Analyzing the Utility Costs of Hospitality Properties
Running a hotel is expensive. There are the prices on soft goods (think bedding, towels and draperies). Hospitality is also labor-intensive, meaning salaries. There are property maintenance, insurance and tax costs.
Then there are the costs of utilities.
A CBRE article entitled “Sustainability Practices Help Control Hotel Utility Costs” said that energy efficiency and technology can help reduce the cost of running utilities while continuing to support guests’ comfort.
So, What’s the Cost?
According to the article, utility prices are increasing everywhere due to “market disruptions, geopolitical tensions and an increase in extreme weather events.” While the cost of electricity demand is forecast to increase, so are prices for water and sewage. “Strained water resources coupled with the pressing need to modernize aging infrastructure will likely continue pushing higher rates,” the article said.
In the hospitality sector, hotel utility costs averaged an increase of 3.5% in 2023 and 2024. Interestingly, “this is almost half the 6.6% increase in total operating expenses during the same period,” the article noted.
Cost Variations by Property Type
An issue to consider is that hospitality properties differ—limited-service hotels and resort properties have different costs. The CBRE article said that utility costs in 2024 were estimated at $2,478 per-available-room annually. Here’s how it breaks down:
It’s not surprising that resorts carry higher utility expenses. However, “the diversity of income sources and higher ADRs mutes the impact of utility costs as a percent of revenue at this property type,” the article explained. While limited-service and extended-stay properties spend far less on utilities, they average a higher percentage of revenue, given lower ADRs and total revenue.
Variations by Utility Category
“Utilities” encompass a broad category that includes water/sewer, electricity, gas and steam.
The article indicated that utility expense growth was highest at extended-stay, full-service and resort hotels. Furthermore, the gas and fuel compound annual growth rate increased the most between 2019 and 2023.
Suggestions for Improvement
The article recommended the following to help hospitality operators reduce utility costs:
Energy load management. This process involves adapting energy management systems. These provide monitoring and central control and adjust heating and cooling based on room occupancy.
Water conservation. Low-flow and faucet aerators can help reduce water consumption. The article also said hotels are “increasingly using smart irrigation systems, implementing rainwater harvesting, and reusing greywater for irrigation.”
Holistic and “green” solutions. The article mentioned that battery storage systems help promote resilience, especially in grid unreliability. Additionally, the report said, “Implementing green roofs and walls can mitigate the urban heat island and improve insulation.”
