Hospitality Midwest

Labor challenges and growth pains? Hotel industry faces new challenges

Labor challenges and growth pains? Hotel industry faces new challenges,ph01

With the end of the year quickly approaching, hospitality professionals around the country are beginning to wonder what’s in store for the hospitality market in 2019.

It feels like a pivotal moment for the industry, with new trends and technologies emerging at a time when the larger marketplace seems to be approaching a turning point. Hotel owners and operators are openly speculating about what the future of hospitality development will look like and focused on how to capture demand in an ever-evolving, expanding and competitive industry landscape. The most urgent question is what’s on tap in the months and years ahead, and how shifts in the market may impact strategies for 2019.

There are many takes out there on our industry’s biggest issues and hottest topics—here are some of my thoughts about what they might mean for the hotel industry in 2019 and beyond.

Labor pains

The bright light that has been shining on employment issues in the last 24 to 36 months is well-deserved. A tight labor market is a very real and very impactful phenomenon, and there is little reason to believe that the pressure it has put on the hospitality sector is going to ease anytime soon.

What goes discussed less often, however, is that the cause of that pressure is much more than just low unemployment. There is a wide range of issues adding challenging complexity to hiring and retention, compounded by some of the gender equity issues (equity in the workplace, fair work practices) that the industry has thankfully begun to address in recent years; insurance requirements, especially for part-time employees; and complex and even controversial political considerations.

One of the prime indications of that pressure is that we are seeing positions created and staffed with names like Director of Corporate Enthusiasm. Hotel companies are notoriously focused on their bottom line. So, when organizations that have a deserved reputation for watching every penny suddenly start adding ancillary roles and positions with the expressly stated goal of improving employee tenure and reinforcing commitment to the organization, that’s a significant step.

While scheduling is inherently uncertain in a business where the 9-5 workday doesn’t really exist, more owners and operators have begun recognizing the importance of this issue and working to implement more flexible and employee-centric scheduling protocols. Evidence continues to emerge that more stable, predictable and consistent scheduling practices can improve productivity, performance and worker satisfaction. We can likely expect to see more of these concerted and creative efforts in the months and years ahead.

Rooms for growth?

While the industry has generally flourished in a strong economic environment for close to a decade now, interest rate hikes have complicated the picture. Even with hotels still performing relatively well, many owners are not doing as well today as they were a year or two ago. Even in what seems to be a healthy marketplace, this is creating financial strain on owners and probably contributing to the feeling that we might be bracing for a downturn.

But is that feeling based in reality?

It’s true that an industry-record 102-month stretch of consecutive monthly year-over-year RevPAR increases came to an end recently, when September RevPAR declined by 0.3 percent (down to $89.10). But the question remains: is that a shot across the bow of an industry that has long feared that an extended period of economic growth might be coming to an end? Or is it the low point in a natural bell curve, with some doldrums destined to be followed by a subsequent period of reinvigorated growth?

Even before that September streak-ending milestone, hotel performance numbers have been gradually flattening out. Consequently, lenders have pulled back from 75-85% debt closer to 65% debt, and interest rates have increased. Rising interest rates make deals more expensive, slowing overall development and even stalling some projects—all against a backdrop where demand has remained at all-time high levels and ADR is also at an all-time high.

It’s also important to recognize that, while there has been some discussion about a slowdown in demand, it hasn’t stalled—at least not yet. What has slowed is the pace of growth: demand is increasing at around 3 percent instead of 6 or 7 percent.

The upshot of those trends is that, if the pipeline in rooms starts to stall or level off, improvement is inevitable. Another reason for optimism on a national level is that the majority of excess supply can be found in just four major markets: New York, Houston, San Francisco and L.A.

While there is no question that those four cities have tremendous influence and tend to drive the broader marketplace, there are large swaths of the country outside of those four cities where new hotel growth has not exceeded demand and there is additional room for growth going forward. Given that supply has fallen back below the demand line, there are legitimate reasons for optimism for the short- to mid-term future. Barring some kind of black swan event, I suspect that the current period of slower-but-still steady growth might continue longer than some have predicted—perhaps through the end of 2020 and even into 2021.

Chris Green is chief commercial officer with Chesapeake Hospitality in Greenbelt, Maryland.