How much is too much hotel development in West Palm Beach?

Rendering of the Hilton West Palm Beach by NBWW
Rendering of the Hilton West Palm Beach by NBWW

It may be time to call it a night at the key party in West Palm Beach. As another hotel is set to open downtown, there is talk among real estate pros in the area that the market may have hit its saturation point.

A confluence of positive market indicators, including increasing occupancy rates and a rise in revenue per available room, has driven a slew of proposed hospitality developments in downtown West Palm. “Developers have a herd mentality,” said Paul Weimer, vice president of CBRE Hotels in Miami. “They often do things at the same time. If they see numbers that are strong, they get excited.”

The occupancy rate in West Palm hotels has seen annual increases up to 9.2 percent between 2010 and 2014. Yearly gains in revenue per available room during the same period have ranged from 7.2 to 12.2 percent, according to CBRE.

Those numbers bode well for the roughly $110 million, 400-room West Palm Beach Hilton, developed by Related Cos., which is set to open early next year next to the Palm Beach County Convention Center.

Transit Village

Transit Village

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But experts worry there is too much product set to come on line after that. The Hilton opening will follow the 152-room Marriott Residence Inn, which opened in February on Olive Avenue. In addition, there are four more hotel projects approved and five that have been announced this cycle for the downtown area. The biggest planned project approved to date is a 300-room hotel that would be part of the $300 million Michael Masanoff’s mixed-use Transit Village, next to the terminals for Tri-Rail, Amtrak, Greyhound and local buses and trolleys.

“I’m definitely concerned that this is too many,” Weimer said, pointing out that Palm Beach County currently has a total of 15,000 hotel rooms. These projects would add another 1,544 keys to the mix downtown.

That amounts to more than a tenfold increase in rooms in the area from the beginning of the year, notes Neil Merin, chairman of commercial real estate services firm NAI Merin Hunter Codman in West Palm Beach.

He said that after the Hilton and the Marriott, the numbers don’t quite add up. “Can we go from less than 200 rooms to more than 2,000 in the next two to three years? It doesn’t seem realistic that we can increase demand like that,” he told The Real Deal.

While the consensus among those TRD spoke with was that some developers will have to accept that their projects will at best be put off until the next real estate cycle, both the current stats and some industry professionals point to a brighter future.

West Palm real estate lawyer Harvey Oyer of Shutts & Bowen shares the belief that not all of the planned hotels will be built this cycle, but he sees success for some because “they are targeting different types of travelers.” The new Hilton will serve people attending conventions, the hotels nearest to the water will cater to tourists, while still others will attract business travelers.