This 2015/16 survey reports per-room hotel development costs based on data compiled by HVS from hotel projects proposed or under construction during the 2015 calendar year. Construction cost data for new projects was collected in 2015 in order to form the basis of the mean and median of the construction cost components. Data derived from published sources and industry indexes, as well as information obtained from architects, contractors, developers, lenders, and other professionals involved with hotel development projects, have been considered in this survey.
The HVS Hotel Development Cost Survey sets forth ranges of development costs in each defined lodging product category. The survey is not meant to be a comparative tool to calculate changes from year to year—rather, it reflects the cost of building hotels across the United States in 2015. As will be discussed, the ranges and averages set forth in this survey are greatly affected by the types and locations of hotels being developed at this point in the development cycle.
HOTEL DEVELOPMENT ON THE RISE
In most U.S. markets, 2015 served as a banner year for hotel occupancy and average rate. In anticipation of record RevPAR figures and strong cash flows, hotel developers across the country have searched high and low for new opportunities. With the increasing availability of construction financing over the past few years, no major market in the United States is without an active development pipeline. With this sweet spot in the development cycle, new hotels have been opening and many more are under construction or in planning. Hotel development in some markets was previously hindered by the lack of available brands; however, options for development have expanded as many new brands affiliated with the top hotel companies have emerged. Shrinking AOPs (Areas of Protection for franchisees) and the push toward independent lifestyle hotels and soft brands has further widened the opportunities for new entries into the market.
With more options than ever before, hotel developers have been capitalizing on the favorable conditions. Most analysts agree that we are at the top of the cycle in terms of hotel performance, and the new supply pipeline is beginning to make up for a relatively long and low period in our industry’s history. While the number of rooms available in the U.S. has increased by 3.35% over the last five years, overall rooms sold has grown by approximately 17.60%, resulting in rising hotel occupancy and average rate levels that support the cost of new development.
PER-ROOM HOTEL DEVELOPMENT COSTS
The nadir of hotel development costs in the most recent cycle was 2010 when construction demand was very low coming out of the recession. Costs in most categories have increased over the last five years. The averages and medians reflect a broad range of development projects across the U.S., including projects in areas with low barriers to entry and in high-priced urban and resort destinations. We note that the figures below are not adjusted for locational attributes.
2015/16 HOTEL DEVELOPMENT COST PER ROOM AMOUNTS
All individual property information used by HVS for this cost survey was provided on a confidential basis and deemed reliable. Data from individual sources are not disclosed.
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