Room starts will rise 21.5 percent this year to 98,000 rooms, according to the study by PricewaterhouseCoopers. The year-over-year percentage increase is the largest since 1997. The spurt of construction comes as rates are showing strong growth nationwide as occupancy rebounds and business travel picks up again. There are about 4.45 million hotel rooms nationwide.
High-end hotels have done particularly well in the past couple of years and developers are disproportionately breaking ground on them. The upscale hotel segment, which includes full-service brands like Marriott International Inc., Hilton Hotels Corp., and Four Seasons Hotels Inc., makes up 22.5 percent of current room supply but 30.5 percent of the rooms starting construction this year.
Nationwide, occupancies and revenue per available room have moved higher than expected in the past year. Through March, occupancy averaged 58.4 percent, up from 56.8 percent a year ago, according to Smith Travel Research. As the travel season hits, that number likely will increase and Smith Travel Research expects it to be 63 percent for all of 2005, up from 58.9 percent in 2002, when the industry hit bottom. Travelers are paying more for rooms, too. The average daily rate was $90.25, up 4.2 percent from $86.64 a year ago. Revenue per available room jumped to $52.74 a day, up 7.2 percent from $49.21 a year ago.
Real estate as a whole has been hot as buyers have poured money in, diversifying away from relatively risky stocks and low-yielding bonds. Money has flooded the office, apartment and condo markets, and good deals have become increasingly hard to find. More investors lately have been looking at hotels, which are riskier, but have historically higher yields.
Construction dropped sharply after recession, terror attacks and severe acute respiratory syndrome combined to discourage travel in 2001 and 2002. In 2002, room starts bottomed out at 68,400. The peak of the last cycle was in 1998, when there were 159,900 room starts.
