Every administration brings a set of opportunities and challenges to an industry’s investors. The hotel landscape is no different…save for the fact that Donald Trump is a hotel investor himself. The Trump Organization’s ownership of several U.S.-based hotel assets throughout New York, Chicago, Las Vegas and other cities may infer that his second term in office will bring favorable conditions to hotel investors and tourism in general.
However, it’s likely to be a bit more complicated than that.
Running a country may mirror running a company in some ways, but with substantially more interests to consider. The American people, economy, jobs market, trade agreements, industry initiatives, foreign relations, and business owners large and small have the potential to influence how the next four years may play out.
Still, Trump’s first term, campaign statements and widely publicized beliefs – woven into the current cultural context and economy – may provide some clues as to what’s in store for hospitality.
Tariffs
Trump has made no secret of his intention to implement new tariffs, particularly on imports from Mexico, Canada and China. If he does, this could impact hotel investors’ wallets.
“Tariffs will increase the cost of U.S. imports, subject to the countries involved,” explains R. Mark Woodworth, principal at Woodworth Core Group. “For hotels, this will increase the cost of items such as furniture, fixtures and equipment (FF&E), making the justification for new development that much more difficult.”
Jan Freitag, national director of hospitality analytics at CoStar Group and senior vice president of lodging insights for STR, notes that tariffs may bring other hurdles as well.
“Tariffs are often considered inflationary, so that may force the Fed to keep their Fed funds rate ‘higher for longer,’” he adds. “Construction costs – especially construction crew labour costs – will likely continue to increase.”
During his first term, Trump enacted a 25 percent tariff on products from China that is still in place today. This resulted in elevated prices on items like engineered stone, notes boutique hotel interior design firm Lang & Schwander, and led some hotel companies to source their FF&E products from Southeast Asia. If higher tariffs (there are rumors they could go as high as 60 percent for China) become a reality, some believe it could create a bifurcated supply chain as hotels look to source from countries like Vietnam, Thailand, Indonesia, the Philippines and Cambodia, while others may favor Latin America. Of course, there’s also the possibility that these tariff threats are simply that: negotiation tactics.
Woodworth adds that tariffs would also strengthen the U.S. dollar, which isn’t necessarily a good thing for the stateside hospitality industry.
“This would make foreign destinations more affordable for U.S. residents and travel to the U.S. more expensive,” he says. “Neither is helpful to the growth of domestic hotel profits.”
Taxes
What may help domestic hotels is Trump’s take on taxes and government intervention.
“President Trump’s views on taxation and the regulatory environment [is characterized] as pro-individual and pro-business,” Woodworth adds. “As such, many industries may benefit from changes resulting from this philosophy.”
He further notes that, during his first term, Trump aimed to eliminate two existing regulations for every new one that was enacted.
“He has upped the ante for his second term by eliminating 10 existing rules for every one added,” Woodworth continues. “The ultimate impact of this philosophy is to reduce the cost of doing business, thereby enhancing profitability. Greater profits will generate more taxable income, so both sides of the aisle should be happy. History tells us that deregulation is disinflationary, which is a good thing.”
Fewer regulatory hurdles may reduce operational costs for hotels. This unlocked cash can go toward profits, reinvestment in the property or new developments. The latter can be a particularly attractive venture with less government intervention. And with money building up on the sidelines.
“We believe that shifting demographics and increased levels of household wealth will lead to a ‘wall of demand’ for those investing capital in hotel real estate during the last years of this decade,” Woodworth says. “Given the atypically low net domestic supply growth levels over the past 10-plus years, this outlook portends a protracted period of attractive profit growth.”
Lower taxes may also create more disposable income for many Americans – income that may be spent on travel. Meanwhile, lower corporate taxes could equal more funds for business travel.
Then there’s the issue of taxing tips. Trump stated he would eliminate federal taxes for service workers, but that’s easier said than done. Implementing such a policy would require legislative action by Congress to amend existing tax laws.
Even if taxes on tips were eliminated, there’s no telling whether hospitality service workers would spend their hard-earned money at hotels. Still, extra cash in their pockets couldn’t hurt the industry where these employees spend the majority of their waking hours.
Speaking of workers…
Labour
Labour has been a thorn in hospitality’s side for a number of years now. The issue isn’t likely to improve under Trump in many respects due to his stance on immigration. Though his exact deportation plans for undocumented immigrants have been hard to pin down, any action(s) that reduces the potential pool of available workers will be seen as a negative for the industry.
“Immigration reform may impact the amount of foreign-born workers coming to the U.S. either on permanent or seasonal visas,” Freitag adds. “That could impact the amount of workers available, especially for back-of-house positions.”
Hospitality is the third most popular industry for undocumented immigrant workers, representing 7.1 percent of its workforce, according to the American Immigration Council.
Fewer workers could increase labour costs and operational challenges for hotels. There’s also the perception that may be created through acts like “mass deportations” (if they are, in fact, carried out). Some believe it may make foreign workers and travelers feel unwelcome.
Trump enacted a “travel ban” on seven countries, including Iran, Syria and others, in 2017 during his first term in office. The result, according to GlobalData, was a decrease in international arrivals to the U.S. that same year, with arrivals from the Middle East experiencing a nearly 12 percent year-over-year decline.
Tariffs, taxes and labor are likely to be three of the biggest issues the U.S. hotel industry monitors as a second Trump term gets underway, but there are others as well. The administration's focus on infrastructure improvements and upgraded transportation networks could make domestic travel more convenient, leading to higher hotel occupancy and revenue.
Trump’s push for deregulation could also roll back some environmental policies that may provide hotel operators a short-term reprieve. His approach to energy production may also be viewed as favorable to hotel operations and development.
“Energy costs are a significant input to producing the materials needed for new construction,” Woodworth explains. “Trump has made clear he intends to ‘drill, baby, drill.’ To the degree he is successful and global oil markets maintain their current state, this will create downward pressure on the cost of energy and help temper the inflation rate.”
Where Trump is and is not successful won’t be decided for a while. Even if we could fast forward to four years from now, his wins and failures will be judged subjectively by every American – and every hotel investor. Until time is able to afford us that clarity, the hospitality industry will spend its own energy trying to operate the best it can under its given set of parameters.
(Picture via Gage Skidmore/Flickr)