Hotel building boom bringing 100,000 new rooms to U.S. cities

Business travelers looking for a home on the road will have lots of new choices this year, as a building boom gives rise to hundreds of new hotels from New York to Houston to Los Angeles.

At least 865 hotels, with 103,230 rooms, are currently under construction and scheduled to open in 2016, according to hotel research firm STR, as developers boost investments to match surging demand.

“Post-2009, lenders in the hotel space got very skittish,’’ says Jan Freitag, STR’s senior vice president of  lodging insights. But “the industry continues to break records on the demand side and on the revenue side . .. Developers are playing catch up, and we’re seeing a lot of attention on the U.S. lodging industry.’’

The 1.5% uptick in rooms opening this year is still below the long-term annual average of 1.9%, Freitag says. But building activity has dramatically increased, with 21% more rooms under construction than a year ago.

Among the cities seeing the most activity are popular perennials like Chicago and Washington D.C., but also somewhat unexpected destinations, like Detroit, which has 954 rooms slated to open in 2016, and 4,200 rooms in the longer-term pipeline.

“Developers are looking at Detroit and saying  there might be an opportunity there with a very changed city,’’ Freitag says.

New York, however, was number one, with 13,583 rooms under construction and slated to open in 2016 and beyond.

“That is an unbelievable amount of rooms under construction,’’ Freitag says, adding that a presence in the Big Apple is crucial for a hotel chain’s image. “If brands want to establish themselves ... (they) need to have a foothold in New York City.’’

The payoff is also enticing. Through November, 2015 hotel occupancy in New York was 84.8%, the highest annualized occupancy of the nation’s top 25 lodging markets. That means “eight out of ten rooms are being sold every night for 11 months in a row,’’ Freitag said. “So, developers are saying 'yes, take an opportunity to go and take some of that demand.’ ’’

New York will be the site of numerous new hotels opening under the Marriott International umbrella, but it’s far from the only focal point. The company’s 19 brands  are projected to collectively open more than 360 hotels in the U.S. and Canada this year.

That's “a record number of openings,’’ says Eric Jacobs, Marriott International’s chief development officer, North America, Select Service and Extended Stay Brands.

With an aim at appealing to a new generation of tech-savvy, city-oriented, travelers, Marriott International’s brands will debut properties ranging froma Courtyard, opening one block from the Santa Monica Pier later this year, to five AC brand properties  in the greater Boston area, which are slated to start welcoming guests over the next 18 months.

“This (development)  cycle has really pushed us into the urban markets  based on the demand of these consumers,’’ Jacobs says.

Hyatt expects this year to open at least 11 new Hyatt Place, Hyatt House, and Hyatt Regency hotels in and around such locations as Houston, Chicago, Denver, Emeryville, Calif., and Asheville, N.C., as well as an Andaz in Scottsdale, Ariz., according to spokesperson Stephanie Sheppard.

And Hilton Worldwide, home to 12 hotel brands, will be bringing more than 30,000 rooms, or 270 hotels, online in the U.S. this year. Some will be existing buildings that are converted, but most will be new, from the ground up.

“Existing hotels have become expensive,’’ says Bill Fortier, Hilton Worldwide's senior vice president, development,  for the Americas,  “Money is going towards new development today and . .. we’re going to see a record number of deals in 2016.’’

Miami and New York will get their share of the new Hilton Worldwide properties, Fortier says, but many of the green- lighted projects slated to open this year and in 2017 will dot the West Coast, as well as Denver, Houston, Dallas, and several other cities that weren’t the key target areas just  three or four years ago.

“Average room rates and occupancies are moving at record pace in those communities, and owners are seeing that, developers are seeing that, and saying it’s time to find a way to build something new,’’ Fortier says. “We’re going to see a lot more activity on the West Coast than we have in the past.’’

Limited service hotels are the most popular type of property being constructed - those offering guests a breakfast bar where they can grab juice and a pastry, perhaps, rather than a full service restaurant or cavernous meeting room.

"Today most developers and financiers, whether it’s a bank or private equity, don’t  want to wait five years to have a hotel open,’’ says Fortier, noting how expensive full service hotels can be to construct as well as time-consuming. With limited service properties “you have a  little more certainty when the hotel will open, and when you can start getting the return on your investments.’’

Cities with most rooms under construction in 2016

Source: STR