Insights

The economic slowdown and hospitality

ARTICLE | July 07, 2022

Authored by RSM US LLP


The hospitality industry is faring worse than the overall economy.

It can be argued that the hospitality industry has experienced the worst recovery of any sector of the U.S. economy. Supply chain and labor constraints have hurt hotel operations, and rising interest rates have stymied capital investment and acquisitions of hotel properties. The unemployment rate for hospitality is elevated, reaching 5.1% in May, compared to the broader economy’s rate of 3.6%.

The industry now struggles with the limited availability of supplies required to support guest services. Demand recovery continues to provide green shoots for investors and operators, but the hotel business model will need to change rapidly to address shortages in goods and talent.

By the numbers...

The average daily room rate of $155 for the week ending June 11 is the second-highest on record since hospitality analytics firms started tracking rates in 2000. Travelers have been mainly undeterred by the inflationary costs of travel, but the onset of a recession may rapidly reverse this trend.

The top challenge for the hospitality industry in a slowing economy is labor.

The U.S. economy added 390,000 jobs in May, with hospitality contributing about 84,000. The bigger picture, however, is that hospitality has lost over 7.5 million jobs since March 2020, the start of the pandemic. Even with 6.9 million jobs added back in that time period, the sector shows a net loss of 600,000 jobs. By comparison, all other major sectors have experienced net job additions. Hospitality jobs will likely not return, as the favorable labor market lures workers to other sectors with competitive perks. If the unemployment rate ticks up due to recessionary pressures, the hospitality industry is likely to suffer greatly.

Cap rates present another challenge to the sector.

Cap rates, or the rate of return from investment after fees and leveraging costs, were nominal in the real estate industry before the pandemic. The resulting increases in interest rates are further squeezing the profitability of hotel transactions, which in turn slows investment in the hotel sector. There is potential for deployment of dry powder from acquisition funds to acquire hotel properties with less leverage, but other areas of real estate may appear safer to private equity funds.

Hospitality is focusing on an improved work experience to mitigate labor challenges.

Hotel owners and operators are looking for opportunities to attract new talent and maximize existing staff within their organizations. Data from the U.S. Bureau of Labor Statistics shows wage growth within hospitality has been the most significant of any sector of the economy, up about 15% since March 2020, compared with roughly 9% in the broader economy. But increased wages are not sending qualified workers back to hospitality. Flexibility, culture, upward mobility, and ancillary benefits such as education stipends and paid health care premiums are emerging as key drivers to attract and retain talent to hotel properties.

Let's Talk!

Call us at +1 213.873.1700, email us at solutions@vasquezcpa.com or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Ryan McAndrew and originally appeared on 2022-07-07.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/industries/real-estate/economic-slowdown-hospitality.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.

Subscribe to receive important updates from our Insights and Resources.

  • Should be Empty: