In 2023, U.S. hotels saw their operating efficiency decline as operating expenses increased at a pace greater than revenue growth, resulting in a decline in profit margins. With forecasts of moderate revenue gains for the next few years, hotel owners and operators are very focused on controlling costs. Proper use of technology can enhance the productivity of employees, replace rudimentary manual functions, and improve the guest experience.
The day-to-day operating costs associated with technology are captured in the Information and Telecommunications Systems (IT) Department of the Uniform System of Account for the Lodging Industry. Expenses within the IT department are separated into four major categories:
- Labor Costs and Related Expenses: The salaries, wages, and employee benefits for telephone operators, directors of information systems, and systems analysts and programmers.
- Cost of Services: The cost of phone, Internet, cell, and fax services for administrative purposes, or when offered to guests on a complimentary basis.
- System Expenses: Software licenses, maintenance, service, storage, and software fees associated with IT systems used in both the operated and undistributed departments.
- Other Expenses: All other IT department expenses such as operating supplies, training, system storage and optimization, uniforms, and travel.
To gain a better understanding of recent property-level technology-related expenditures within U.S. hotels, CBRE analyzed the IT department costs of 4,121 properties that participated in our annual Trends in the Hotel Industry. In 2023, these hotels averaged 216 rooms in size and achieved an occupancy of 69.6 percent along with a $213.39 ADR.
A Relatively Controlled Expense
The IT department is a relatively minor cost center for hotels. In 2023, IT expenses averaged just 1.4 percent of total operating revenue. Further, these costs have been relatively controlled compared to other overhead expenses within the undistributed departments.
The study sample increased by 7.4 percent. This compares favorably to the 9.1 percent average growth for all undistributed departments, as well as the 8.7 percent rise in revenues. IT department expense growth was greatest at convention hotels, and least at extended-stay properties.
Within the IT department, operated department system expenses increased the most (16.9 percent), followed by payroll-related expenses (14 percent), and salaries and wages (10.8 percent). The operated departments are where most guest-facing technologies are found. The cost of service for phone calls (–13.2 percent) was the only IT department cost category that declined from 2022 to 2023.
Among the different types of hotels, IT department expenditures are greatest at resort and convention hotels, which are the property types that are most likely to have dedicated technology personnel (IT technicians and PBX operators). Further, resort and convention hotels have large back-of-house accounting and marketing functions that use multiple systems and offer their guests a diverse array of services and amenities that require the use of guest-facing technologies.
For limited-service and extended-stay properties, IT department expenses are relatively low on a dollar-per-room basis,