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Did You Know…

…that the boom in hotel investing is showing signs of ebbing? According to a new report by Torto Wheaton Reasearch, just as signs of softening demand are appearing, hotel construction is ramping up. In 2005, thanks to the rapid conversion of hotels and other properties into residential condominiums, the supply of hotel rooms shrank. But the condo craze has cooled in most cities. Now hotel projects are under way or nearing completion in places where there may not be sufficient demand to produce high occupancy and room rates.

Mid-Price Hotel Construction

In 2007, Torto estimates, the supply of full-service hotels is expected to grow by 2.4%. The supply of limited-service rooms will grow by 1.2%, the research firm says. At the same time, Torto notes that household spending is expected to moderate, reflecting the effects of the falling housing market and rising gas prices. That will cut down on travel and room demand.

According to Torto’s analysis, the surge in luxury rooms may not be unjustified: Investors have seen room rates at chains such as Ritz Carlton rise by more than 9% in the past year. However, the researcher points to condo-hotel development as an area of particular concern. These projects, which include a combination of fulltime rental and condo units, which have been popular with investors. Torto says that speculators have been looking for quick profits on condo units, which are thrown into the rental pool when the owners are not around.  

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