Hotels are hot—for now

September 01, 2007 |

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.

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