Experts predict boom times will continue for Denver’s hospitality industry
Rendering courtesy of Four Seasons
Earlier this year, Denver beat out New York City for the 2008 Democratic National Convention—a victory that has hotel owners and lodging developers breathing a sigh of relief.
“The impact of winning the bid is a positive one for Denver, the state and the region,” says John Montgomery, a lodging analyst with Denver-based Horwath Horizon Hospitality Advisors. “As far as what the DNC will do specifically for hotel development, [the impact] is not very significant, but if the city and the state are appropriately marketed, conventioneers and other visitors will continue to come to Denver and Colorado and more hotels will be developed.”
The Democratic National Convention will bring 35,000 people to the city in August 2008, with an estimated economic impact of $160 million, according to the Denver Metro Convention and Visitors Bureau.
Landing the largest convention in the city’s history would not have been possible without the grand opening of the Hyatt Regency at the Colorado Convention Center in December 2005, an event that marked a new beginning for the hospitality industry in the Mile High City.
Not only did the 37-story structure take its place in the skyline as Denver’s first new skyscraper in two decades, it also established the city as a serious player in the convention business sector.
“Denver is quickly becoming a leader in the convention market,” says Richard Scharf, president and CEO of the Denver Metro Convention and Visitors Bureau. “We have proven that we can compete against large established cities. A number of incredibly prominent events that could have gone anywhere in the world chose to come here.”
Healthy Convention Market
Booking the largest convention in the city’s history capped off Denver’s best year for conventions. Last year more than 320,000 delegates attended more than 530 meetings and conventions in Denver for an economic impact of $521.2 million—a 23% increase over the previous record of $424.3 million in 2005, according to figures released by the Denver Metro Convention and Visitors Bureau.
Based on a record-breaking number of tentative bookings in 2006, those numbers should continue to climb in 2007, 2008 and beyond. The bureau booked 3,742,148 tentative room nights for the most possible bookings ever in a single year—an increase of 19% from the previous record set in 2005. These tentative bookings, which make up the pool of future bookings, could translate to increases in lodging occupancy down the line, Montgomery says. “Denver has the potential to be an extraordinary convention and tourism city,” he adds. “The components are largely in place. That’s why hotels have been built.”
From new builds to minor renovations, design firms and contractors are cashing in. The Denver-based design firm klipp parlayed its work on the Hyatt Regency at the Colorado Convention Center into additional projects for Hyatt, including the Grand Hyatt in Washington, D.C., and the renovation/expansion of Denver’s Grand Hyatt.
“We’re helping Hyatt make sure its physical identity in the marketplace is clear,” says Brian Klipp, FAIA, a principal at klipp. “In a booming hospitality market, there is often a need for existing properties to take a step back and see how they’re competing against the other, newer facilities that are coming online. Competition is good for construction business because it drives property owners to invest in renovations and new buildings.”
Meanwhile, High Point Conference Resort LLC is one of several developers banking on Denver International Airport as a central location for business meetings and conventions. The Colorado Springs group has partnered with klipp and Denver’s M.A. Mortenson Co. for the $172-million High Point Conference Resort at the 1,800-acre High Point mixed-use community near the airport.
“It’s a conferencing resort that happens to provide hotel accommodations,” says Klipp, the design principal on the project. “The intention is to provide all the resort amenities that hold people at the site during the conference.”
Upon completion in fall 2009, the 13-story facility will add 505 guest rooms and executive suites to the room supply in the metro region. Besides meeting facilities, it offers a business service center, spa and fitness center, dining options and access to an 18-hole golf course.
Even with its airport location and resort concept, the High Point facility will face competition from downtown hotels such as the 221-room Hilton Garden Inn, opening this summer.
Loveland’s Alliance Construction Solutions and Ivins Design Group of Denver partnered on the design-build of the $35-million Hilton property.
“There’s been a lack of hotel rooms to support the conference market for quite a while,” says Bill Joyner, vice president of operations for Alliance Construction Solutions. “This facility targets downtown business travelers and provides conference space for smaller-scale conventions and meetings.”
The success of the High Point facility, Hilton Garden Inn and other lodging properties largely depends on the longevity of the recent upswing in national tourism and travel. “Stronger performance in the lodging industry and hospitality market, both in metro Denver and throughout the state, are tied to general improvements in the U.S. economy,” says economist Patricia Silverstein, president of Development Research Partners in Denver.
Until recently, tourism-related business had struggled since 2000, primarily from cutbacks in business travel, higher fuel costs and increases in air fares. Travel anxieties after 9/11, the Iraq war and the resulting economic uncertainty and safety concerns only added to the slump. Companies scaled down already meager travel budgets, consumers replaced distant excursions with closer-to-home vacations and international visitors opted for non-U.S. destinations.
The recent return of foreign tourists gave the tourism industry a much-needed boost.
Good news came in February when the U.S. Department of Commerce announced that the international tourism sector had fully recovered from losses suffered after the Sept. 11 terrorist attacks. Foreign tourists spent a record $107.4 billion in the United States for 2006—a figure that surpasses the previous record of $103.1 billion set in 2000.
However, the surge of foreign tourism dollars could be short-lived despite the favorable exchange rates and other competitive advantages in the United States. The latest Market Forecast and Review reports from the Travel Industry Association suggest that the United States could see a 17% decline in foreign travelers over the next 10 years, which would inevitably impact Colorado’s performance.
For the moment, the state is enjoying the spending power of foreign tourists and reaping the benefits of healthier business travel budgets. In 2006, 11.7 million overnight visitors gave the city its best tourism year ever by spending $2.76 billion. That’s a 13% increase from 2005—the largest one-year increase in the city’s history.
The biggest increase in spending came from lodging. The 24% increase to $800 million, up from $645 million in 2005, reflects the 2006 increases in hotel inventory, occupancy and room rates, according to a report from the Colorado Tourism Office.
This year, first-quarter results of the Rocky Mountain Lodging Report showed not only a steady increase for the city’s overall hotel occupancy and room rates but also significant increases from last year. The hotel occupancy was 63.2% percent in April, compared with 60.3% in April 2006, and the average room rate was $108.80, compared with $97.84 last year.
These numbers bode well for the 1,800-plus rooms currently in planning or under construction in downtown Denver as well as newly opened properties across the metro area: the Residence Inn by Marriott downtown, Hampton Inn & Suites in Parker, Hampton Inn & Suites on Speer Boulevard and the Residence Inn by Marriott near DIA.
Upscale hotels such as the $60-million Ritz-Carlton and the $300-million Four Seasons hope to carve out new niches in the Denver market by filling the void for luxury accommodations downtown.
CDS Hotel Investors LLC teamed up with Denver’s Pahl Architecture and Mortenson for the city’s first Ritz-Carlton property, which renovated the Embassy Suites building at 18th and Curtis streets into 202 guest rooms, 13,000 sq ft of meeting space and 24 for-sale residences.
“Turning one kind of hotel into a completely different kind of hotel proved challenging for some aspects of the build, but we achieved the vision of the owners and gave the downtown area a level hospitality that didn’t exist before now,” says Patty Yanker, project executive for Mortenson.
The Ritz-Carlton, which will be complete this fall, will have two years as Denver’s premier luxury hotel before sharing the spotlight with the Four Seasons Hotel and Residences, a project by developers Jeff Selby and Michael Brenneman of 1111 Tower LLC.
Construction of the 45-story skyscraper will begin in the fall. The property will boast 230 guest rooms and 102 private residences upon completion in winter 2009.
Rumors of additional high-end hotels coming to Denver—a W Hotel, St. Regis and Trump Hotel, to name a few—have raised questions about market saturation. Even with possible predicted declines in tourism, Montgomery says he is not concerned by the marketplace’s ability to accept the new properties.
“If we added 15 lodging properties over the next 12 months, that would be a problem,” he adds. “In this case, the new properties are spread out over the next five years or longer, so the market will have a chance adjust and absorb the new rooms.”
Six new properties will increase Denver’s room supply in 2007. Local developer Charlie Biederman counters Montgomery’s optimism, saying overbuilding could pose problems for hotels that do not have solid branding and established niches in the market.
“There are X number of people to fill X number of hotel rooms, and some properties will get left out,” he says. “You want to make sure you stay ahead of the competition and get to the top of the market.”
Biederman speaks from experience. As managing partner of CDS Hotel Investors LLC, he has worked on a number of hotel projects in the metro area, including the 196-room JW Marriott in Cherry Creek and the ongoing renovation of the Embassy Suites for the Ritz-Carlton.
For now, Denver is holding strong. New findings from the Denver Metro Convention & Visitors Bureau show the average number of nights spent in Denver rose to 3.3 in 2006, up from 2.9 in 2005 and 2.6 in 2004. More nights means increased demand for hotel rooms and potentially higher room rates.
“We see the hotel market being pretty strong for the next couple of years, but we’re realistic that it will slow down soon, and condo and office building construction will slowly replace all the construction and renovations of hotel properties,” Alliance Construction Solutions’ Joyner says.
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