Words: Mike Zimmerman

Hospitality Giants 2021

If we have one mission in our yearly report on the Interior Design Hospitality Giants—the top 75 firms specializing in the sector—it’s to get the bad news out of the way first. So let’s talk about what you already suspect. In the previous 12 months, the Hospitality Giants tallied $576 million in total fees, down from $1.16 billion the previous year. The number for next year is similar, with the 2022 forecast coming in at $572 million. This moderate drop mirrors the forecast from the Top 100 Giants earlier this year. What parts of the overall business took the biggest hits? Well, pretty much everything. The actual allocation of work across sectors didn’t fluctuate—but they all went down. Hotels remain the linchpin of the group’s business, bringing in 57 percent of all fees. Luxury hotels make up half of the hotel business ($174 million), with boutique, mid/economy, and micro hotels bringing in the rest. The other sectors are small yet significant by comparison. Resorts make up 10 percent of total fees ($56 million), while multiuse, restaurants, bars/lounges, gaming, condos, cruise ships, spas, and country clubs all bring in single-digit slices of income that adds up to roughly $190 million. Every dollar counts in a year like this.

The nature of the Hospitality Giants’ business is revealed in the numbers, as well. While fee totals dropped, total jobs also fell but not as much. These Giants worked 4,742 jobs in 2020, a drop of only 150 from 2019. They expect that number to fall a bit more in 2021. Also notable are the profit margins of certain categories. Hotels make up 39 percent of job volume and bring in 58 percent of fees, while restaurants make up 19 percent of jobs and 7 percent of fees. Square footage also shines a light on business. The Hospitality Giants worked on 149 million square feet, down from 263 million in 2019. That’s the second lowest total since we expanded to 75 firms on the list in 2007. (These numbers have not been seen in survey respondents since 2010, when a volcanic eruption in Iceland disrupted flights for many months and an earthquake devastated Haiti—events that impacted consumer air travel and subsequent use of business in the hospitality industry, just as the COVID-19 pandemic has.) The breakdown between new projects, renovations, and refreshes has also shifted to 47, 46, and 7 percent, respectively. On a positive note is the renovations figure, which, in 2019, accounted for only 42 percent of work. It’s an upside to the low consumer numbers: Clients were able to perform renovations that are difficult to accomplish without major disruption to day-to-day business.

One bit of bedrock in all this data is furniture & fixtures/construction products. The Hospitality Giants saw an 11 percent drop to $17.2 billion here, with a forecast of $17.6 billion in 2021. While this is technically the lowest total since 2012, this number has shown resilience over the years. Since 2013, it’s hovered between $18 and 20 billion annually, with the exception of an outlier $23.7 billion in 2018. To boot, the 62/38 construction products-to-F&F ratio hasn’t budged much in the past five years.

As for where all this work is happening, 2020 saw not so much a negative shift but more a return to normal. The percentage of Hospitality Giants who work outside the U.S. rose significantly from 15 percent in 2019 to 24 percent in 2020. That seems notable on the surface, however international work rates have traditionally hovered around that 25 percent park for the past decade. It seems likely that, rather than 2020 events having a marked effect on the number of overseas projects, 2019 simply saw an abnormally low percentage. About two-thirds of firms doing international work did it in Asia and the Pacific Rim, while half were in the Caribbean and Europe. About a third went to Canada and Mexico. A little more than half of these Giants think international work will grow in general, with the Middle East and Asia being the most likely hot spots.

“There are reasons to be optimistic”

But as usual, the U.S. is where they believe the real action will be, particularly the Northeast, Southeast, and Southwest. Particularly interesting perhaps is the Hospitality Giants seeing potential in U.S. regions that remain hardest hit by the pandemic.

The main question when news like this drops is: What will next year bring? Or as one rep from Looney & Associates comments, “Who has the crystal ball?” One thing that at least seems certain is the Hospitality Giants don’t see any one sector suddenly breaking out and riding to the economic rescue. They forecast no real change in the allocation of their business sectors. There’s also very little agreement between firms on what will happen with project counts across specific segments in the coming year, particularly with regard to hotels and restaurants/bars/lounges/nightclubs, which are almost evenly split between predictions of more, fewer, or no change in project numbers. Even the highest agreement—that resorts/spas/country clubs will see no change—is agreed on by fewer than half of firms. This paints a vivid picture of the way 2020 unsettled the hospitality industry’s assumptions and expectations.

But there is a bright spot: in the multiuse category. It more than doubled its 2019 predictions in 2020 and is predicted to rise by 10 percent in 2021. For more optimism, we look beyond the Hospitality Giants data. First, vaccines. As of this writing, 56 percent of the U.S. population is fully vaccinated. That’s not anywhere near herd immunity, but two of the biggest travel and hospitality hubs—California and New York—have vaccination rates of 59 and 64 percent, respectively. Even 58 percent of Florida’s population has been fully vaccinated, slightly higher than the national rate. And vaccine manufacturers are on the verge of seeking Emergency Use Authorization for children under age 12. We are slowly creeping toward more normal living.

Another good sign: Travel rates are climbing. HospitalityNet.org reports that U.S. hotels outside the largest 25 markets are approaching pre-pandemic occupancy levels, and small town and interstate hotels now have higher occupancy rates than 2019. Air travel has rebounded as well: The TSA states that the number of passengers passing through airport security now routinely hits over 2 million per day; that number never cracked 1.5 million between January and April 2021.

As for future business, there are good signs there too. For the Hospitality Giants surveyed about “clients appetite for investment in design services,” when specifically asked about hospitality work, 36 percent said clients were eager. What post-COVID investment will come will most likely hinge on health and wellness design trends. “Designing for sustainability and wellness is not optional anymore,” Elkus Manfredi Architects principal Elizabeth Lowrey says. “We’ve been weaving it into every aspect, not only because our clients are asking for these features but also because it’s a moral imperative to create healthy and inclusive environments for our collective well-being.” A Wimberly Interiors rep adds, “The pandemic has provided society an opportunity to once again reprioritize balance in our lives. Likewise, this time of crisis has made us keenly aware of the need to do more with less and our responsibility for our solutions to be resilient for generations to come.”

If what we saw in 2020 is the worst of the COVID-related business downturn, we can consider ourselves lucky. Next year’s data will be critical in assessing longer-term business prospects. For now, there are reasons to be cautious but also reasons to be optimistic. Fortunately, few people go broke being cautiously optimistic.

Market Share by Project Category

“Sustainability will not just be a requirement. It will be a baseline.” — Staci Patton, DLR Group

Global Growth Potential for Next 2 Years: International

Global Growth Potential for Next 2 Years: U.S.

“We’ve been able to innovate out of this in ways we never thought possible. And our clients are more open to adopting ideas that push the limits stylistically.” — Lexie Aliotti, AvroKO

Firms With Largest Increase in Fees

“Beyond the narrative of reflecting locale, hotels can create a distinct regional experience that the community can participate in.” — Anna Kreyling, Baskervill

Fee by Project Segment

“Resort stays will become fully transformative experiences. The focus on seamlessly connecting outdoor/indoor spaces and customized activities will be further enhanced as guests utilize new technology to build virtual and real relationships with their destinations.” — Ryan Schommer, Gettys Group

During the next 2 years, does your firm expect to see more or fewer project activity in these hospitality segments?

“To be on-site again is great—both revitalizing and challenging.” — Christy Coleman, Leo A Daly

Methodology

The annual business survey of Interior Design Hospitality Giants ranks the largest design firms by hospitality design fees for the 12-month period from January 1, 2020 through December 31, 2020. Hospitality design fees include those attributed to:

1. All hospitality interiors work.
2. All aspects of a firm’s hospitality design practice, from strategic planning and programming to design and project management.
3. Fees paid to a firm for work performed by employees and independent contractors who are full-time staff equivalent.

Hospitality design fees do not include revenues paid to a firm and remitted to subcontractors that are not considered full-time staff equivalent. For example, certain firms attract work that is subcontracted to a local firm. The originating firm may collect all the fees and retain a management or generation fee, paying the remainder to the performing firm. The amounts paid to the latter are not included in fees of the collecting firm when determining its ranking. Additionally, where applicable, all percentages are based on responding hospitality Giants, not their total number. The data was compiled and analyzed by Interior Design and ThinkLab.