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News for the Hospitality Executive

The Knoxville Area Has 14 Hotel Projects in the
 Planning Stages; City Occupancy Rate
 in 2004 was 57.2%
By Cynthia Yeldell, The Knoxville News-Sentinel, Tenn.
Knight Ridder/Tribune Business News

Mar. 27, 2005 - Over the last year, Knoxville has become a hotbed for new hotel construction, with growth outpacing Memphis, Chattanooga and Nashville.

Even though occupancy rates at Knoxville's existing hotels are considered average and the hotel-motel tax is considered to be among the highest in the nation, new hotels continue to spring up.

In 2004, four of the seven new hotels that opened in Tennessee were in Knoxville, according to Smith Travel Research, the lodging industry's leading information provider.

The Knoxville area also is leading the pack for hotels that are either under construction or in the planning phases.

According to Smith, Chattanooga has five new hotels in the works, Memphis has three, Nashville has nine, and the Knoxville area, which includes Pigeon Forge and Lenoir City, has 14.

"We are seeing a boom in new construction right now," said Jill Thompson, executive director of the Knoxville Tourism Alliance.

Thompson said growth may be attributed partially to relaxed lending procedures that have made it easier for small businesses to gain financing for new hotel construction. Construction also may be fueled by hotel companies that require their franchisees to upgrade.

Thompson also pointed out that many area hotels are remodeling and adding amenities like top-quality mattresses and high-speed Internet access in an effort tp keep up with market trends.

"I don't think you are ever finished with a hotel," Thompson said. "You are always under renovation, always upgrading, always trying to satisfy the customer's demand."

Growth areas

West Knoxville is a primary growth area for new hotels. In April, Turkey Creek's first hotel, Homewood Suites, will open with 103 suites.

A second Turkey Creek hotel, Spring Hill, which is under the same management as Homewood Suites, also is scheduled to begin construction this quarter.

"The restaurants, office buildings and retail stores are popping up quickly here," said Tracy Hicks, director of sales for Homewood Suites by Hilton. "Every day it seems a new site is being developed or a new construction trailer comes in. We are just so pleased to be at the center of it all."

Thompson said Turkey Creek is attractive to hoteliers because it's the area where the city is growing and, with so many new businesses in the area, there will be a demand for hotel rooms.

The Pellissippi area is growing so quickly, according to a January report by the Metropolitan Planning Commission, that it will surpass downtown Knoxville in total rentable office space by 2010 at current rates of new construction.

Alpesh Patel, who owns several hotels including West Knoxville's Hilton Garden Inn, which opened in October, said West Knoxville is the best market to be in right now.

He is concerned, however, that new rooms in Turkey Creek will take away some of his business.

"There is a concern that this area is going to be oversupplied, especially for those brands that are not top-tier brands," Patel said. "They will likely see a decline in occupancy."

Patel said the reason West Knoxville, which sees mostly business travelers, is a good market for new hotels is because of the demand for more upscale rooms.

"There is not a demand for more rooms in Knoxville," he said. "There is a demand in certain areas for higher-quality rooms. Getting the right brand in the right area, someone could still be successful."

Another growth area is Strawberry Plains.

Several new hotels opened near the Strawberry Plains exit in 2004, and at least one more is planned.

Chetan Chohan, owner of the Best Western Strawberry Inn, a 64-room hotel that opened in July, said Strawberry Plains is a leisure travel market that gets traffic from Sevier County.

"When Pigeon Forge is full, people start coming this way," Chohan said, adding that his peak months are July, August and October.

Best Western Strawberry Inn's marketing director, Cindy Ogle, said Strawberry Plains is a popular hotel spot because it is not as congested as West Knoxville, it has good restaurants nearby and it is convenient to Interstate 640.

Patel, who also is part of a hotel group that has a Holiday Inn Express under construction at Strawberry Plains, agreed that hotels in Strawberry Plains have been performing well.

Downtown Knoxville also is seeing some growth, with a Hampton Inn scheduled to open in early 2006 at the corner of Main and Henley streets and Cumberland House Hotel opening in late August at 1109 White Ave.

Jan DiGiacomo, general manager of Cumberland House, said there was a need for a full-service hotel downtown. She said a 400-room convention center hotel that was proposed for downtown would have brought too many rooms to the area but that her 131-room hotel will complement Knoxville's new convention center.

She anticipates working with Knoxville's tourism officials to add to the number of rooms available for convention groups that travel to Knoxville.

"There have been lots of renovations of hotels in downtown Knoxville, but not a new hotel in some time," she said. "We feel that the need was in the downtown area for a hotel of this caliber."

Chohan said the next big growth area will be at exit 81 off I-75 by Lenoir City. At least one new hotel is planned for that area.

"Hoteliers have started to buy land and establish franchises for that area," he said.

Thompson said the Lenoir City area is an extension of West Knoxville and is considered a good area for growth.

Increasing competition

With all of the new rooms, competition is increasing for existing hotel owners.

According to Smith Travel Research, Knoxville's occupancy rate in 2004 was 57.2 percent, which is slightly above Tennessee's average rate of 56.8 percent and slightly below the national average of 61.3 percent for 2004.

But in order to hold on to their share of the pie, many hotels are offering amenities such as high-speed Internet to set themselves apart from the rest.

"In Knoxville there are so many hotels and motels, the sheer volume, it's just hard to compete," Chohan said. "The problem with being a new hotel is getting our name out."

Chohan's hotel has high-speed Internet access, and he said all Best Westerns are required to have it also. Those that don't will have to make the necessary changes.

Thompson said it goes with the trend of franchisors requiring upgrades to the properties and requiring a new and better product in the marketplace.

"The competition is so great, they are trying everything they can think that the tourist/business traveler wants," she said. "Guest are demanding and expecting to be able to conduct business as they would in their office. They are looking at the hotel as their extended office."

Hampton Inn is requiring that all of its properties be enclosed, with all rooms entered from inside the building. This is a new market trend and is also considered to be a safety issue.

To comply, the Hampton Inn West at Executive Park Drive will begin constructing a new hotel at its current location around May 1.

Owners chose to comply with the new rules rather than switch to a different hotel brand.

"Hampton is such a strong brand that we want to remain a Hampton," said Lisa Benker, general manager of the hotel.

The current Hampton Inn, which has both internal and external rooms, will remain open while the new hotel is constructed on the same property. The new Hampton is expected to be completed in spring of 2006.

Market issues In addition to competition from the new hotels coming into the area, Knoxville hoteliers also are competing with surrounding cities, many of which have a lower hotel/motel tax.

Knoxville's room tax is 17.25 percent, which was considered by at least one report to be among the highest in the nation.

"It absolutely hurts our business," Ogle said. "They are paying almost 20 percent tax on a room."

Some area hoteliers are concerned that customers will drive to surrounding cities to get better rates.

Patel said Knoxville taxes are double those of other cities its size.

"We get guest complaints," he said.

Patel said Knoxville's low employment rates make it difficult for him to find labor, both white- and blue-collar. And the tremendous increase in the price of building materials such as steel has made it more expensive to build new hotels, he said.

Ogle is concerned about increasing gas prices.

Many of Knoxville's leisure travelers drive to the area, Ogle said. She thinks higher gas prices might deter summer vacationers.

"I have friends that have postponed trips because they figure gas cuts into their vacation money," she said.

Ogle and Chohan said it was a mistake for Knoxville not to build a hotel to complement its new convention center.

Ogle said the new hotel would have attracted bigger conventions to Knoxville and that business would have spread to hotels like those in Strawberry Plains.

"The volume it would bring would expand outward to everywhere else," Chohan said.

A 400-room convention center hotel was proposed by former Mayor Victor Ashe, then put together by the Public Building Authority as part of a downtown development project.

Downtown hoteliers strongly opposed the idea, and voters decided in August not to use public money to fund the project.


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Copyright (c) 2005, The Knoxville News-Sentinel, Tenn.

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