If you build it, they will check in

Hundreds of new hotels are rising across the USA as the lodging industry seeks to cash in on rising room rates and strong demand from travelers.

The number of hotel rooms under construction in July jumped 20% from a year earlier, a report from industry tracker Smith Travel Research shows. More than 196,000 rooms — more than 2,000 hotels — will open within two years. That's the highest number of new rooms in the pipeline in more than seven years.

For travelers, the boom will provide more lodging selections in many markets. In some places, including San Antonio and Phoenix, the buildup of hotel rooms could possibly push down rates, says Jan Freitag, Smith vice president. But in the two markets with the most rooms under construction — Las Vegas and New York — traveler demand is so strong that room rates should continue increasing, Freitag says.

Industry consultant Mark Woodworth of PKF Consulting sees no threat to the building boom from tight credit. The credit crunch will likely weed out only some future projects that weren't strong contenders to begin with, he says.

Hotel financiers, he says, believe a "fresh shiny product" is worth the risk.

"In the hotel business, new beats old every time," Woodworth says.

In the Chicago area, hotel developer Peter Dumon's firm is halfway through building an upscale, full-service InterContinental hotel near O'Hare airport. His firm, The Harp Group, is also building an upscale, limited-service hotel in downtown Chicago within blocks of the Sears Tower.

The credit crunch has caused Dumon to finance his projects differently, but financing is available at around the same rate as last year, when lenders were more liberal. Developers with less hotel experience could see their financing fall through, says Dumon, whose company is based in Oak Brook, Ill.

"For me, that's a good thing because they're taking a competitor out of the market," he says.

Good times

Times have been good for the hotel industry. It finished 2006 with a U.S. occupancy rate of 63.4%, the highest since 1998, says industry consultant Bjorn Hanson at PricewaterhouseCoopers. This quarter, the average nightly rate is expected to reach a record $103, vs. $83 five years ago, according to PKF Consulting. The surge in construction should continue through at least next year, though probably not at the current fast pace, Hanson says.

Hotel construction came nearly to a halt after recession and terrorism in 2001. Although travel started to rebound strongly by 2004, the hotel industry was slow to add properties, concentrating instead on expansions and upgrades. But now, that's changed.

For now, developers mostly are opting to build hotels that will charge midrange rates, the Smith report shows. Holiday Inn Express is building the most rooms, followed by the Hampton Inn chain and Hilton Garden Inn.

Holiday Inn Express, the midprice, limited-service chain, is taking advantage of New York's high rates. The chain opened its first New York hotel in October 2005 and already plans to grow to seven, says John Merkin, the chain's top U.S. executive.

In some markets, downtown revivals are spurring activity.

With the doubling of the Indianapolis convention center underway, local government is subsidizing the construction of a Marriott hotel complex that features an upscale 1,000-room J.W. Marriott and three less-pricey Marriotts. More hotels are being pitched as the city nears completion of the 63,000-seat Lucas Oil Stadium, the Indianapolis Colts' new home.

All the activity, however, has convention bureau officials worrying about a potential hotel glut, bureau spokesman Bob Schultz says.

San Antonio will add the equivalent of nearly 13% of existing hotel rooms in the next two years, the Smith report says.

Optimism reigns

One of those projects will give the city its second 1,000-room hotel: The Grand Hyatt. It's rising on the River Walk, the city's main tourist destination and adjacent to its convention center.

Industry executives, for now, remain optimistic about filling future rooms. The Grand Hyatt's sales and marketing director, Scott Lane, says his hotel's already booked more than 500,000 room nights, with an additional 350,000 pending. Those figures rank it as the best opening in Hyatt's history, he says. The hotel opens in February.

Much of the demand is coming from large groups that previously were too big to meet in San Antonio. "There's a lot of demand for this city," Lane says.
Posted 15h 37m ago