Hotels are hot—for now

Hotel construction spending is up 112% since the hotel building boom began in March 2006, and an additional increase of 24% is expected by the end of 2008.

Construction starts doubled late in 2005 and have increased 30% more since, with several factors contributing to the surge:

• Hotels are becoming destinations, as in the case of casinos and resorts.
• Tourism is up 6% over the last year, with foreigners attracted to the U.S. because of favorable currency exchange rates.
• Hotels are replacing space converted to condos during the depressed hotel market.
• Occupancy rates jumped to 67% by the end of 2005, up from 61% in the depressed economy in early 2002. Room rates are up 25% over the same period.

The first signs the boom is ebbing have appeared, however, with July starts dipping below the late 2005/early 2006 monthly averages. Some developers are reporting high interest rates, a problem spilling over from the residential mortgage mess.