A booming travel/tourism industry, the moderating cost of building materials, and a disproportionate supply versus demand equation are some of the factors contributing to the spate of lodging construction projects scheduled to break ground between now and the decade's end.
According to professional services giant Pricewaterhouse-Coopers, New York, hotel revenues in 2007 will top $48 billion — the fourth consecutive year of record sales and a 37% increase over 2006. Equally optimistic are figures from Portsmouth, N.H.-based Lodging Econometrics (LE), an industry research firm specializing in hotel real estate. In its report, “Forecast for New Hotel Openings for 2009,” LE predicts that 1,200 new hotels having 136,692 rooms will open their doors in 2008. Looking forward to 2009, the company forecasts a 3.3% gross growth rate, with 1,354 hotels comprising 159,368 rooms projected to welcome guests.
“Barring a downturn in the economy or a disaster like Hurricane Katrina, the hotel industry will see continued construction for at least the next two years,” says Joe McInerney, president and CEO of the American Hotel & Lodging Association, Washington, D.C.
What or who is the impetus behind this wave of lodging construction? For starters, a new generation of technologically savvy travelers has come of age. “The 20- to 35-year-old traveler expects hotels to offer the same benefits as home,” says McInerney. “By that, I mean infrastructure for high-tech gadgets along with environmentally friendly spaces.”
Insistence on flat-screen TVs, high-speed Internet connections, in-room microwaves, and allergen-free accommodations that require the use of natural building materials and airpurifiers have spawned demand of “lifestyle” hotels. Additional types of hotels enjoying greater construction include full-service and all-suite, limited service, convention, and resort. Although much of the country is experiencing increased hotel development, the Southeast region, which includes Florida, Georgia, and the Carolinas, is seeing particularly strong growth.
Another boon for the hotel construction industry is the relatively weak U.S. dollar, making America an attractive destination to foreign travelers. The U.S. Department of Commerce reports that in June alone, international visitors spent a record-setting $10 billion dollars in the United States.
Perhaps the principal push behind recent lodging construction is demand for rooms in recent years has consistently outpaced supply. The reason for this is that for several years following the terrorist attacks of 9/11, hotel construction was virtually nonexistent. According to Atlanta-based PKF-HR, a consulting and real estate firm specializing in the hospitality industry, since 2003, demand for hotel rooms has risen by 10.2% while the net change in supply has been almost flat. In its “Hotel Horizons” quarterly report, PKF-HR forecasts that for 2008, the supply of hotel rooms will increase 3.5% (the same level seen in 2007) while occupancy will remain at 63.4%. In turn, both revenue per available room (RevPAR) and the average daily room rate (ADR) are expected to rise 4.2% in 2008.
“The question moving forward is whether there will be sufficient demand growth generated by a modestly improved economy to offset some of the new supply that is surely coming,” says Pat Ford, LE's president and CEO. “If there is an early disconnect, there could be significant supply/demand imbalances in some markets, putting pressure on rates that in turn could impact projected industry-wide profitability.”