Finance & DevelopmentMarket ReportsFive Up-and-Coming Secondary Hotel Markets

Five Up-and-Coming Secondary Hotel Markets

If you’re only looking at the top markets like New York, Orlando, or Chicago for development and management opportunities, you’re most likely getting pushed out of an already crowded field. You can save yourself the frustration by jumping into booming secondary markets. In some locations, such as Oklahoma City, growth is being fueled by strong corporate presences and a low cost of living. Another draw for developers is how less volatile secondary markets are than primary ones. Room value is also on the rise. In Raleigh, the per-room value is expected to increase a healthy 31.9 percent.

Markets beyond the top 25 have made dramatic gains, with double-digit growth, as far as percentage of rooms increasing over the current supply. “It looks like 2012 was the bottom,” says Patrick Ford, president of Lodging Econometrics in Portsmouth, N.H. “Since then, we’ve seen modest quarter-to-quarter improvements.” In this ever-improving scene, Ford points to these five secondary markets as the most active and worth exploring.

Austin is a city that’s been growing for a long time. It has a broad economy and a strong education and government presence. Austin draws high-tech and music-related companies, making it a magnet for younger, affluent residents and travelers.

“We like Austin a lot,” says Bill Upshaw, president of lodging and residential for Minneapolis-based CSM Lodging. “The city has some very strong fundamentals, such as a large diversity of business, a highly educated population, and a strong university presence.” While CSM isn’t currently working any Austin deals, the firm really likes the dynamics in that market and would like to gain a presence there this coming year.

Upshaw’s one caveat: “There has been a lot of interest and a lot of big properties added in Austin, so I’m concerned it’s a bit saturated.” Indiana-based Lodging Services is building a 1,012-room JW Marriott, which will open in 2015, and the Manchester Texas Financial Group plans to break ground on a 1,000-room Fairmont Austin hotel in November 2013.

Leading all secondary markets, Austin boasts a 22.4 percent increase in pipeline rooms compared to the current supply. Forty-one projects are planned in Austin, accounting for 6,840 additional rooms.

Destination of choice
Citywide occupancy rates in Austin are at about 68 percent, and the city leads all other Texas markets. In fiscal year 2011–12, Austin booked about 435,000 group room nights. Several large groups drive this traffic, including the SXSW music, film, and interactive conferences and the Austin City Limits Music Festival.