Energy boom fuels hotel development in Pittsburgh area

Sheraton Station Square Hotel
An economic boom, fueled in part by the energy industry, is powering resurgence in the Pittsburgh hotel market. Despite a spate of lodging construction in recent years, there are still plenty of opportunities for new development.

“Historically, it was the steel industry that was most important in Pittsburgh,” said Laura Kalcevic, an HVS vice president based in the city. “It then changed to healthcare, and beginning in 2006 and ’07 the exploration of the Marcellus Shale and natural gas deposits led to a new economic boom in the area.”

Downtown, which had been neglected for many years, saw nearly $6 billion in investment in the past 10 years, said Kalcevic, which further boosted hotel development.

“There was a lot of opportunity for growth in the downtown market because we had a number of older properties,” she said. “There’s a lot of opportunity in the boutique segment, and while at one time we had little limited-service supply, a number of hotels in that segment opened in the past five years.”

Strong pipeline

While Pittsburgh is the 44th largest hotel market in the United States, it ranks 14th in the size of its development pipeline, according to Lodging Econometrics. The pipeline includes 67 properties with 7,071 rooms, with 23 hotels (2,614 rooms) under construction and another 32 properties (3,133) set to start construction in the next 12 months.

If all properties in the development pipeline are built and opened, the market’s room inventory will increase 27 percent.

During 2013 and 2014, 14 hotels and 1,283 rooms opened. Ten of those properties are in the upper-midscale segment of the market. This year, Lodging Econometrics forecasts 15 hotel openings with 1,527 rooms. The city’s hotel construction activity is split about evenly among four submarkets: North, West/Airport, South and Central Business District.

Among major brand companies, Hilton Worldwide leads the Pittsburgh pipeline with 16 properties under development. Marriott International is next with 11 hotels in the pipeline.

Recent openings in Pittsburgh’s downtown area range from luxury (the 185-room Fairmont Pittsburgh) to full-service (a 300-room Renaissance) to a number of select-service hotels under Cambria Suites, Hyatt Place, Hampton Inn, Courtyard, SpringHill Suites and Residence Inn flags.

“Until five years ago, we didn’t have a lot of limited-service supply downtown, but that has since changed,” Kalcevic said. “A lot of it has opened on the south side closer to the transient tourist areas, and they’re doing well—above 70 percent in occupancy and close to 80 percent. There is still a lot of unaccommodated demand in this segment.”

Boutique hotels are another new phenomenon in Pittsburgh. Recent openings include a 248-room Hotel Monaco and a 135-room Hotel Indigo. A 63-room Ace Hotel is scheduled to open by the end of the year. Other boutiques in the pipeline include the 175-room Distrikt Hotel and the 104-room Forbes Hotel. Both hotels are adaptive reuses of office buildings and both are set to open in 2016.

Positive performance

Despite the additions to supply, existing hotels in the Pittsburgh market are performing well. In 2014, citywide occupancy was up 2.9 percent to 68 percent. Average rates rose 3.2 percent to $116.21, while revenue per available room increased 6.2 percent.

Allegheny County hotel tax collections topped $31.6 million last year, up 5 percent over 2013 and an increase of 77 percent since 2005.

Pittsburgh hopes to cement its growing reputation as a comeback city by hosting the 2023 Super Bowl. In May, the Pittsburgh Steelers football team filed an initial application to host the game, with a formal bid to follow.

To help with that effort, and to lure other major sporting events to the area, the city’s convention and visitors bureau has proposed a 2 percent increase in the city’s hotel tax to fund a regional sports commission. The city’s current hotel tax rate, 7 percent, is one of the lowest among major metropolitan areas in the U.S.

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