Hundreds of new hotels are rising across the United States as the lodging industry seeks to cash in on rising room rates and strong demand from travelers.
The number of hotel rooms under construction in July jumped 20 percent from a year earlier, a report from industry tracker Smith Travel Research shows. More than 196,000 rooms — more than 2,000 hotels — will open within two years. That’s the highest number of new rooms in the pipeline in more than seven years.
For travelers, the boom will provide more lodging selections in many markets. In some places, the buildup of hotel rooms could possibly push down rates, says Jan Freitag, Smith vice president. But in the two markets with the most rooms under construction — Las Vegas and New York — traveler demand is so strong that room rates should continue increasing, says Freitag.
Industry consultant Mark Woodworth of PKF Consulting sees no threat to the building boom from tight credit. The credit crunch will likely weed out only some future projects that weren’t strong contenders to begin with, he says.
Hotel financiers, he says, believe a “fresh shiny product” is worth the risk.
“In the hotel business, new beats old every time,” Woodworth says.
‘New’ Sells
Times have been good for the hotel industry. It finished 2006 with a U.S. occupancy rate of 63.4 percent, the highest since 1998, says industry consultant Bjorn Hanson at PricewaterhouseCoopers. This quarter, the average nightly rate is expected to reach a record $103, versus $83 five years ago, according to PKF Consulting. The surge in construction should continue through at least next year, though probably not at the current fast pace, Hanson says.
Hotel construction came nearly to a halt after recession and terrorism in 2001. Although travel started to rebound strongly by 2004, the hotel industry was slow to add properties, concentrating instead on expansions and upgrades. But now, that’s changed.
For now, developers mostly are opting to build hotels that will charge midrange rates, the Smith report shows. Holiday Inn Express is building the most rooms, followed by the Hampton Inn chain and Hilton Garden Inn.
Holiday Inn Express, the midprice, limited-service chain, is taking advantage of New York’s high rates. The chain opened its first New York hotel in October 2005 and already plans to grow to seven, says John Merkin, the chain’s top U.S. executive.
