Putting the right property in the right place can help maximize returns on hotel investments. Below are the top five U.S. cities for hotel construction pipelines, and what hotel owners and investors should watch for in these markets.
1. New York
There are plenty of big opportunities in the big apple.
With a pipeline of 192 properties and 30,541 rooms, New York City has the largest hotel development pipeline in the United States, according to Lodging Econometrics. The Big Apple is also the most populated city in the country, home to more than 8 million residents and hundreds of major corporations including Morgan Stanley, Citigroup, and ABC.
Comprised of five boroughs, the iconic city is full-to-the-brim with tourism hot spots such as the Empire State Building, Central Park, and Times Square. With a positively booming year-round tourism industry, New York City brought in more than 58 million visitors in 2015, around 12 million of which were international travelers, according to NYC and Company, a destination and marketing organization focused on New York’s five boroughs. Also in 2015, tourists spent more than $42 billion, which has a huge impact on the city’s overall economy.
As far as hotels are concerned, in 2016, NYC had an average occupancy of 85.8 percent and an average ADR of $258.89. Even though the statistics are impressive, hotel competition in the Big Apple is quite fierce, especially with all the new supply entering the market. That’s why many of the hotels opening over the next few years have a hook, helping them stand out to travelers. One such hotel will be the Graduate Roosevelt Island, due to open on the narrow island in the city’s East River in 2019.
As a brand, Graduate Hotels is focused on development in college towns. The Roosevelt Island property is located in the center of Cornell Tech and is the first and only hotel on Roosevelt Island.
David Rochefort, vice president of investments and asset management at AJ Capital Partners, the company behind the Graduate brand, believes it important for hotels to emphasize their uniqueness, especially in NYC. “There is an extreme draw to be a part of this city and to design something extremely unique within our portfolio,” he says. “It’s the best hotel market in the world.”
Pictured: Graduate Roosevelt Island, New York
Diverse drivers and a business-friendly environment prime this hotel market for continued growth.
Following the January 2016 crash in oil prices, it wouldn’t be too much of a stretch to think that the economy in Houston, Texas—a city internationally recognized for its energy market—would be suffering. But that is very much not the case. Houston’s economy has an ever-diversifying set set of drivers, from renewable energy sources like wind and solar, to healthcare and biomedical research, and even aeronautics.
According to Chris Green, COO of Greenbelt, Md.-based hotel management company Chesapeake Hospitality, Houston’s economy succeeds because the city is very business-friendly. “It’s a great place to do business. There aren’t a lot of barriers to entry and people are building new businesses there all the time.” Chesapeake manages two properties in the Houston market, including The Whitehall Houston, which is located in the city’s downtown.
The hotel pipeline in Houston is the second largest in the United States, totaling 169 properties and 18,373 rooms, according to Lodging Econometrics. Even with all the new supply coming in, Green isn’t particularly concerned about the longterm viability of Chesapeake’s Houston properties.
“You’ve got a really large marketplace with lots of amazing submarkets. You’ve got a whole bunch of city centers within one marketplace that all have their own unique business drivers,” he explains. “There’s something for everyone.”
Pictured: The Whitehall Houston
Infrastructure improvements and an expanding urban center make this Texas city a development hotspot.
With a pipeline of 140 properties and 17,291 new rooms, the city of Dallas, Texas has the third largest hotel development pipeline in the United States, according to Lodging Econometrics. For those familiar with the area, these numbers are no surprise—in 2016, the city had the highest year-over-year population growth in the country and it boasts the fifth largest metropolitan economy. It’s also home to a number of major corporations, including State Farm, Toyota, and JP Morgan.
With such a strong business environment and so much hotel competition coming to the Dallas market, many of the city’s existing properties are upping their game, investing in renovations to draw a bigger share of travelers. One of these hotels is the Sheraton Dallas Hotel by the Galleria. Purchased by North Palm Beach, Fla.-based Driftwood Hospitality Management in late 2016, the hotel is currently in the midst of major guestroom renovations. Steve Johnson, executive vice president of Driftwood, says that the renovations were a necessary move, especially considering the hotel’s location, which is surrounded by major office buildings and high-end residences. “We needed to have a product that would allow us to improve occupancy and RevPAR,” he describes. The hotel also sits right next to the city’s freeway, which was recently widened and updated during a $2 billion improvement project—just one example of the steps the city is taking to continue its growth and invest in its own infrastructure.
“Dallas has been growing well for as long as I can remember, and certain sectors—like ours—are growing faster than others. We feel really good about our investment in the Sheraton, and we expect it to remain strong for the foreseeable future,” says Johnson.
Pictured: Sheraton Dallas Hotel by the Galleria
The capital of Tennessee’s booming tourism sector is music to the hotel industry’s ears.
For the past several years, the city of Nashville, Tenn., has enjoyed significant economic growth. The city is also experiencing increased wages and a tighter labor market. It’s currently a major music recording and production hub for both major and independent labels, earning it the moniker “The Music City.” Nashville is also a major healthcare hotspot—more than 300 health care companies call the area home. And in 2015, Nashville was named Business Facilities’ number one city for economic growth potential.
With so many ties to the music industry, Nashville tourism is booming. More than 670,000, tourists flock to the “Music City” annually to experience what it has to offer, including Music Row—an area dedicated to country, gospel, and Christian music—the Country Music Association, Country Music Television, and Universal Music headquarters.
With so many travelers and businesses coming to Nashville, it is a great time to be a hotelier developing in the area. There are 121 hotels and 14,873 rooms in the Music City’s hotel development pipeline, according to Lodging Econometrics. Projected RevPAR for this year is up 3.9 percent from 2016, and demand growth has climbed 4.4 percent.
Virgin Hotels started looking into the Nashville market immediately after launching their brand in 2010. “When we first visited the city, there was a lot of energy and an overall good vibe. We could feel the underlying culture that made the city tick. That culture was a perfect fit with what we were looking to offer Virgin customers,” says Allie Hope, head of development and acquisitions at Virgin Hotels. In December 2015, the company acquired a site on Music Row. The planning stage has been extensive, but Virgin will break ground on the property this summer and open the hotel in 2019. “We cannot wait,” says Hope. The 260-room property will have a rooftop pool and food and beverage options that reflect the Nashville culture.
Pictured: Virgin Hotel Nashville
5. Los Angeles
Even with high barriers to entry, the hotel market in the City of Angels is very in-demand.
Home to one of the largest populations in the United States—3.8 million—and a strong economy where one in every six people works in a creative industry, Los Angeles, Calif., is a prime location for hotel development. However, getting a project off the ground in L.A. can be a major feat. The market is already very saturated and inflation and construction costs are steadily increasing. Southern California has also made it consistently difficult to build with complex zoning laws and height limits. However, this hasn’t really stopped people from trying—and succeeding—to bring new hotels to this market.
Even with numerous barriers to entry, Los Angeles boasts the fifth largest hotel construction pipeline in the United States—111 hotels and 18,723 rooms, according to Lodging Econometrics. According to Eric Jacobs, chief development officer at Marriott International, a lot of this supply can be traced back to 2009, when the recession offered developers a major opportunity to enter the L.A. market. “The southern California hotel market got very soft. Developers who otherwise wouldn’t have been able to open a hotel in this area could. Things in L.A. move very slowly. A lot of the hotels that are opening in the next couple of years have actually been in process since 2009.”
Right now, Marriott has many Los Angeles-based projects in the works. “When developing in L.A., hoteliers should keep in mind that the due to the city’s size, there are many different submarkets worth pursuing. There is no reason to limit yourself to downtown,” Jacobs notes.
The data included in this article was contributed by STR and Lodging Econometrics.