Three Things Hospitality Can Learn From CRE

Together, hospitality and commercial real estate properties account for just over a fourth of all commercial floor space in the US. These properties span more than 15.2 billion square feet and consume more than 30% of all commercial building energy use, spending over $30 billion a year on energy. But other than being massive energy consumers, the hospitality and commercial real estate sectors seem like they don’t have much in common.

Guests versus corporate tenants, annual daily rates versus price per square foot, 24/7 operations versus specific lease hours, the list of differing concerns and KPIs goes on. And while the hospitality sector has a lot it can teach commercial real estate about, well, hospitality, commercial real estate has a thing or two it can teach its hotel counterparts as well. 

Invest in Data Management For Your Buildings

There is no shortage of data available for hotels – room rates, guest behavior, occupancy — you name it, you can track it. Hoteliers understandably spend hard cash on hospitality and property management systems that will provide them with this kind of business intelligence. The goal of delivering greater personalized service and increasing revenue are critical drivers of investment in software and IoT solutions.

An often overlooked source of data is a hotel property itself; and just like guest behavior, it deserves its own platform for centralizing, analyzing, and sharing data. Commercial real estate has its own set of solutions that track things like work orders and tenant billing but in the last decade, ownership groups have moved toward investing in platforms that were built specifically to collect data from in the inner workings of their buildings. And once you’re armed with this data, you can start to make some serious operational improvements.

Pay Attention to Utilities

Hoteliers tend to spend the bulk of their time working to maximize revenue, and that makes sense; revenue swings up and down quickly and sometimes dramatically in response to a hotel’s ADR, local market, and an endless list of other factors. There are some good reasons to spend time on expense reduction, though. In addition to reducing risk for when markets are sluggish, small changes in operating costs that will reliably decrease expenses over the long term will improve your bottom line. Though labor is the highest operating cost for hotels, utilities are the fastest-growing. On average, utility spend accounts for almost 6% of operating costs in US hotels. 

For commercial real estate, utility costs are a huge line item. Energy use typically accounts for one-third of total operating costs for commercial office buildings. Ownership groups spend a lot of time examining these costs and working to keep them down, investing in software solutions, IoT devices, and larger capital projects.

For hotels, the reason it makes sense to focus on operational savings is that, unlike revenues, operational savings will be there year after year. In a recession, when guests are scarce, revenues also tend to shrink. Operational savings, when done right, are almost permanent additions to net operating income. And even if those additions are relatively small, they translate to big additions to the bottom line that are just as long-lasting. 

Experiment With Unoccupied Hours Setbacks

For hotels, it’s guest comfort; for commercial real estate it’s tenant comfort. But the challenge remains the same: controlling costs without impacting experience. Commercial real estate has the luxury of unoccupied hours built into its leases – nights, weekends, holidays. This allows operators to experiment with unoccupied hours temperature setbacks to cut costs. In hospitality, there’s no such thing as a day off. In fact, it’s often nights, weekends, and holidays when hotels are the busiest. 

But while entire hotel floors are never vacant, individual rooms certainly are. And using in-room occupancy controls allows hotels to take a page from CRE’s playbook. According to a report by the American Council for an Energy-Efficient Economy, occupancy controls in hotel rooms are estimated to save between 12 and 24% in heating and cooling energy, based on a 5-degree setback when the room is vacant.

At the end of the day, both the hospitality and commercial real estate sectors are concerned with improving the bottom line, balancing comfort with expense reduction, and investing in software for properties wisely — perhaps they’re not so different after all.