Hotel maintenance creeps up.
Wednesday, 2nd August 2006
Source : PKF Hospitality Research
As the industry continues to enjoy uptrends in occupancy and rates in its third year of recovery, there are increasing signs that the pace of increases in certain areas on the expense side of the ledger is gaining momentum.

According to a recent study, from 2001 to 2005, hotel maintenance expenses grew 18.3 percent. This is nearly 33 percent greater than the pace of growth for all other hotel operating costs during this same period.

As a result of these relatively strong increases, maintenance department costs as a percent of total hotel operating expenses have averaged 6.8 percent in each of the past four years, up from the long- term average of 6.0 percent. This analysis is based on the 2006 edition of Trends in the Hotel Industry published by PKF Hospitality Research (PKF-HR), an affiliate of PKF Consulting.

"During the recession, managers looked in all areas of their hotels to find expense savings. The need to maintain the appearance of the property apparently trumped the need to cut costs in the maintenance department," said Robert Mandelbaum, director of research information services for Atlanta-based PKF-HR. "At 5.0 percent of total revenue in 2005, hotel maintenance costs are certainly not an eye-catcher. However, for comparison purposes, this department averaged just 4.5 percent of total revenue since 1960. The trend line for this expense is definitely going up. Hotel maintenance expenditures may not receive a lot of attention from hotel managers, but they are slowly becoming one of the fastest growing costs of operation."

Analyzing the 2005 data by the various types of hotels, PKF-HR finds that maintenance expenses range from a low of 4.7 percent of total revenue at convention hotels to a high of 5.5 percent at limited-service properties. However, based on a dollar per available room (PAR), limited-service hotels spent the least on maintenance ($1,017 PAR) while costs were highest at resort properties ($4,608 PAR).

Property operations and maintenance department expenses is just one of the 200 discrete hotel revenue and expense items captured by PKF-HR for its 2006 Trends in the Hotel Industry report. The 2006 report marks the 70th annual review of U.S. hotel operations conducted by PKF. This year's sample draws upon year-end 2005 financial statements received from more than 5,000 hotels across the country.

Renovations Don't Count

Based on the Uniform System of Accounts for the Lodging Industry, the costs that are assigned to the property operations and maintenance (POM) department are those associated with the day-to-day upkeep of a hotel. Examples of significant POM department expense items include labor and related costs, equipment maintenance contracts, operating supplies and tools, spare parts, landscaping, and the one-off replacement of furniture, fixtures, and furnishings. Not included are the costs associated with a major renovation or refurbishment project, as well as the purchase of equipment that can be capitalized.

"We are aware that many renovation projects were deferred during the 2001 to 2003 recession. Several of these pent-up plans were finally executed in 2004 and 2005," Mandelbaum observed. "However, the rise in POM expenditures cannot be assigned to the recent surge in owners fixing up their assets. It is simply costing hotels more and more to repair furniture and equipment, cut the lawn, and replace holes in the carpet."

The Human Factor

"When thinking of the maintenance department, most people have visions of a room in the basement of the hotel full of tools and spare parts. However, nearly half of the dollars spent within this department are associated with the salaries, wages, and benefits paid to property maintenance personnel," Mandelbaum said. In 2005, labor and related costs accounted for 49.7 percent of total POM expenses at the typical U.S. hotel. Labor, measured as a percent of total maintenance costs, was lowest at all-suite hotels (42.9 percent) and highest at convention properties (51.7 percent).

"Based on the dollars spent on POM department employees, it appears that resort hotels have the largest maintenance staffs. These properties average $2,369 per available room in POM labor costs," Mandelbaum noted. "On the other end of the spectrum, limited-service hotels are paying just $453 per available room for maintenance labor. Without extensive kitchens, meeting space, and other public areas, these properties tend to rely on multi-tasking managers, part-time personnel, or maintenance contracts to handle such tasks as repairs and landscaping."

Bedspreads, Carpet, and Drapes

Studies by other firms have found that guest satisfaction is impacted by the first impression a person experiences when they enter their guestroom. Immediately, their eyes are drawn to the condition of the furniture, fixtures, and furnishings that are most evident. "Implementing cost controls in the maintenance department is a struggle for management. On the one hand, operators need to contain this rising expense. On the other hand, skimping on repairs can be detrimental to guest satisfaction. A tear in the carpet, or a little scuff on the surface of nightstand can set a negative tone to a guest's stay," Mandelbaum concludes.

PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.


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