by Cheryl-Anne Sturken and Bryan Darrow | December 01, 2006

Rendering of the W ScottsdaleComing in 2007:
The 225-room
W Scottsdale (Ariz.)
Hotel and Residences

Hotel chains are flush with dollars, thanks to hefty profits in the last several years, and they are investing heavily in their brands. Performance figures have yet to be tallied for the U.S. lodging industry for 2006, but there is no question that it will be another year of solid returns like 2005, when hotels racked up $22.6 billion in profits. That spells good news for travelers, because much of that money is being invested in expanding portfolios, particularly internationally, in an effort to introduce new brands and attract new customers.

On the other hand, between 2003 and year-end 2005, new U.S. hotel room inventory grew by a paltry 1.9 percent, according to Atlanta-based PKF Consulting. Worse, little of that new supply was in the full-service meeting hotel category. That lodging shortage meant big headaches for meeting planners, who already were battling rising occupancy levels in every major meetings destination.

That scenario does promises to change, but slowly. By the end of this year, 26 new full-service hotels will have opened. That number, says Portsmouth, N.H.-based real estate specialist Lodging Econometrics, is expected to jump to 35 in 2007 and to 52 in 2008. “The meeting hotel segment -- the type with large meeting facilities that we term ‘upper upscale’ -- is one of the slowest in the industry with regard to growth,” says Patrick Ford, president. “These properties are very expensive to build because they require large parcels of land, and construction costs are going through the roof, which is why the pipeline has not had a lot of activity.”

The destinations with the largest full-service pipeline, says Ford, are those experiencing new development, such as the expansion of a convention center or urban revival. He cites Washington, D.C., as an example. “The new convention center spawned a lot of new full-service hotel development,” he notes. “When a city has development like that, the larger hotel activity moves forward with it.”

For developers and investors, though, year-over-year rising occupancy levels and skyrocketing room rates, coupled with huge profit margins for the lodging industry, has turned hotel real estate into a very attractive market, making it the most aggressive with regard to real estate investment. According to Steve Rushmore, president of New York City-based HVS Hospitality Consulting, U.S. full-service hotel sales will total more than $30 billion by year’s end, up from $21 billion in 2005.

Cities with the healthiest pipelines include Atlanta, Las Vegas, Nashville, New York City, Orlando, Philadelphia, San Diego and the suburbs of Virginia surrounding Washington, D.C. Leading the pack is Las Vegas, which currently has 152,000 rooms in service. Developers there are now pursuing projects totaling 48,000 new rooms, estimated to come to market by year-end 2010. Behind Sin City is Orlando, with 15,000 new rooms expected to come online.

To create a snapshot of some of the new full-service properties making their debut in 2007, M&C researched hotel project announcements and verified their facility specifications and opening dates. The findings (see “Charting the U.S. Hotel Pipeline,” page 56) show confirmed hotel projects with 10,000 or more square feet of meeting space debuting by year-end 2007.