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Rooms to Grow

Rooms to Grow

Originally appeared in Denver Business Journal in January, 2020

After three prolific years in which the Denver area added some 9,000 hotel rooms, 2020 will represent a pause in which operators can catch their breath and re-examine the effects of all this growth on occupancy and average daily rate.

But it will only be a short pause until one of America's hottest hospitality markets erupts again.

Bob Benton, a consultant specializing in market conditions and new development, said he can foresee as many as 4,000 new rooms that could come onto the market starting in 2021 after a total that is expected to be closer to 1,500 this year — though Benton emphasized that he thinks a number of those planned projects will hit delays or fall away in the next two years. The new wave of hotel development ranges from the 17-room Life House scheduled to open early this year in Denver's Highland neighborhood to a 525-room Marriott near the Colorado Convention Center that will give a significant boost to Visit Denver's efforts to attract large events when it debuts around mid-2022.

>In many markets, this flood of new projects might look more like a tsunami creeping in to drown existing businesses. But Denver has done an amazing job of meeting the new construction with commensurate new demand.

Chris Manley — chief operating officer for Denver-based Stonebridge Companies, which owns or operates about 60 hotel properties nationwide and has two in the pipeline over the next three years in Denver — noted that the supply of hotel rooms in the Denver market increased by about 7% in 2019, a figure that tripled the national average, including the addition of 1,501 rooms at the Gaylord Rockies Resort & Convention Center in Aurora. Despite that crush of new rooms, occupancy in Denver-area hotels rose 0.7% to 76.1%, average daily rate jumped 1.6% to $148.27 and the all-important statistic of revenue per available room increased 2.3% to $112.89 through the first 11 months of 2019, according to figures compiled for the Colorado Hotel and Lodging Association by Robert S. Benton & Associates and other firms.

"This is not just a rush to develop in a hot city. The fundamentals in Denver of lodging are as good as in any city right now." Manley said. "It's a strong and healthy market. It's in balance. The market could absorb a lot."

Supply, demand and rates

Denver, like many cities, fell behind on hotel supply in the early part of the past decade because financing for large projects dried up during the Great Recession. Much of the development of recent years has focused on the increasing throngs of leisure seekers who are joining business travelers and convention-goers coming into downtown and surrounding neighborhoods, leading to new projects from the AC by Marriott/Le Méridien downtown to the Kimpton Hotel Born beside Denver Union Station to the Ramble and Source hotels that became the first lodging facilities in the River North Art District area.

While hotels have attracted more and more customers through this wave, the rise in average daily rate, which typically has been just a couple of percentage points per year, hasn't been as high as in past decades when the economy was good and demand for rooms went up, Benton said. Many hotel operators, wanting to maintain their market share in a competitive environment that includes an onslaught of alternatives like Airbnb, have opted to keep rate increases down for today's more price-sensitive visitors and to accept slightly lower profit margins, he explained.

This year — which features no planned openings other than the Life House in Denver as developers concentrate on filling in suburban supply in growing areas like Aurora, Thornton and Westminster — should allow the market to increase average daily rate between 2% and 3%, Benton predicted in his 2019 Mid-Year Market Review.

The next two years

But the new-hotel-producing spigots will come back on in 2021. Hyatt Hotels Corp. (NYSE: H) will open its first Thompson hotel, a lauded urban brand, in the Denver market. Stonebridge will convert the former Emily Griffith Opportunity School across Welton Street from the convention center into a 250-room unique setting. The new World Trade Center Denver complex near 38th and Walnut streets is expected to include a 240-room hotel upon its opening.

Then in 2022, if all goes as planned, the downtown Marriott will add another facility adjacent to the convention center. Sonder will develop its first hybrid short-term rental facility that functions like a hotel. And Stonebridge plans a hotel adjacent to the Belleview Station Regional Transportation District stop that could give a boost to the southern end of town.

Tony Dunn, general manager of the Sheraton Denver Downtown and chairman of the CHLA board, said that Visit Denver has done a fantastic job of attracting events to the city that help to fill these rooms, leading to what could be a record year for many hotels in 2020. But even as he completes a roughly $80 million renovation of his property over the course of this year, he said that what could be needed the most are more very large hotels in the core of the city — ones like the planned Marriott, he admitted, that would compete directly with his property.

Bringing in even larger hotels could help Denver win more of the 10,000- to 15,000-attendee conventions that it often loses to cities like Chicago or San Diego because they have large numbers of massive hotels that can absorb huge blocks of conventioneers, Dunn said. While more hotels come online in the range of 250 to 400 rooms, the city needs differentiators that can appeal to planners of major events, he said.

Riding the wave

Still, Benton, Dunn and Manley all agree that Denver is nowhere close to reaching a bubble as far as hotel rooms go. The increasing leisure crowd, for instance, has created a new market for independent and soft-branded hotels that are more popular than corporate chains with younger travelers who want an experience unique to a city more than they want points to build up for future trips, Benton said.

And, thus, the hotel wave is, in some ways, an opportunity to attract even more people to a city that ranks consistently as one of the most aspirational urban destinations in America for travelers. Just ask Dunn, who will need to compete against an increasing trove of competitors to fill up his 1,231 rooms by the time his renovations are complete — and is looking forward to it.

"Every time we hear the economy is slowing down, it keeps surprising us. Denver is strong," he said. "There's still a ton of groups who haven't been here yet who are still intrigued by it … So, I still think it's a great story."

Stonebridge Emily Griffith Opportunity School renovation

Address: 1250 Welton St. (Central Business District)

Rooms: 250

Expected opening: Early 2021

The story: Stonebridge Companies is transforming a (since-moved) school launched in 1916 for the purpose of providing technical education to underserved students into a mixed-use campus with a hotel, retail and office space. The $96.5 million project will preserve the historic building, maintaining the wide hallways of its school days and constructing the hotel fitness center to resemble a classic gymnasium.

By: Ed Sealover