Reasons For Plateau on New Hotel Builds
January 27, 2016 – GlobeSt.com
IRVINE, CA—Concern about oversaturation has arisen among hotel developers and lenders who see quite a bit of product in the pipeline, opening opportunities in renovation and repositioning of properties, R.D. Olson Construction’s president Bill Wilhelm tells GlobeSt.com. The firm was recently selected by Disney Way Partners, L.P., as the general contractor for the new Country Inn & Suites ground-up hotel project in Anaheim. We spoke with Wilhelm about how hotel brands and developers choose fulfill their objectives in a particular market, as well as his expectations for hotel construction this year.
GlobeSt.com: How do hotel brands and developers fulfill their objectives in a particular market?
Wilhelm: That’s a question that’s not all that easy to answer. Geographics is playing a lot into what hotels are built and where, and also the number of equal-type hotels that might be located in a general area. Brands will be very careful not to oversaturate a local market based on what they have in the market. From a branding perspective, they understand what they have in that neighborhood. Brands do a really good job of gauging what the market conditions can withstand from a renovation or development perspective.
Developers are looking for dirt, knocking on doors and selling why that location makes sense. They’ve got relationships with different brands, and they understand what makes a location work in a specific area. Local geographics play a lot to the success of a hotel long term. They start to evaluate what kinds of rooms, what features and what the community is looking for in order to get the best return on their investment. That drives a lot of it—they’re not going to put in a full-service hotel in an area that doesn’t have opportunities to fill those rooms. You want to put a full-service hotel in a market that has corporate customers but can also fill rooms with weekend usage.
You also have different market levels—primary, secondary—and some markets in the last four to five years have been all over the place. As the hospitality industry starts to slow down, certain markets may become a little skittish, so what is going to drive those rooms? Local business segments such as tourism might be in secondary market that aren’t bad markets, but a turn of events means they might not fill up as well.
They also look at existing properties flying their flag that may be aging, so they ask franchisees to update the properties to make them current; they might not renew a franchise if they don’t update. That’s part of the brand side; the developer side is understanding a geographic market and where they resonate putting heads on beds. Read more here.