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Real Estate News |
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U.S. hotel construction booms after hiatus
WASHINGTON – July 27, 2007
Private spending on hotel construction is running 65 percent ahead of
last year, according to the U.S. Census. In May, private hotel
construction rose to a seasonally adjusted annual rate of $27.8 billion,
compared with $16.8 billion in 2006. If construction spending continues
at current levels, 2007 will smash the industry record set in 2000, when
construction spending totaled an inflation-adjusted $19.5 billion. |
Lodging construction spending is growing at a much higher rate than
other commercial real-estate sectors, which were up a combined 17
percent to a seasonably adjusted annual rate of $161.4 billion,
according to the Census.
The dollar value of commercial construction is large in part because the
prices of land and construction materials have risen sharply in the past
several years, making it more costly to build. But the pickup in hotel
construction specifically reflects a desire by developers to meet
growing demand from travelers at a time when room rates have been rising
between 6 percent and 8 percent annually for the past four years.
According to Smith Travel Research, average hotel room rates were about
$103.24 in June.
Room completions, a better measure of how much new supply is being
added, is also rising and is expected to hit 100,924 this year,
according to Lodging Econometrics, a Portsmouth, N.H., lodging
real-estate research firm.
“There’s enthusiasm that this cycle really has some good legs to it,”
says Mit Shah, chief executive of Noble Investment Group, a
lodging-investment company based in Atlanta.
But some question whether too many new hotels are in the pipeline. The
hotel building boom comes as growth in the demand for lodging has begun
to weaken in the past several months as economic growth has slowed.
Supply is already growing faster than demand and that gap is expected to
widen next year. Lodging Econometrics projects room completions of
159,000 in 2009, a 60 percent jump from this year.
“People just aren’t really paying attention to the details,” says Bjorn
Hanson, a lodging analyst with PricewaterhouseCoopers. He says people
are paying more attention to rising room rates than construction
activity.
But developers and hotel executives are mostly optimistic about where
the industry stands. They expect travel demand to rebound with an
economy that appears to be regaining strength and believe they have a
few more years of pricing power to raise rates.
The jump in hotel construction playing out across the U.S. is most
pronounced in the southeast. That unusual, since that region, which
includes Florida, Georgia, Virginia and the Carolinas, typically
outpaces others because of its numerous resort locations. The Pacific is
second, with California, Oregon, Washington and Hawaii. isn’t
San Antonio, San Diego, Phoenix and Las Vegas lead the list of cities
with the biggest development pipeline relative to their existing room
count. “San Antonio is a very hot convention market,” Patrick Ford,
president of Lodging Econometrics, says.
As has been the case in recent years, the midscale
without-food-and-beverage segment, with brands like Holiday Inn Express
and Hampton Inn, and the upscale segment, with brands like Courtyard by
Marriott and Hilton Garden Inn, are the dominant hotel types being
built.
About 75 percent of hotel rooms opening this year are in suburban or
highway locations, with just 5 percent, or 5,914 rooms, in cities,
according to Lodging Econometrics. Next year, city hotel openings will
more than double to 12,244 rooms.
Housing 28 Major Real Estate Markets
Source Wall Street Journal |
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