Originally published May 8, 2006 in MeetingNews
The current hotel sellers' market and the resulting high room rates sting meeting planners and attendees when they pay their bills. But a tangible payoff is developing: an avalanche of new and improved inventory.
Construction will begin on more new hotel rooms in 2006 than in any year since 2000. At the same time, more money is being spent on renovation this year than ever before, according to PricewaterhouseCoopers.
"Having new hotels to consider offers planners new opportunities and gives our attendees additional options for price points and product type," said Karen Malone, director of meeting services at the Healthcare Information and Management Systems Society. "It also reinforces the trend that the meetings industry is on a positive track."
Bjorn Hanson, global hospitality industry leader for PwC, said, "We'll see occupancies escalate in 2006 to their highest level since 1996, and they will make this a year of record profitability."
That boosts the appeal of building new properties or, for some owners and investors, taking over existing hotels, which typically precedes renovation.
At times like this, Hanson said, "Everyone gets in [to the hotel market] the lender puts its money to work, the developer can collect a developer's fee, the hotel management company gets a management fee, the franchiser gets a royalty, and the owner gets a return on investment."
And, from a report by PKF Consulting: "2005 can be declared as one of the best years of performance for U.S. hotels in the past quarter century. The U.S. hotel industry is in a state of euphoria."
Anecdotal reports of development provided by hoteliers support that claim.
"We have 300 projects in the pipeline now a huge difference [from prior years]," said David Scypinski, senior vice president of industry relations at Starwood Hotels. As for improving existing hotels, he said, "Absolutely there is more renovation." Among notable current projects is a $70 million rehab of the Sheraton New York.
Hilton is starting construction this year on big, bold hotels in San Diego, Orlando and Baltimore. The properties, offering 1,200, 1,400 and 750 rooms, respectively, will be adjacent to convention centers.
"We're probably in the sweet spot of this current cycle in the hotel industry," said Bill Fortier, Hilton's senior vice president of franchise development. "There hasn't been much building in recent years because of high construction costs and fears about terrorism, so hotels have been able to push up rates, and will continue to do so into 2007 and 2008. Investors see that and they see an opportunity to make money."
In terms of renovation activity, Hilton is doing "considerably more than we do in an average year," Fortier said. "More than half of Hilton and Doubletree hotels now have full, major product improvement plans in place." About $800 million is being spent currently on Hilton brand hotels, and $600 million on Doubletrees.
Among those being upgraded this year, are Chicago's Palmer House Hilton, the Hilton Boston Back Bay, Hilton San Diego Resort, the Phoenix Hilton and the Washington Hilton.
Marriott opened 3,300 rooms in the first quarter of 2006 across its Marriott, JW Marriott, Renaissance and Ritz-Carlton brands. The company has 25,000 rooms in its pipeline for this year, of which about half will be at full-service hotels. In all, the company has 75,000 rooms planned for construction, of which about 35 to 40 percent will be full-service. The company didn't have specific numbers available for properties under renovation.
Room for Improvement
Though the hotel industry's recent strong financial performance was an impetus for renovation especially capital improvements that had been needed but were delayed during the recession a sea change in guest expectations also spurred the upgrades.
"We're absolutely spending more on renovation, and one reason you're seeing capital investment is that guestroom standards have changed," said Stephanie Sonnabend, CEO & president of Sonesta Hotels. "Most chains are upgrading their linen product; the bedspread is dead."
Other guestroom changes being made by Sonesta and other hotel companies, Sonnabend said, are technology-based.
"Flat-screen televisions are now at a price point where hotels feel they can invest in them, and that calls for the removal or cutting down of armoires and going back to dressers."
In addition, she said, "Outlets used to be hidden behind the bed because they're not aesthetically pleasing, but now so many guests travel with items that need to be plugged in at night including their laptop computers, iPods, BlackBerrys and cellphones that we have to make outlets more accessible."
In other ways, too, the kinds of renovations being made today go beyond carpet, furniture and drapes. For example, during a renovation of the Omni Dallas Hotel at Park West, refrigerators with glass fronts were installed in place of opaque mini-bar fridges after a 2005 J.D. Power survey showed that the amenity most desired by upscale hotel guests is a refrigerator.
"This way people can store things," said Tom Chevins, senior vice president of sales and marketing at Omni Hotels.
Omni, which likely will consider the refrigerator idea for its other properties if the concept proves successful, will spend close to $80 million this year on renovations "a pretty good number for a 40-hotel company," Chevins said.
"We're striving to create better experiences, and much more can be done today from a space-planning perspective," he said. For example, at the Omni Interlocken Resort in Broomfield, Colo., "Everyone wants to be outside, so we created an outdoor pavilion. We now ask ourselves what we can do to dress up the view from a ballroom or how we can maximize space on a rooftop."
At Marriott, plans were announced early this year to radically transform the lobbies and meeting spaces into one "great room" at select Marriott and Renaissance properties throughout 2006.
The redesign calls for divvying up these spaces into "zones" for welcoming, individual needs, socializing and business.
"With our great-room concept, guests can tailor the use of these marvelous spaces to their own needs, just like they do in their own homes," said Mike Jannini, Marriott's executive vice president of brand management, when the plan was announced.
Hoteliers are expecting their brand improvements to make them stand out.
"People are looking for better life balance, and if we make our hotels more comfortable, they notice that," said Paul Rossi, director of full-service brand innovation at Marriott.
"We're seeing differentiation in the market between hotels that are embracing these new needs and those that are not," said Sonesta's Sonnabend. "If a meeting planner walks into a hotel that's still using a bedspread and not triple sheeting, that's a point of differentiation."