Hotel building boom finally peaks

January 01, 2007 |

Hotel construction spending expanded faster than any other building market in 2006, helped by destination hotels in Las Vegas and other resort areas, as well as by business and consumer travel in large metro markets.

This year, building activity will stay at year-end 2006 levels with job site spending rising just enough to cover project cost inflation.

In 2008, hotel construction spending will dip about 5%, which is equivalent to a 10% decline in square footage after adjusting for inflation. Nonetheless, the 2008 hotel construction spending total will be nearly double the 2004 total.

Reed Construction Data reports that the value of new lodging starts averaged $1 billion a month last year through November, reaching nearly $1.5 billion in October and November, which is expected to be the peak level of starts in this building cycle. A sharp drop in starts is expected.

The hotel boom was spurred by a more than 10% rise in room rates and a slightly smaller percentage improvement in occupancy rates, which made hotel operations very profitable and increased the price of existing hotel properties.

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