Real Estate Forum - January 2013

has already eclipsed the peak room nights sold before the downturn in more than half of the urban gateway markets where Pebblebrook owns hotels, Martz says. Supply lags the demand for hotel rooms in those cities, which include Miami, San Francisco, Boston, Seattle, West Hollywood, Beverly Hills, Philadelphia, and Washington, DC. Martz contends that a dearth of hotel construction is one of the most positive factors affecting US hotels today.

While owners and operators of existing hotels work to bolster the bottom line through ADR while supply lags demand, a few hotel groups are counting on new construction to increase market share and help their brands to outperform competitors by introducing the latest hotel services and property concepts.

Approximately 23% of the hotel rooms currently under construction in the US, or about 20% of the total pipeline, will carry a Hilton flag, according to Bill Fortier, SVP of Americas development at Hilton Worldwide. “We consistently have a 20%-plus share of the new supply, which is great for us,” says Fortier, who is responsible for developing both the managed and franchised businesses for all of Hilton’s brands in the region.

Most of the new properties that Hilton targets for potential fran-
chise or management deals are in the focused-service segment, he
says. “That certainly was where the money was headed in 2012, and
that will continue in 2013,” he says. “It’s really headed to those
higher barrier-to-entry markets: city centers, university towns, any-
where with stable demand from varying demand sources and an
inability to rapidly increase supply.”
Hilton’s Doubletree brand has been growing rapidly, chiefly
through conversions, and numbers more than 250 hotels in the
US and 300 globally. Among Hilton’s focused-service brands,

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the new midmarket Home2 Suites is poised to grow, with about 70 hotels in the pipeline.

Forecasters and hotel operators keep a close eye on when new supply is likely to hit the market. And although completions are expected to remain muted in 2013, the pipeline is beginning to revive, according to Lodging Econometrics, a research firm in Portsmouth, NH that tracks hotel development.

“Quarterly construction starts are at their highest level of the past 11 quarters,” says LE president Patrick Ford. On a trailing four-quarter basis, hotels that began construction by the end of the third quarter in 2012 totaled 614 projects and 70,930 rooms, marking the seventh consecutive quarter where annualized trends have increased, he said. Third-quarter pipeline metrics were the most current available when this report went to press.

In 2013, hotel openings will increase to 41,753 rooms in 393 new properties, up only slightly from 2012’s output. In 2014, new supply will advance to 48,720 rooms in 432 new hotels, LE predicts.

With forecasters calling for increasing demand for hotel rooms in 2013 following two record-setting years in the number of room nights sold, STR’s projection of a 4.4% increase in ADR is conservatively small, says SVP Jan D. Freitag.

“Room rate growth is going to be healthy next year, but given the unprecedented level of demand, we would have expected it to be higher,” he says. “Operators don’t have a lot of visibility into room bookings in the future, so they are pricing as if demand is not going to materialize, from a position of uncertainty. We’re suggesting that demand is going to materialize, even though you don’t see it yet.” ◆