Hotel Development Cost

Topics: Hotel, Extended Stay Hotels, Hotels Pages: 13 (2980 words) Published: February 29, 2012

Elaine Sahlins Senior Vice President, HVS San Francisco Consulting & Valuation

HVS Consulting & Valuation | 100 Bush Street, Ste 750, San Francisco, CA 94104, USA

HVS Hotel Development Cost Survey 2010
Elaine Sahlins – January 2011
HVS has tracked hotel construction costs throughout the United States since 1976. The survey considers data for six lodging types: Economy/Budget Hotels, Midscale Hotels w/o F&B (without Food and Beverage), Extended-Stay Hotels, Midscale Hotels w/ F&B (with Food and Beverage), Full-Service Hotels, and Luxury Hotels and Independent Resorts. The 2009/10 hotel development survey reports updated per-room development costs for through the end of 2010. Each year HVS Consulting and Valuation researches development costs from our database of actual hotel construction budgets, industry reports, and uniform franchise offering circulars. These sources provide the basis for our range of component cost per room. New project construction cost data collected each year may increase the range and/or impact the mean and median of the construction cost components. The upper and lower ends of the ranges are adjusted by changes in construction cost components derived from published sources and information from architects, contractors, developers, lenders, and other professionals involved with hotel development projects. This year’s development cost survey reflects actual ranges of development costs in each category. The survey is not meant to be a comparative tool to calculate changes from year to year but represents the true costs of building hotels across the United States. As with previous years’ data, the data represent a wide variety of geographical locations from tertiary markets in the Southwest to mid-Manhattan. The development costs of the same hotel product, say a select-service Fairfield Inn or Holiday Inn Express, can be more than triple the amount from one locale to the other.

By mid-2010, the construction industry was well into its third year of recession. Almost all segments of private construction were hit hard but as a ratio, the greatest contraction of commercial construction was in the lodging sector. The following chart shows the overall spending on construction in recent years including lodging, office, and commercial projects. These data show that while the value of hotel construction, as measured by the U.S. Census Bureau, represents less than four percent of the value of all private construction, the CHART 1 - CONSTRUCTION SPENDING – RESIDENTIAL AND COMMERCIAL rate of decline in lodging development spending 2002 THROUGH YTD OCTOBER 2010 has experienced greater % % % % velocity than that for Year Residential Change Lodging Change Office Change Commercial Change other commercial property types. $4,752,501 5,340,253 6,378,884 7,326,331 7,399,983 5,943,074 4,215,134 3,035,288 12 % 19 15 1 (20) (29) (28) $125,606 119,162 143,783 151,990 211,482 329,767 424,547 300,391 (5) % 21 6 39 56 29 (29) $424,562 367,104 393,527 448,207 548,052 645,519 682,507 488,200 424,590 246,719 (14) % 7 14 22 18 6 (28) $709,993 689,930 757,475 798,911 879,775 1,025,596 979,647 653,672 565,188 386,378 (3) % 10 5 10 17 (4) (33)

2002 2003 2004 2005 2006 2007 2008 2009

YTD 10- 2009 YTD 10- 2010

2,516,498 2,441,989

(3) %

264,753 114,057

Representative of the recent real-estate cycle, residential construction began to decline in mid2007 and as of the fourth quarter 2010, has stabilized. Lodging,

(57) %

(42) %

(32) %


office, and commercial construction experienced downward trends later in the cycle. When development restarts for hotels, it is likely to be after the resumption of new office and commercial construction. Without lease commitments to provide financial certainty for new construction, the financing for new hotels is...
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