The hotel construction market slid downhill for three years before sharply turning upward in 2011. Economists expect this recovery to continue moving forward, but at a slower pace.
“We think that the situation is improving due to more confidence in business travel and from investors,” says Randy Giggard, managing director of the Research Services Group for FMI in Raleigh, N.C. “This is largely related to the improvement in the economy.”
According to the McGraw-Hill Construction forecast, the hotel construction market dropped 80% between 2007 and 2010.
“The decline over that period was due to a combination of very slow economic recovery and a market that is very cyclical and overbuilt to begin with,” Giggard says.
Due to improvements in the revenue available per room, a hike in occupancy rates, and a renewed interest from developers, construction starts increased 54% in 2011 to 27 million sq ft, according to McGraw-Hill Construction. For 2012, the Dodge report indicated that starts could grow another 23% to 33 million sq ft.
At the same time, however, the Dodge report stated that the upturn could diminish in 2013, due to a challenging global backdrop and fears of an economic slowdown. Giggard concurs, saying he also expects uncertainty about the economy will temper a significant increase in hotel projects this year. For 2013, FMI predicts the construction put into place to increase by 7%.
Those projects that do get the green light will mostly be tied to renovation, he predicts. For the last two years, Giggard has seen a surge in renovation projects at hotels nationwide, especially in places like the Southwest, West Coast, and New York City. Oftentimes, during a renovation, the hotels focus on upgrading their rooms first and then concentrate on major public areas and amenities, he says.
Bright Future Electric LLC, an electrical contractor with offices in Birmingham, Ala., and Orlando, Sarasota, and Destin, Fla., has experienced a boost in renovation projects over the last few years.
“What I’m seeing lately is that developers are taking an older hotel, renovating it, and bringing it up to today’s standards,” says Robert Steele, preconstruction manager for Bright Future Electric, which is licensed in seven states throughout the Southwest. “That way, they can continue to make revenue while they are renovating the hotel in construction phases.”
The contractor is currently wiring the Aloft hotel in Orlando, Fla., and two other hotels. The company also just wrapped up renovation on the Sheraton Orlando and the original tower at the Peabody Hotel.
As far as the renovation projects, the hotels are redesigning the entryways, conference rooms, guest rooms, pool areas, and fitness rooms. They’re equipping guest rooms with high-speed Internet and Wi-Fi, and some high-end hotels are even installing lighted mirrors with integrated televisions in the bathrooms.
One of the most common areas for investment, however, is in new lighting fixtures and technologies. Steele says his company’s clients are moving away from incandescents and fluorescents and moving toward LEDs in the lobbies, guest rooms, and conference rooms.
Frequently, the hotels install pin lights, small pendants, and downlights and other decorative fixtures as well as LED exterior luminaires. They are also opting for different ceiling heights, which makes it more challenging but is considered more aesthetically pleasing, says Steele.
The hotel market now accounts for about 15% of the Bright Future Electric’s revenue compared to 6% in 2011 and the first half of 2012. Moving forward, Steele expects growth for 2013 to slow but remain positive.
“The hotel market is coming back,” he says. “In the last half of 2012, we saw an uptick and more hotels not only being renovated, but also being built. The developers are realizing that the market is at a turning point, and they’re trying to build or renovate the hotels while the price is still down.”
Fischbach is a freelance writer based in Overland Park, Kan. She can be reached at amyfischbach@gmail.com.