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U.S. Hotels See $10B Revenue Increase For 2017, But Margins Are Thinning

The Westin hotel at 400 West Broadway in San Diego

Hotel revenues in the United States grew by $10M from 2016 to 2017, but it isn't all good news.

Hotel revenues nationwide hit $208B and gross operating profits hit $77B last year, both record numbers, according to an STR report. But for the second straight year, hotel expenses grew at a higher rate than revenues, meaning profit margins have shrunk for two years in a row.

Luxury hotels saw the biggest increase in profits with 3.1%, while profits declined by less than 1% for both upscale and upper midscale hotels. Of all types of revenue sources, the miscellaneous category saw the biggest jump at 8.8%.

Taken together, both sections that showed the most growth were the ones most susceptible to fees. Such numbers indicate an increasing reliance on fee-based income, according to STR Director of Financial Performance Joseph Rael. 

As for the expenses hotels pay, management and franchise fees levied by landlords and brand umbrellas accounted for the largest increases with 4% each. Labor expenses increased by 3.2%, which is a slower rate than hotels experienced in 2015 or 2016 but the third straight year of increases nevertheless.

Property taxes for hotels increased by 4%, and utility costs rose 1.3% in 2017 after two straight years of decline. Taken together, every form of expenses hotels have to pay rose from 2016 to 2017. As expenses have risen, investment has been sluggish in the sector in the past couple of years.

One encouraging trend in hotels is the increased willingness of developers to include them in mixed-use developments as a way of generating crucial foot traffic. The hotel that North American Properties built as part of its massive Avalon development in Alpharetta, Georgia, has exceeded revenue expectations, the New York Times reports.