Big Hotel Boom Forecast for Smaller Cities

Planners looking for exciting new places to stage events will have a lot to choose from in the coming years, especially if they are open to taking their show to smaller cities, according to new research from CBRE.

“U.S. hotel demand is still up for 2017,” said Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research, in a presentation made at Destinations International Annual Convention in Montreal. U.S. hotels started 2017 on a strong note, posting a 30-year occupancy high in the first quarter. 2016 ended with 65.4 percent occupancy and 2017 is forecast for 65.5 percent. The long-term average is 62 percent.

Developers are responding by building thousands of new hotel rooms in places you might not expect.

A total of 200,000 sq. ft. of hotel space is in the pipeline in 2017, a number that has been steadily growing from less than 100,000 in 2014. In fact, 39 markets have average hotel-supply growth forecast for greater than 2 percent. The cities with the most growth in supply on the horizon (more than 6 percent) are:

  • Austin, Texas
  • Charlotte, North Carolina
  • New York
  • Houston

Not Luxury, but Not Economy, Either

The types of brands that saw the most growth in the first six months of 2017 were upscale and upper midscale—Hilton Garden Inn, Hyatt Place and Best Western Plus.

Look for new options in outlying areas. More than half the growth is in suburban areas and small towns, Woodworth explained. “A lot of that is because those areas are playing catch up,” he said.

In addition to giving planners fresh choices for backdrops to meetings, the surge in new space can also lead to a decline in occupancy rates and hoteliers hungry to negotiate with planners who are willing to be flexible.

Woodworth predicts occupancy levels will decline in 51 of 60 top U.S. markets in 2017. “It is a buyer’s market, particularly for upper-priced hotels,” he said.

Shop Around

As with all economic indicators, results vary, based on location. Woodworth pointed to expansion markets such as Los Angeles and Denver, where real revenue per available room (RevPAR) is as much as 30 percent higher than the prerecession peak. He compared that to markets still in recovery, such as Santa Cruz, California; Newark, New Jersey; Oakland, California, and Phoenix.

Looking to 2018 and beyond, Woodworth says the fundamentals (business investment and consumer consumption) remain attractive in a majority of markets, but the scale of new supply in some areas could keep prices down there—and provide opportunities for new meeting experiences.

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