Why in hard times are so many new hotels opening?
It’s contradictory, yes, but while many US hotels are seeing hard times, nearly 100 new hotels are set to open in major American cities this year. Why is that?
New York will have the most new hotels, 46, according to hotel researcher Smith Travel. New York is followed by Houston, with 30.
New hotels are opening as well in Atlanta, Boston, Chicago, Dallas, Los Angeles, Miami and Washington. That does not include new hotels opening in the suburbs of these cities.
So how can so many hotels be opening even though the economy and travel remain slow?
The answer, according to Mark Lomanno, president of Smith Travel Research, is that “hotel building cycles rarely mesh just right with economic cycles.”
Planning a new hotel can take two to four years, and construction an additional one to four years. Most of the hotels getting ready to open were on the drawing boards several years ago, when the economy was healthy, demand for rooms was strong and room rates were rising quickly.
And once construction is under way, said Sean Hennessey, chief executive of consulting company Lodging Advisors, there really is no better alternative than to finish.
“Once you put the foundation in the ground and start with construction, from an investment point of view, it almost always makes the most sense to proceed, even if market demand appears shaky,” he said.
The lodging markets in New York and Houston were particularly ripe several years ago for hotel growth.
In New York, occupancy levels were 85 percent from 2004 through 2008, and the average daily room rate rose 86 percent in those years, said Bjorn Hanson, a clinical associate professor at the Tisch Center for Hospitality, Tourism and Sports Management at New York University.
Developers, he said, believed that these conditions “created a safe, secure investment environment.”
By David Wilkening
David
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