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

Five Up-and-Coming Secondary Hotel Markets

Unlike many parts of the country, there has been such an influx of people to Raleigh that there is a high demand for residential real estate. “There are some bidding wars going on for homes,” says Joe Reardon, vice president of sales and marketing for Alliance Hospitality, which is headquartered in Raleigh. “The cost of living is great, and it’s a great city to have a family where your kids can grow up. We’re seeing a very robust trend in people moving to the Raleigh-Durham area. As the housing market is boosted up, that goes hand in hand with the hotel market.”

Alliance Hospitality has four Raleigh-area hotels in its portfolio, including Cambria Suites RDI Airport, Hampton Inn Raleigh, Hilton Garden Inn RDU Airport, and Homewood Suites Crabtree. Reardon’s firm specializes in upper-midscale hotels, and he’s seen the average daily rate continue to climb. According to the Greater Raleigh Convention and Visitors Bureau, the ADR is $92.

“There’s a small handful of new supply being built,” Reardon says, “and what’s going out there, we want to grab as much of a share as we can.”

With a 13.2 percent increase of rooms over current levels, there are 29 projects in the pipeline, accounting for 3,631 rooms.

Economic triangle
The Research Triangle Region has proven to be a draw for tech-sector jobs, which is one of the reasons why Forbes magazine has ranked Raleigh as the fastest-growing city in the United States. But the accolades don’t end there. Hotwire tabbed Raleigh as the No. 6 destination for a value vacation, and the National Federation of Independent Businesses reported that the city is the second-best place in the country to start a business. In addition, the U.S. Census reports that Raleigh had the most metro housing permits during 2012.

The viability of a hotel market comes down to an area’s quality of life and employment base. At least that’s the bare-bones formula used by Doug Dreher, president and CEO of The Hotel Group, a management and development firm based in Edmonds, Wash. “We look at the diversity as well as the depth of demand generators when we’re entering a market.” He points to Nashville, where there is a ton of new projects entering the pipeline, as an example of diverse demand generators­—tourism, health care businesses, the music industry—creating an attractive environment for hotel development. This kind of variety in an area’s employment base makes a huge difference when it comes to sustaining lodging demand. “Seattle and Portland both have timber, for instance, but Seattle also has Microsoft, Amazon, Nordstrom, Starbucks, and Boeing. Portland has Intel and Nike. “

Of course, all employers aren’t equal when it comes to creating lodging demand. University markets present one demand generator yet have tons of departments, for instance. There are also families coming in and out. “Universities always have grants and construction going on too,” Dreher says. “And when the primary demand generator is military, you’re at the mercy of the government and what’s happening with budget cuts. With sequestration here to stay, you have to be a little concerned.”