HVS Development Cost Survey: Market has recovered

HVS has released its HVS Hotel Development Cost Survey for 2013-2014—and the news is good. The survey incorporates a range of data sources, including development budgets, material and labor costs indexes, and input from industry professionals, to track hotel construction costs in the United States.

According to HVS San Francisco SVP Elaine Sahlins, whe authored the survey, research shows that by the end of 2013, the hotel investment market as a whole had largely recovered from previous recessionary years, but the trend in market-by-market hotel development has been uneven.

“The hotel fundamentals of stronger markets (primarily in coastal and urban locations) have improved to the point where the value of existing properties may be at or near the replacement cost, supporting an increase in new hotel construction,” Sahlins said. “Two trends continue to gain momentum: a proliferation of proposed select-service hotels and the increase in public/private partnerships to develop major hotels in a number of central business districts. Concurrent with the increase in hotel construction is a baseline reduction in hotel rooms across the US. As the inventory of obsolete hotel rooms contracts, a significant portion of new supply is replacing closed rooms.”

The survey considers data for six lodging segments: economy/budge, midscale w/o F&B, extended-stay, midscale w/ F&B, full-service and luxury.

Some highlights:

  • For all building sectors, the overall volume of commercial construction in 2013 was greater than in 2012.
  • By the end of 2013, the hotel investment market as a whole had largely recovered from the recessionary years of 2008 through mid-2010, but the trend in market-by-market hotel development has been uneven.
  • The nadir of hotel development costs in the most recent cycle was 2010; costs in most categories have increased since then.
  • Consistent with the last cycle, construction of limited- and select-service, and extended-stay hotels has led the pack.
  • Because of the interest in development in secondary and tertiary markets, the velocity of proposed hotel rooms nationally is increasing.
  • As the majority of new hotel development continues to be select-service hotels, there is a resurgence of full-service hotel projects underway as part of larger redevelopments planned with some public financial support.
  • The volume of hotel construction is increasing, however, the opening of new hotel rooms is not the only factor impacting the U.S. hotel inventory. Conversions of properties from one brand to another, hotel expansions and hotel closings all contribute to dynamic supply trends.

For a look at the full report, click here.

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