over the terrazzo. It’s about the bigger picture today, and it’s an education process.”
Interestingly, Daltile now offers a system through which tile can be removed more quickly and effectively, enabling design schemes to be changed more often and with greater ease.
From coffee shops to retail stores to salons, businesses today hope that their interiors inspire social sharing, and that motivation certainly holds true in hospitality.
As we have covered for the past few years, one differentiator in that regard is design that speaks to local culture. For the experience-seeking Millennial generation, which documents its adventures through photographs and ultimately shares them through social media, an aesthetic that relates to a particular locale is excellent fodder, and on the business owner’s end that equates to free publicity of the most genuine variety.
Of course, there are different ways to drive this Instagramability. One of the most powerful is authenticity. Consider your favorite local dive-be it a rib joint, watering hole or lunch counter-where an updated aesthetic would be not only undesirable but also an affront to committed fans. Those kind of highly sharable spaces possess a “je ne sais quoi” that hinges solely on being what they are.
In lieu of actually enjoying such inherent interest, businesses can use design to reflect such local magic within the community. Consider a Days Inn in Memphis that features not stock art but photos of Graceland and music memorabilia, using décor to embrace all that’s great about the local area. Says Florim’s Fregni, “One of the biggest trends we’ve seen is that customers are embracing design that feels unique to that region. Up until recently, hotel chains had typically adopted a look that was the same across the entire chain of hotels because it provided a dependable experience whether you were in California or Ohio. Today, hotels are becoming more a part of the cities and communities in which they operate, providing more of that ‘experience’ feel for customers. This was long something that smaller boutique hotels prided themselves on, but the largest hotel chains have recently started to follow that trend as well, adopting more of that lifestyle feel for both their biggest brands and smaller, spinoff brands.”
Businesses can also use design to create a space that stands out in its own regard-for its hip vibe, beauty or quirk. Whatever the reason, Instagramability is an important component in the hospitality business today and one that flooring has strong power to affect.
PERFORMANCE IS IMPLICIT
Many of the experts with whom we spoke indicate that design rules the roost with regard to specification in hospitality settings. This doesn’t mean that performance aspects aren’t as important-only that measuring up on standards of cleanability, lifecycle and safety are simply expected. “It’s incumbent on us as manufacturers to provide product fit for purpose,” notes Pat Goggin, vice president of OW Hospitality Americas.
Cost, however, always plays an important role, especially in guestrooms. “The reality is that when it comes to guestrooms, there is not really a luxury budget,” says Cleary “A guestroom is a guestroom. They might go up 10% or 15%, but it is still within a tight budget category, especially in the major brands. Brands are very conscientious to make sure they are working with reliable vendors that can meet price points and timelines.”
Pets are on the move. More people are traveling with their pets today than ever before, a trend that Lodging Econometrics’ Ford reports has been driven by the fact that airlines now allow pets in the aircraft cabin.
Of course, along with pets come hair, dander and accidents, and those are factors that impact flooring directly, pushing specifiers toward cleanable and easily replaceable options.
Copyright 2018 Floor Focus