4 markets on the East Coast that top developers’ lists

Cadillac Hotel & Beach Club is located in the heart of Miami Beach and recently underwent a multimillion-dollar renovation before joining Marriott’s Autograph Collection. Photo credit: Cadillac Hotel & Beach Club

Hotel development is booming across the United States to the tune of 2.1 percent supply growth as of February 2019, according to STR. And the East Coast is seeing its fair share of that expansion. Here are the top four markets for U.S. development on the coast, according to STR, and why developers think those cities are still hot.

1. New York City

Rooms under construction:

13,987

Total rooms under contract:

24,766

Occupancy:

76.6% (-2.2%)

ADR:

$183.37 (-0.6%)

RevPAR:

$140.51 (-2.8%)

As of February 2019, Source: STR

 

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Perhaps it’s no surprise that New York City notched the top spot for hotel development on the East Coast. Although supply growth is high, Jan Freitag, SVP of lodging insights at STR, said demand growth is there to balance it out.

“New York City continues to attract developers and visitors alike, and it is quite astounding to observe the 2018 supply percent change of 3.2 percent being easily matched by demand increases of 3.9 percent,” he said. What’s more, the market has achieved an absolute occupancy of 87.3 percent, which Freitag said gave hoteliers pricing power, with average daily rate rising 2.7 percent.

“The high occupancies, coupled with expected strength from the business and leisure guests in the coming years, continue to make this market attractive for developers,” Freitag said. “The only cloud on the horizon is the continued pressure on availability of staff as affordable workforce housing and public transportation challenges impact the labor pool.”

2. Orlando

Rooms under construction:

6,199

Total rooms under contract:

19,635

Occupancy:

83.3% (-1.1%)

ADR:

$141.87 (+3%)

RevPAR:

$118.13 (+1.9%)

As of February 2019, Source: STR

 

Carlos Rodriguez Jr., chief operating officer of Driftwood Acquisitions & Development, said that anywhere in Florida usually is a target in terms of development and acquisition plays, and Orlando is no exception, especially since it’s in the Coral Gables, Fla.-based company’s backyard. Driftwood owns and manages in Orlando and also recently sold the 90-room SpringHill Suites by Marriott Orlando Altamonte for $11.7 million, or $129,444 per room. So far, the asset is the only one the company has sold.

“In the markets like New York, you see supply matching demand growth. You have that a lot in the Northeast,” Rodriguez said. “In the Southeast, you don’t have those factors.”

He said Orlando offers several demand drivers, including an airport that continues to grow as well as access to a cruise port. The market also broke a record for total number of visitors in 2017 with 72 million visitors, according to Visit Orlando. The organization will release 2018 figures in May.

But Rodriguez said there are some concerns in the market, namely that there’s a lot of land available, unlike a high-barrier market such as Miami.

“In Orlando you have a lot more land at a super price to come in and build, but it does have significant demand growth,” he said. “I think the demand is higher than Miami in terms of growth.”

Driftwood Acquisitions & Development recently sold the SpringHill ​​​​Suites by Marriott Orlando
Altamonte for $11.7 million, or $129,444 per room. Photo credit: Driftwood Acquisitions & Development

3. Miami/Hialeah, Florida

Rooms under construction:

2,070

Total rooms under contract:

14,786

Occupancy:

84.3% (-3.1%)

ADR:

$260.89 (+0.7%)

RevPAR:

$219.87 (-2.4%)

As of February 2019, Source: STR

 

After a rebound in 2018, it’s sunny skies ahead for the Miami market, according to Neil Shah, president and chief operating officer at Hersha Hospitality Trust.

“The near-term outlook is especially strong with less new supply, enforcement of home sharing on the rise and the Super Bowl coming in 2020,” he said. “In addition, the expansion of the Miami Beach Convention Center is now complete, which is expected to drive meaningful roomnight growth over the next several years as major conventions return to Miami.” Beyond that, he said that Miami’s airport continues to attract non-stop domestic and international flights while visitation continues to hit record highs. During the New Year holiday period, more than 2.5 million passengers came through Miami airport, an increase of 117,000 visitors over 2017 and the highest figure ever. Meanwhile, Shah said international travel continued to grow in 2018 with a notable increase from passengers originating in Germany, Brazil, Argentina and Colombia.

When it comes to oversupply, Shah said he isn’t too worried. “Supply growth has been moderating the last few years and is forecast to remain so for 2019 and 2020,” he said. “The demand fundamentals are strong, that we believe any supply growth can be supported by demand growth in the market.”

Parts of Miami-Dade County are seeing a rise in hotel construction, Shah added. But on Miami Beach, where his company has three Autograph Collection hotels—The Cadillac Hotel & Beach Club, The Blue Moon and The Winter Haven—new supply is waning while demand is waxing. Meanwhile, Hersha’s other two Miami hotels, The Ritz-Carlton Coconut Grove and the Residence Inn, are located in Coconut Grove, which Shah said is seeing a transformation to attract higher-end corporate and leisure travelers.

All told, Shah said that Hersha plans to expand its presence in the market because executives believe it will remain one of the highest growth markets on a global scale. “Across the last 20 years it’s been among the highest RevPAR growth markets in the U.S.,” he said. “Demand fundamentals are strong, and supply fundamentals are held in check by the high barriers to entry and scarcity of waterfront locations.”

4. Atlanta

Rooms under construction:

3,413

Total rooms under contract:

12,416

Occupancy:

70.1% (+3.5%)

ADR:

$139.86 (+28.6%)

RevPAR:

$98.04 (+33.1%)

As of February 2019, Source: STR

 

Atlanta is one market that Peachtree Hotel Group has historically invested in over the past decade. Mitul Patel, managing principal and chief operating officer, said that’s because the market offers diverse demand generators such as Fortune 500 companies and supportive trade industries. On the debt and equity side, he said there is also more capital available than, say, in a small town in “anywhere USA.” Peachtree recently completed a hotel redevelopment in Downtown Atlanta and is currently working on bringing two branded hotels (one Hilton and one Marriott) to the Midtown West area in Atlantic Station. While they won’t be dual-branded, the properties will share parking.

Patel said that although Atlanta has traditionally been a rate-capped market, he is starting to see average daily rate break through that glass ceiling. While he noted that rates could retract, he doesn’t think Peachtree’s properties will feel the effect as much because of their newness and product offering.

“We may hit a soft spot if the economic retracts, and we’ll just have to hold tight and ride through any kind of economic cycle,” Patel said, adding that the product brought to market has a lot to do with commanding higher rates, especially when it’s something new and different.

“We believe the consumer likes new versus old. Anything you build new and if it’s with a major brand will attract more of the higher rated transient business,” Patel said. “We think we’ll be OK from a sustainability standpoint given our thesis of developing on great underlying real estate.”

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