Full-service hotel development makes a comeback

For the past decade or so, much of the focus of hotel developers in North America has been on limited-service and even more so, select-service lodging properties. But brand companies, government officials and some developers have rediscovered the profit potential of full-service hotels.

Starwood Hotels & Resorts Worldwide, for example, recently launched an initiative to re-energize its Sheraton Hotels legacy brand. Cornerstone of the 10-point Sheraton 2020 plan is to more clearly define what the brand means to consumers and to owners and developers. The five-year plan includes new product offerings, an aggressive marketing program, new service and training messages and a development push.

Through conversions, adaptive reuse and new-build projects, Sheraton forecasts more than 150 new openings in the next five years. Also, more than 100 existing and new properties will carry the Sheraton Grand sub-brand. These properties, which initially will be in gateway city locations, will have higher design and service standards.

Starwood and Sheraton are backing the initiative with a $100-million marketing campaign starting this year and continuing through 2017. The program is a combination of global advertising, social media messaging and enhancements to the brand’s loyalty program.

Public/private partnerships

A lot of new full-service hotel development is happening in urban centers, often as part of public/private partnerships aimed at supporting convention and meeting facilities. In Cleveland, Ohio, for example, the county is building a $272-room, 600-room Hilton Downtown. The property, which opens next spring ahead of the Republican National Convention in Cleveland, is adjacent to the city’s expanded convention center and the new Global Center for Health Innovation, a merchandise mart for the region’s growing medical infrastructure.

Buffalo, N.Y., and Kansas City, Mo., are two other second-tier cities with new urban full-service hotels. A 205-room Marriott opened in Buffalo in September as part of a sports and entertainment development. And in Kansas City, developers are finalizing plans for an 800-room Hyatt hotel near the city’s convention center. The project is benefitting from tax incentives and other public financing.

Development pipeline

The hotel development pipeline is strong for full-service hotels in the upscale and upper-upscale chain scale segments. According to Lodging Econometrics, the total pipeline for the upper-upscale segment comprises 156 hotels with 37,909 rooms, while the upscale pipeline (which includes some select-service proprieties) has 1,012 hotels with 133,706 rooms.

In 2015, 220 upscale hotels with 26,850 rooms are scheduled to open. That represents 4.1 percent of the segment’s total room supply. In the upper-upscale segment, 30 properties with 5,775 rooms will open this year.

Openings in the upscale segment will accelerate over the next few years. In 2016, 31,744 rooms will enter the market, followed by 38,727 rooms in 2017. In 2018 and beyond, openings in the upscale segment will account for 48,092 rooms.

Sales of full-service properties have also been brisk. According to Dan Lesser, president and CEO of LW Hospitality Advisors, a number of full-service properties in the U.S. have traded above $250,000 per key this year.

The 655-room Marriott East Side in New York City sold for $270 million, or $412,214 per room. Other large sales during the quarter included the Hyatt Regency La Jolla in California ($282,974 per room), the Hilton Clearwater Beach, Fla., ($322,115 per room) and the Westin Minneapolis ($310,280 per room).

Fueling the interest in full-service development and acquisitions are strong performance metrics for the upscale and upper-upscale segments. Both are performing at or above marks set by the U.S. industry as a whole.

Occupancy in the second quarter was 76 percent for the the upscale segment and 75.7 percent for the upper-upscale tier. Nationwide occupancy was 67.2 percent during the period.

The upscale segment, in particular, performed well in the quarter. Demand was up nearly 5 percent, while average daily rates grew by more than 5 percent.


Virtual Event

Hotel Optimization Part 3 | Available On Demand

With 2020 behind us and widespread vaccine distribution on the horizon, the second half of the new year is looking up, but for Q1 (and most likely well into Q2) we’re very much still in the thick of what has undeniably been the lowest point of the pandemic. What can you be doing now to power through and set yourself up for a prosperous 2021 and beyond? Join us at Part 3 of Hotel Optimization – A Virtual Event, now available on demand, for expert panels focused on getting you back to profitability.