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Raleigh, Durham North Carolina Area
 Adding Up to 2,500 New Hotel Rooms
By Dudley Price, The News & Observer, Raleigh, N.C.
Knight Ridder/Tribune Business News

Apr. 24, 2006 - Like any growing family, the Triangle needs an extra room. Make that 2,566 rooms.

That's the number of new hotel rooms under construction or being planned in Wake and Durham counties, as innkeepers begin their biggest expansion in nearly a decade.

"The market is good right now," said Pat Daly, marketing director for Daly Seven, a Danville, Va., chain that is investing $24 million to build two hotels in the Triangle. "Without the [higher] construction costs, there probably would be a lot more building going on right now."

Talk about a turnaround.

After the Sept. 11 terrorist attacks, hotels struggled to stay in business as travel declined and bookings evaporated. Five years later, reservations have surged with an improved economy. Once-empty hotels are filling up and owners are racking up the highest room rates in years.

Nationwide, revenue per available room jumped 8.4 percent last year -- the biggest increase since 1984, according to Smith Travel Research. This year, that number is expected to grow another 7.7 percent and bring record industry profits of $25.6 billion, according to Bjorn Hanson, a partner in PricewaterhouseCooper's lodging division.

"It took us until this year to get back to 2000 in terms of visitors' spending," said Durham Convention & Visitors Bureau president and chief executive Reyn Bowman. "We're just getting back to demand levels where we can justify additional supply."

Local occupancy and room rates for the two counties are the highest in five years. Developers and investors are lining up to build.

In Durham, 1,108 new rooms are planned or being built. That is enough to increase the county room inventory nearly 16 percent. In Wake, 1,458 more rooms are being built or planned, which would boost the county's inventory nearly 11 percent.

Chapel Hill is getting two new hotels, too. The 67-room Franklin Hotel is to open on Franklin Street this year, as is a 120-room Marriott Residence Inn on Erwin Road. Those hotels will boost Orange County's room total by 14 percent.

Nationally, PricewaterhouseCoopers predicts hotel-room starts will increase 45 percent this year to 120,000. That's the most in any year since 2000 and more than the 20-year average of 96,000 annual starts, Hanson said.

Demand for rooms is especially tight because so few hotels were built during the slowdown.

"In the last few years, there's been very little new supply coming on line, because the pipeline was cut back so much," said Patrick Ford, president of Lodging Econometrics, a Portsmouth, N.H., hospitality industry consulting and research firm. Now "you're in a very robust economy and the hotel industry has recovered very well from the recession and post-9/11 events."

Hotel construction runs in cycles, and the last peak was in the third quarter of 1998, when there were 545,000 room-starts, Ford said. At the end of March 2006, there were 448,156 rooms under construction nationally. The number is up more than 39 percent from a year before, but the market is so strong the next peak won't be reached until 2008, Ford said.

Demand also is driving up values for existing hotels, said Sanjay Mundra, a principal in Cary's Soleil Group, which is developing a 264-room Westin hotel at Crabtree Valley Mall in Raleigh.

Mundra found out how existing hotel prices were rising early this year when he bid $13 million for an 18-year-old, 225-room Host Marriott in Durham only to see it sold to Ashford Hospitality Trust of Dallas for $28 million. Prices for existing hotels also have increased because construction materials have risen nearly 17 percent since 2004, according to the Association of General Contractors.

Today's rosy revenues, however, could be eroded by a cycle of reduced occupancy and room rates, which usually follows such a building boom

Raleigh-based Winston Hotels is planning to add 20 suites to a 147-room Courtyard by Marriott the company opened in 2004 in Chapel Hill. But chief executive Bob Winston said the market could be close to overbuilt. He predicted construction costs could make some cause some builders to reconsider.

"If the ones on the drawing board get built that we've heard about, we could be in for some tough sledding," he said.

Pat Daly, the Daly Seven executive, acknowledged gasoline prices could slow travel and room demand. But his company is proceeding with a 150-room Holiday Inn on Airport Boulevard near Raleigh-Durham International Airport and a 130-room Hilton Garden Inn near Triangle Town Center.

"Hotels are really hot, and I think it will continue to be that way for another five years," Mundra said. "Once they're open there may be issues, but right now it's hot."

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Copyright (c) 2006, The News & Observer, Raleigh, N.C.

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