Destination hotel boom not over... yet

April 01, 2008 |

The hotel market continues to be the fastest growing commercial building segment, but construction spending is slowing. The 66% annual growth rate seen at the end of December is expected to slow to an expected 31% in 2008, and then to 12% in 2009.

Hotels, unlike other commercial properties, enjoyed a stronger building boom in 2004-08 than in the previous expansion cycle that ended in 2000. During the last four years, construction spending for hotels jumped nearly four-fold; during the 1993-2000 cycle, the segment saw a 350% increase.

Destination hotels, such as casinos and resorts that are themselves a travelers' destination rather than simply a convenient place to stay, are entirely responsible for the market growth. The balance of the hotel market had a smaller expansion in 2004-08 than in 1993-2000, which included highway, airport, and downtown hotels and motels.

The dichotomy between destination hotels and other hotels is clear when reviewing the value of starts. For example, hotel starts in Florida, Nevada, and California increased 107% in 2007 while starts in all other states dropped 11.1%. Those states dominate the market for destination hotels and accounted for 37% of all U.S. hotel starts last year.

The volume of projects in the planning stages confirms that the boom in destination hotels in not yet over, but is likely to slow. Contributing factors include: Florida, Nevada, and California being hard hit by the housing collapse, a weak national economy reducing growth in domestic visitors, and an expected rise in the value of the U.S. dollar later this year, which could slow international visitors.

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