The Real Deal New York

A serious “one-two punch” is beating back hotel development

Higher construction costs and slow revenue growth putting pressure on building
August 29, 2017 01:30PM

NYC hotel under construction

New hotel development across the country is slowing as operators feel the pinch from years of rapid growth and a flood of new supply.

Hotel construction spending fell 2 percent between December and June to $2.75 billion, according to Census Bureau data cited by the Wall Street Journal. Construction spending had more than tripled since hitting rock bottom in 2011.

As of late, construction labor shortages and declining revenue growth have put increasing pressure on developers.

“That kind of one-two punch doesn’t make it exciting to build another hotel,” said Concord Hospitality Enterprises chief executive Mark Laport, whose company develops, owns and manages hotels across the country.

In Manhattan, some industry experts forecast that the six-year-long slide in hotel revenue growth may be bottoming out in the near future.

Following the recession, developers rushed in to build new hotels, particularly in top markets like New York, Houston and Miami. Supply grew 2.5 percent the top 25 markets so far this year, compared to 1.5 percent in the remaining markets, according to the hospitality data firm STR.

But despite the challenges of new supply, there are some signs for hope. During the last hotel-building boom, the average annual occupancy for the country peaked at 62.8 percent and was falling quickly at the height of the cycle. Over the last year, occupancy ticked up slightly to 65.5 percent.

And growth this period has been more moderate than in the past. The national average room supply grew 2 percent in June, compared to 3 percent heading into the 2007-2009 recession and 4 percent prior to the 2001 recession.

“It’s definitely a blessing this late in the cycle to be only at long-term averages,” Kevin Jacobs, chief financial officer at Hilton Worldwide Holdings, told the Journal. [WSJ]Rich Bockmann