Hotel construction, occupancy on upswing

Hotels posted the largest increase in commercial construction of any sector in 2013, with a 28 percent rise in building, according to McGraw-Hill Construction Research and Analytics.

One contributing factor is that fewer hotels have been built over the previous five years, experts say. But hotels are considered a good investment in many areas, led by San Francisco, Houston, Boston and Miami.

An increase in hotel stays is a result of companies sending more employees on old-fashioned business trips, coupled with consumers wanting to get out again after drawing in their purse strings during the recession, experts say.

Hotel sales rose 8 percent in 2013, according to the National Association of Realtors, and hotels also posted a 67 percent rate of working out of distressed situations, second only to the apartment market.

In 2013, occupancy rose to 63.2 percent. The average daily rate of U.S. hotel rooms rose 3.3 percent to $111.03. Revenues per available room increased 3.6 percent, averaging $70.36 per room, according to STR Global, formerly known as Smith Travel Research Inc., a Hendersonville, Tenn., company that tracks supply and demand data for the hotel industry.

Many urban markets are generally “stagnant,” with the exception of large coastal markets like New York, San Francisco and Boston, as well as Chicago, the STR report said. But secondary urban markets are moving considerably better.

The largest occupancy increases are being seen at midscale and economy chain hotels. Luxury and upscale hotels are also seeing some increases, but upper-upscale hotels have reported decreases.

Limited-service hotels may see the greatest gain, some say, as firms and families are still spending somewhat conservatively in 2014. Still, many consider hotels as a strong competitor for multifamily and warehousing development and investment dollars in the years to come.

Having fewer amenities is considered an equal trade-off for lower prices and good location, surveys show.

The North American hotel sector ended 2013 on a positive note as both group and transient segments – defined as individual business and leisure travelers – showed year-over-year increases in occupancy and average daily rate, according to data from the TravelClick North American Hospitality Review (NAHR).

“Group sales were a disappointment through the first three quarters of the year,” said Tim Hart, executive vice president, business intelligence for TravelClick. “However, group sales pace has been quite strong, improving the group segment outlook heading into 2014.”

For the next 12 months, overall committed occupancy is up 8.4 percent when compared with the same time last year.

Among the top 25 markets, Minneapolis-St. Paul experienced the largest occupancy increase for the last month, rising 7.0 percent to 74.6 percent, followed by Boston (up 6.2 percent to 86.1 percent), and Nashville (up 6.2 percent to 74.5 percent). Washington, D.C., saw the largest occupancy decrease, falling 6.7 percent to 67.4 percent.

“The last two years or so have been largely healthy, and the moderate increases have been driven by room-rate growth,” said Jan Freitag, senior vice president at STR. “But we’re seeing new supply by the end of 2014 and the start of 2015. While that will be chain specific, it shows potential.”