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The rising cost of labor is having an impact on the hotel business, two major hotel chain CEOs told CNBC on Wednesday.
Jonathan Tisch, chairman and CEO of Loews Hotels, said the pressure of higher wages is “absolutely” an issue.
“When you look at the pressure on margins through labor costs, through energy costs, through insurance, through real estate taxes, we have to get smarter and better about how we operate our hotels to increase margins where ever we can,” he said in an interview with “Power Lunch.”
“Increasing labor costs are an issue in most of the markets and will continue to be,” he added.
His sentiments were echoed by Hilton Worldwide President and CEO Christopher Nassetta.
“You have the cost of building hotels going up at a pretty rapid rate in the United States, cost of labor going up, cost of interest rates going up and availability of money getting a little bit tougher or tighter,” Nassetta said in an interview with Seema Mody on “Power Lunch.”
“The consequence of that is that you see supply numbers going down. Ultimately, that is healthy for the industry.”
The American job market is tight and getting tighter, according to the Federal Reserve‘s latest “Beige Book” summary of economic activity, released Wednesday. The central bank said employment grew “modestly or moderately across most of the nation” but said employers are having more difficulty finding the right workers for the right jobs.
Wages have been steadily increasing. The average hourly earnings for September had a 2.8 percent year-over-year increase. In August, there was a 2.9 percent gain, the biggest year-over-year rise since the recovery began in 2009.
Interest rate have also been rising. The Fed expects to hike rates again in December, and has telegraphed three raises in 2019.
Hilton’s CEO said while development in the U.S. is slowing down, other markets in the world are going up. The chain has 5,560 properties in 109 countries and territories.
“We will actually have a record year in terms of number of deals we’ll sign,” he said. “We’ll also have a record year for openings.”
He also thinks the economy is reasonably strong.
“There is a significant amount of investment that is going on in the form of nonresidential fixed investment in the coming year, in part as a consequence of tax reform,” said Nassetta.
“The underlying trends in our business — whether we’re talking about corporate customers, our leisure customers, group business — all of those trends are quite solid to improving.”
Loews CEO Tisch also feels pretty good about the economy and sees continued growth in the industry. However, he noted that some markets are starting to get overbuilt.
However, Loews is committed to growing the company through development and new construction.
While rising rates are on his radar because of construction loans, Tisch said the company has access to equity through its parent company, Loews Corp. It is also engaged in partnerships.
“We are aware of where interest rates are going but we feel still that we’re in a good place because we’re doing unique, one-of-a-kind projects,” he said.
And those projects are long term. “We’re building for the next 10, 20, 30 years,” he noted. “We are not sellers.”
Loews is currently building five new projects — about $2 billion worth of hotels. The company just opened its sixth hotel with partner NBCUniversal in Orlando, Florida, and has two more under construction. It also has projects in the works in St. Louis, Kansas City and Arlington, Texas.
— CNBC’s Jeff Cox contributed to this report.
Disclosure: Lowes Hotels is working on additional property partnerships with NBCUniversal, which along with CNBC is owned by Comcast.