Hospitality construction is growing across all hotel types, including extended stay and economy.
U.S. economic growth, higher levels of disposable income and rising corporate profits have led to more business and leisure travel and, subsequently, an increase in hotel projects. We expect a steady upward trend in hotel construction in 2015 as the industry continues stabilizing after a tumultuous decade.
In 2008, hotel construction was at its peak with 1,341 hotel projects/154,258 rooms under way, according to Lodging Econometrics. At the end of that year, the global financial crisis hit – stock markets dropped worldwide, the housing market plummeted and unemployment spiked. From 2008 to 2012, the global recession severely impacted the hospitality market.
Because of the sudden halt in lending, many hotel developers abandoned their projects midstream. In fact, Englewood Construction completed several hotel projects in 2009 that were distressed and taken over by banks. Finally, lending opened up again in late 2012 and hospitality construction began inching up from its 2011 cyclical bottom of 346 projects/37,258 rooms, according to Lodging Econometrics.
As the economy came out of the woods so, too, did travelers. Business professionals returned to conventions and conferences, which had seen drops in attendance due to corporate cutbacks. Also around 2012, leisure travelers began visiting tourist destinations again.
The availability of capital and the need for more hotel rooms all point to steady growth in the hospitality market. Lodging Econometrics’ forecast for 2015 is 739 new hotel openings/82,587 rooms.
Growth by Sector
We’re seeing growth across all hotel types, including extended stay, economy, focused, full-service and luxury.
In extended stay, we have seen a hotel construction surge in oil boomtowns like Williston, N.D.; Casper, Wyo.; and many other places scattered throughout the plains where Englewood Construction has completed several projects for Value Place. Oilfield workers in these places may bring in six-figure salaries, but they don’t have a place to sleep as construction just can’t keep up with the constant influx of new people. Many times, energy companies and contractors block out hotel rooms years in advance. The average nationwide price for an extended stay room is $250 to $300 per week, but in these boom towns the rates jump $700 to $800 per week.
With business travel up, we’re also seeing growth in focused or select service hotels that cater to single business travelers, like Courtyard by Marriott and Hilton Garden Inn. Economy and limited service hotels such as Hampton Inn and Holiday Inn Express also appeal to the growing number of vacationers.
Full-service hotels and upscale luxury brands in downtown urban areas realize that they can’t keep old décor in this competitive marketplace, and they are embarking on refreshing and remodeling projects to keep up with demand and to compete with new properties.
Higher Levels of Service
The hotel industry parallels many other consumer sectors. Because of the recession, people cut down on extra expenditures. They weren’t going out to eat or buying new cars, instead they were cooking at home and buying used cars. Grocery store construction went up and luxury restaurant construction went down.
Slowly, as the economy picked up, consumers returned to eating out, but cautiously kept to the fast-casual restaurants, which saw a construction increase. Now, with consumer confidence at a near post-recession high, people want someone to bring them their food, so we’re seeing an increase in fine dining projects.
Similarly, if people had to cut back on travel, they sought out economy hotels. As consumers feel better about the economy, the focused or select service hotels see increased activity as people can afford more luxuries and amenities like a workout room, pool and hot tub.
Hotel Design Trends
There is a big emphasis on the hotel lobby’s offerings. These spaces should be built to accommodate multiple uses, such as a breakfast area in the morning, gathering spot for beverages and snacks in the afternoon, to a nightclub in the evening, especially for the higher-end hotels.
Now is the time for restaurant and hotel operators to step up their game and add more offerings to stay competitive. For instance, Englewood Construction has been approached by a major resort destination in Orlando, Fla., for renovation work to their hotel offerings to help them stay competitive against Walt Disney World Resorts with all of the reimagining they are currently going through. Hyatt Regency Chicago is another example. They recently went through a three-year, $168 million renovation of all its guest rooms, common areas, lobby, bar and restaurants.
Building conversions into hotels are hot in every major city – Chicago, Los Angeles, Boston and New York. The world’s first Virgin Hotel just opened steps from Chicago’s Magnificent Mile. Built inside the Old Dearborn Bank Building, a 26-story Art Deco landmark, the uber-luxurious hotel offers 250 stylish guest rooms, a drinking and dining lounge and an in-house spa. Many other hotel conversions of former office towers are planned or underway for downtown Chicago.
Finding New Work
Many hotel corporations cut their in-house construction teams during the recession and just now are ramping those departments back up. For contractors seeking new hospitality work, they must put in extra effort in business development and building client relationships with recently hired in-house construction managers.
Also, developers and operators are a lot more cautious when making deals nowadays and spend more time and money in market studies and due diligence, which tends to draw out the planning and construction document phase of the project. This in turn creates more involvement from the contractor from a preconstruction and estimating aspect as the developer/ operator looks to us to determine the final budget.
Despite increased activity, hotel developers are still extremely cautious. They are watching tourist activity in any given area as well as temporary housing needs for transient workers. They want to know where rooms are needed. They don’t take a “build it and they will come” stance. If we see any significant growth in one type of hotel or location, we know it was well thought out and will be welcomed.