New hotels target business, leisure travelers
Regional hotel developers are riding a development boom as the lodging industry nationwide bounces back from the last economic downturn, sparking fresh investments in new hospitality products.
New midstate hotels are rising near highways in growing municipalities where other commercial development is occurring — in business parks near Interstate 81 in fast-growing Silver Spring Township, for example — and along well-traveled retail corridors and connector roads in strong tourist magnets, such as Hershey.
But while the market has been hot, it could be close to winding down, according to hotel industry research firm STR. There are currently 189,000 rooms under construction in the U.S.
The level of activity is above the 25-year average for hotel development and is close to meeting travel demand levels in many markets, said Jan Freitag, a senior vice president at STR.
“We’re seeing deceleration of demand growth, so the lines will meet at end of this year,” he said.
Smaller markets such as those in Central Pennsylvania are known to lag trends in bigger cities, so new hospitality projects may continue a little longer.
A recent trend, both locally and nationally, has been construction of hotels that fall into the higher end of the mid-tier market or upscale segment. About two-thirds of the rooms in development are in these tiers, according to STR. Rates vary by market and brand, though rates at many mid-tier hotels will fall below $100 per night in offseason periods.
Many of the new hotels are all-suite hotels that cater to corporate travelers staying for multiple days, and hotels with limited food-service operations and little meeting space. The construction also is bringing in new brands developed by hotel chains such as Hilton and Marriott, which are looking to introduce their latest brands to smaller markets.
Among the new hotel names in Central Pennsylvania: Home2 Suites by Hilton and Tru by Hilton. Hotel Indigo, a chain of boutique hotels that is affiliated with InterContinental Hotels Group, is set to debut in the Harrisburg area early next year.
More familiar flags such as Courtyard by Marriott and Fairfield Inn & Suites also have been flying in some markets. A Courtyard recently opened outside downtown Hershey and the Courtyard’s developer, Shaner Hotel Group, has plans for at least two Fairfield hotels on the East and West Shores, including one now underway at Harrisburg International Airport.
The move by local companies to build hotels with slightly higher price points is needed to give travelers something new, officials with the more active development companies said.
“It’s a refreshing of the hotel tree,” said Dan Johnson, regional director of operations for Dauphin County-based Areya Management. “We need to keep it going and move up the chain as demand is there.”
Areya broke ground this month on a Home2 hotel on Bent Creek Boulevard in Silver Spring Township. It will be the company’s third extended-stay hotel and 12th overall.
Areya has two more projects in the works, including the Hotel Indigo, which will replace a Wyndham Garden on Eisenhower Boulevard in Swatara Township. That hotel is slated to open later no later than early 2018.
The company also is building a new SpringHill Suites in the Chambersburg area. In recent years, Areya has converted a few Harrisburg-area hotels to other brands, including the La Quinta that sits next to the new Home2 site in Silver Spring Township. The hotel had been a Ramada Limited and Baymont Hotel.
The company also transformed a Microtel Inn in Enola into a Best Western.
Dave Hogg, CEO of York County-based Springwood Hospitality, said the midstate hasn’t seen many new hotels built since the last development boom before the recession.
“It’s been almost 10 years,” said Hogg, who is in the process of doubling his company’s portfolio. Springwood has three hotels under construction and four more in the pipeline.
The recent acceleration in building could prompt existing hotel owners to invest more to compete, Hogg said. Plus, the newer hotel products from the big chains give existing chain franchisees more to offer in each market.
A few of the new brands, like Home2, were created during the downturn. They are designed to appeal to younger millennials who are looking for moderately priced hotels. With millennials overtaking the baby boomers as the largest living generation last year, the pace of development for new hotel products is picking up.
Springwood owns a Home2 off Interstate 83 in York Township, the first built in the midstate. The company has another Home2 coming in Frederick, Md., and it’s about to start on a third off Route 30 in Manheim Township across from the new Shoppes at Belmont development.
What you can expect to pay
The average price for an upper midscale hotel, like a Hampton or Fairfield Inn & Suites, was $111 per night last year, according to industry research firm STR. The bracket includes the Home2 Suites by Hilton brand.
Upscale hotels, which include brands like Homewood Suites and Courtyard by Marriott, boast average rates of about $139.
Prices can vary widely by season, day of the week and in each market. STR took all room revenue generated for the year and divided it by rooms sold for the year to calculate an average.
Tru by Hilton is considered a midscale hotel. The midscale average rate was $85 per room last year, according to STR. Comfort Inn and La Quinta also fall in the midscale segment
“We’ll probably do another one in the Harrisburg area before the end of the year,” Hogg said.
The company also will be the first to bring Tru by Hilton to the area, with one slated to open this month in Lancaster County and another in the works for York County. Tru is a more affordable brand, marketed at $90 to $100 per night, that is designed to compete with Comfort Inn, La Quinta and Fairfield hotels.
The hotels tend to have around 100 rooms, some less, so they can be situated alongside sister hotels on some sites, which the chains like, Hogg said. Limited-service hotels that are affiliated with strong companies also are easier to finance.
“It’s the name of the game today,” Freitag said. “This is what developers value, customers value and what banks finance.”
Hotel developers like Areya also see growing demand for more hotels that feature suites with kitchens. Those so-called extended-stay hotels have been an underserved segment in Central Pennsylvania, Johnson said. But the region sees a lot of corporate relocation business and companies with workers who travel frequently for business in other markets.
Construction companies and utility contractors, for example, use hotels for several days in a row to house workers for projects in the area.
Large health care companies often send managers to other markets and many companies, like banks, may prefer to house executives they are recruiting at extended-stay hotels.
Areya’s Home2 project in Cumberland County, meanwhile, could attract people doing business with companies in new business parks, such as nearby Delta Pointe off Route 114 and I-81. Shaner is hoping for the same for its Fairfield project, which will be built in Delta Pointe. Shaner plans to add a second hotel on the site, though no timetable has been established for the project.
A major catalyst for hotels in that part of Cumberland County may be the offices recently occupied by global accounting giant Deloitte near the Carlisle Pike. Other business activity has surfaced along Route 114, including the opening of the new headquarters of farm lender AgChoice Farm Credit.
New commercial projects are teed up for nearbly lots in the township, which has experienced more population growth than nearly every other township in the commonwealth this decade.
Local developers say they will continue to look for other opportunities to add more hotels.
Hogg said he’s researching new projects in Philadelphia, the Lehigh Valley and Central Maryland.
“The market has recovered. It’s back to pre-recession demand levels, and above,” he said. “It now makes sense.”