Does the Lehigh Valley have enough hotels?
Jon Harris and Matt Assad | The Morning Call (Allentown, Pa.) | June 16, 2017 1:00am
June 16--Center Valley is already home to one of the area's busiest shopping hubs, a bustling corporate park where Olympus Corp. of the Americas and Avantor reside, and the prospect of future development.
Two hotels will soon -- some would say finally -- be added to that mix.
On one patch of land, catty-corner from the Promenade Shops at Saucon Valley, a Homewood Suites by Hilton is rising, a structure made entirely of steel and concrete that is the brainchild of a longtime Lehigh Valley developer who has the blueprints ingrained in his mind.
Less than a mile away, a SpringHill Suites by Marriott is being constructed closer to Route 309, a project representing a Lancaster development company's foray into a market it considers attractive for its balanced offering of corporate offices and tourist attractions.
These are two of the three hotels that will open in the Lehigh Valley by the end of the year, meeting demand with the addition of a combined 360 rooms in a hotel market that still has room to grow despite a busy past decade of lodging development.
With these three hotels nearing completion and at least another two in the pipeline, the issue now becomes how quickly the new inventory will be absorbed into the market and whether it will result in the weeding out of any aging properties.
Michael Stershic, president of Discover Lehigh Valley, said a hotel building boom made the region's lodging space grow quickly, from 4,476 rooms in 2006 to nearly 6,500 now.
Still, it hasn't grown quickly enough -- and developers have noticed. After years of hovering near the same 60 percent occupancy rate that has been the statewide average, Valley rates began climbing four years ago, increasing from 62 percent in 2013 to 70 percent last year.
"As soon as occupancy hits the mid-60s, people try to take advantage of the trend and you start seeing more rooms added," Stershic said.
That's one of the factors Atul Patel, CEO of Upper Macungie Township-based HMB Management, considered when he started planning the Homewood Suites four years ago. He now expects the five-floor, 114-suite extended-stay hotel, which also includes a banquet facility, an exercise room with a yoga section, and a pool, to be completed between Aug. 15 and Sept. 1.
"There is enough corporate and leisure market business and the families too, so that's the reason we thought it would be a good idea because of the shopping center, the hospitals and also the corporate park," said Patel, who expects 60 percent of the hotel's business to come from corporate users and the remaining 40 percent to include leisure and other groups.
The thinking is similar up the road, where the five-story, 132-suite SpringHill Suites is slated to open sometime in November.
Stephanie Reese, vice president of sales and marketing at High Hotels, the company developing the SpringHill Suites, said the Center Valley site was brought to the firm's attention in about 2015. What High Hotels saw in the area, she said, was one of the fastest-growing regions on the East Coast and one offering a balanced demand for rooms.
The promise of year-round weekday traffic from corporate users and weekend demand from travelers was a reason High Hotels felt confident when it broke ground on the hotel last July, a ceremonial event that came after the Homewood Suites nearby was well under way.
"We saw it as a healthy market," said Reese, who expects 60 to 70 percent of the hotel's business to come from corporate users.
Business at the new Fairfield Inn & Suites by Marriott in Upper Macungie Township is also expected to lean more corporate. The four-story, 114-room Fairfield Inn is slated to open in November, hotel General Manager Kelley Jorge said, in an area just north of Fogelsville Elementary School and crowded with large companies such as Amazon, Ocean Spray and Boston Beer Co.
While construction on those three hotels is nearing the finish line, there are at least two other hotels in the development pipeline. Those include a 104-room Candlewood Suites planned for Lehigh Valley Industrial Park VII in south Bethlehem, and an extended-stay hotel Patel plans to build adjacent to the King George Inn in South Whitehall Township.
Several other potential hotel projects have been mentioned across the Lehigh Valley, including a four-story hotel at the Chrin Commerce Centre in Palmer Township, a four-story hotel on the Eastern Industries site in Lower Macungie Township, two hotels as part of a development plan in Fogelsville, the planned reopening of the Americus Hotel in downtown Allentown and the possibility of a hotel expansion at Sands Casino Resort Bethlehem.
While most of the new hotels appear to be catering to the corporate users, Stershic said the tourism traveler is responsible for the most recent growth. Tourism spending in the Valley increased nearly 7 percent over the past two years, the second-largest increase to the Poconos, which surged because of Kalahari water park opening in Monroe County in 2015. The resort completed an expansion earlier this year, which boosted its room count to nearly 1,000.
Stershic said occupancy is still higher Valleywide on the weekends.
Once open, the new hotels are likely to cannibalize some business from other local hotels and capture any excess demand, according to Erick Mazzoni, managing director of Cushman & Wakefield in Philadelphia, who appraises hotels throughout Pennsylvania. Afterward, he expects there will be some downward pressure on the region's overall occupancy rate because of supply increasing more so than demand.
Once the new rooms hit the market, Stershic said he could see the occupancy rate dip a little bit as early as next year. If it falls enough, Mazzoni noted that would cause developers to tap the brakes on additional hotels.
The local hotels likely to feel the impact of the new crop are those Mazzoni classified as inferior -- the aging hotels that are not well-located, are not in great condition and have occupancy rates in the low 60 percent range. By comparison, he said, the quality hotels are well-branded, well-located and have occupancy rates in the low 80 percent range.
That leaves the owners of inferior hotels with a choice: reinvest and redevelop your property, or watch it trend toward vacancy.
For Vinay Barthwal, co-owner of the Holiday Inn in Allentown, he's decided to reinvest.
He bought the 224-room hotel on Hamilton Street in 2007, and with occupancy rates as low as 30 percent, he lost money most every year until this one, he said. But with new competition two blocks away in the Renaissance Hotel, and a downtown on the rise, he's advancing a $17 million plan to renovate the hotel from top to bottom and bring in a new flag.
"Downtown is coming back and we need to be ready to compete for the new corporate tenants that are coming," Barthwal said. "We must update and upgrade if we want to be part of this resurgence."
While owners of aging hotels would have to reinvest or risk closure, the developers of the well-performing hotels often double down and build again.
"It's just natural that the ones that are performing well, those owners and developers are going to build more," Mazzoni said.
That could very well be the case for High Hotels. At the groundbreaking last July, High Hotels President Russ Urban said the company's approach is to do projects in clusters. Reese reiterated that strategy in an interview this past week, saying High Hotels has been looking for another potential site in the Greater Lehigh Valley because the company believes the area's growth and activity will continue.
"I definitely think it's a possibility," Reese said of a second hotel, "but we don't have anything definite at this point."
As for what will determine the success of the new hotels? That will be branding and location, according to experts. And, Patel notes, how the guest feels once they check out.
"At the end of the day, it's about the guest satisfaction and experience at the hotel," he said.