Sustainability trends in hospitality real estate

Sustainability is important to the hospitality industry – which continues to be influenced by guests, investors and local regulations/politicians – because it can lower operational costs, improve resale value and enhance hotels’ reputations and lower a property’s carbon footprint. Investors seek a return on their investments and generally want to continue to invest in businesses with positive brand images and reputations. Guests are increasingly more attracted to hotels that can demonstrate their sustainability bona fides.

According to the American Hotel & Lodging Association, in 2020 hotel room revenue fell across the United States by nearly 50%, to approximately $86 billion. In 2021, room revenue rose to about $143 billion; 2022 revenue is expected to be greater than the 2019 level. Adjusted for inflation, revenue per available room (RevPAR) isn’t expected to surpass its 2019 level until 2025; RevPAR is a common KPI in the hospitality industry.¹

The pandemic’s impact on the hospitality industry hasn’t been limited only to reducing revenue. Inflation has been steadily increasing, and hotels at all luxury levels and price points have reported staffing shortages. As a result of these various issues, hotel managements have been trying to find more ways to cut costs and maximize profits.

Making an impact without realizing it

Sustainability is a human-centered initiative that also happens to cut costs. In fact, some hotels have implemented sustainability practices without even realizing it. And managements have found they can turn cost-cutting initiatives into positive marketing messaging in the name of sustainability.

If you’ve been to a hotel during the pandemic, you most likely have experienced not getting fresh linens and towels daily without requesting such service from the property’s housekeeping team. And you must be sure to call during housekeeping’s regular hours; even then, housekeeping still may not be able to get to your room until the next day.

At the same time, you’ve likely noticed signs placed in room bathrooms about the water being saved and the positive environmental impact of having linens and towels changed by request, rather than daily, as has been routine for many years. The American Hotel & Lodging Association identifies housekeeping as the department with the most critical staffing shortages: 58% of hotels surveyed identify housekeeping as their biggest challenge.²

Other sustainability trends in hospitality

They include:

• Food preparation – Hotel managers are increasingly focused on using local produce and meats, emphasizing a “farm-to-table” dining concept. The goal is to limit imports and food transportation costs, reducing a property’s carbon footprint, and focus on growing local economies and agriculture providers. Hotels’ other food-related sustainability measures include: investing in energy efficient kitchen appliances, repurposing food waste (e.g., giving food scraps to pig farms) and donating cooked but not served (or nearing-expiration) food to local food banks or other organizations that serve people in need.³
• Waste reduction – Reducing use of single-use items. Replacing paper/plastic menus and information guides with electronic versions available via tablet, cell phone app or in-house TV channel. Using organic amenities (e.g., toiletries) and cleaning supplies. Formalizing a policy to purchase and use recycled or recyclable items.⁴
• Conservation efforts – These primarily focus on energy and utilities. As previously mentioned, not having to launder or clean items that don’t need to be cleaned or that haven’t been used yet will help reduce water and detergent consumption. Reducing water pressure in showers, installing leak-detecting water systems and rain-collection systems. Guests may notice automated energy management systems/smart thermostats that can control in-room climate and, when connected to an app, determine when guests are no longer in their rooms and then dim lights or turn off electronic devices. There are digital platforms that management can use to track their electric, water and fossil fuel usage. And there are platforms that can track C0₂ emissions, which are starting to be regulated by local governments. By identifying a hotel’s problem areas, management can create a solution to reduce consumption as needed.⁵
• Eco-friendly materials/designs – Building designs can maximize natural sunlight exposure to reduce electricity and appliance use. Rooms are being furnished with recycled materials. A Miami based hotel is using reclaimed wood and local coral stone to decorate spaces. Mandarin Oriental Hotel Group requires each hotel to maintain a minimum of two beehives, with harvested honey used for cocktails, desserts and spa products.⁶

Besides cost-cutting, another significant goal the hospitality industry should aim to achieve is bolstering local economies. Sustainability initiatives help hotels connect with local populations and their businesses.

Going beyond simple changes

All the trends mentioned above are simpler changes likely to be seen at most hotels. Several larger hotel groups with larger locations are making correspondingly large investments in the name of sustainability.

The Wynn Las Vegas invested in a 160-acre solar facility that offsets about 75% of the resort’s peak power requirements. The solar facility powers its convention center and meeting spaces with 100% renewable energy. The Wynn Las Vegas also has a golf course where “the soil is monitored with sensors and weather stations that are connected to the central irrigation system so that no water is wasted – the course only receives the amount it needs and at the right time.”

Also in Las Vegas, MGM Resorts invested in a collection of solar panels on the rooftop of its Mandalay Bay Convention Center. These panels supply approximately 25% of the entire resort's power. MGM Resorts also has invested in a more than 700-acre solar farm that will provide up to 90% of the total daytime power needed at its Las Vegas properties.⁷

Besides the positive impact and beneficial publicity sustainability initiatives create, there’s one other motivator to rethink how your hotel operates. Politicians are jumping into sustainability and creating laws and regulations for the real estate industry to follow. Local governments are enacting regulations to mandate their cities become more sustainable.

Case in point: In New York City, local law 97 is on the horizon. “Most buildings over 25,000 gross square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030. The goal is to reduce emissions produced by the city’s largest buildings 40% by 2030 and 80% by 2050.”

For reference, a football field is 300 feet long by 150 feet wide, totaling 45,000 square feet. A one-floor building approximately half the length of a football field (150x150) would be subject to local law 97.

The law does list several exceptions, but none indicate that any hospitality sector buildings will be excluded for any reason other than their size. Several other cities have made similar sustainability commitments.⁸

We expect these municipal efforts to be just the beginning of a growing trend impacting the hospitality industry – and contributing to a greener planet.

Contact your Mazars team member today with any hospitality- or sustainability-related concerns or questions.

Authors 

Jennifer Safran, Partner 
Kevin Lee, Manager 

1. https://www.ahla.com/sites/default/files/Room%20Revenue%20by%20State%20July22.pdf 
2. https://www.ahla.com/news/97-surveyed-hotels-report-staffing-shortages-ahla-foundation-expands-recruitment-campaign 
3. Did The Pandemic Sabotage Hotel Sustainability Trends? (forbes.com) 
4. Sustainability in Hospitality: How Industry Leaders Can Help | UCF Online 
5.  Sustainable Hotel Management: Trends Hoteliers Should Keep Track Of (ehl.edu)
6. Did The Pandemic Sabotage Hotel Sustainability Trends? (forbes.com)
7. Did The Pandemic Sabotage Hotel Sustainability Trends? (forbes.com)
8. Local Law 97 of 2019 (nyc.gov)

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.