Wake County is about to experience a hotel boom on a scale that hasn’t been seen in nearly two decades.
Eight hotels are expected to open this year, totaling more than 1,000 rooms, mostly throughout Raleigh, but also in the fast-growing Cary and Knightdale areas. The last time Wake County saw hotel development at this pace was in 1999, when 1,386 hotel rooms were added to the hospitality mix, and even more dramatically a year before, when 2,041 rooms opened.
Most years the county has been adding anywhere between a few dozen and a few hundred hotel rooms annually. But 490 hotel rooms were permanently closed in 2010 at the peak of the recession, and several hotel proposals have been scrapped in recent years.
Now, with business and population growth pushing local hotel reservations above the national average, cautious developers are recommitting to these multimillion-dollar construction projects to meet pent-up demand. The need for hotel space is not coming just from tourists and visitors, but also from corporate clients and employees on extended business trips and sporting and cultural events that book hundreds and even thousands of people.
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One of the new hotels, the 175-room Residence Inn nearing completion a block south of the Raleigh Convention Center, will be the first hotel to open in downtown Raleigh in 4 1/2 years. It will also be the first downtown hotel to emerge from a pipeline of more than 900 hotel rooms in various stages of planning and proposal for the city’s revitalized core.
Some downtown development advocates say the city has fallen far behind in hotel development, and at this point Raleigh’s downtown could double its current total of 1,127 hotel rooms without glutting the market.
“We’re behind the eight ball in hotels forever,” said David Diaz, president and CEO of the Downtown Raleigh Alliance, an advocacy group for downtown business. “It’s really been vexing for us.”
Driving the recent hotel surge are two simple figures – hotel occupancy and hotel rates – and both have been moving in the right direction for hotel developers. The occupancy rate is the average percentage of rooms filled by the hotel over one year. Another factor is a change last year to a city ordinance that allows developers to build one parking space for every two rooms rather than one for each room for downtown hotels. According to a city staff analysis, that’s a $3 million savings for a 100-room hotel.
Wake County’s hotel occupancy rate broke the 70 percent barrier last year for the first time in about two decades, rising to 70.1 percent, according to data from the Greater Raleigh Convention and Visitors Bureau.
At the same time, daily average room rates paid by hotel customers have been climbing steadily since they bottomed out at $79.92 in 2010. Wake County broke the $100-a-night barrier in 2016 and closed at $100.85.
“Market conditions are what dictate new projects, and developers rely on the numbers,” said Ian Sauer, vice president of operations at Summit Hospitality, the developer and owner of the new Residence Inn.
Nationally, hotels logged a 65.5 percent occupancy rate last year, far below Wake County, but national hotels have the advantage of a higher average room rate of $123.94. Wake County hoteliers need the higher occupancy rates to make up for lower average hotel rates here. The region’s lower hotel room rates have prevented the addition of higher-priced luxury and boutique hotels in downtown Raleigh.
Wake County’s impressive 2016 hotel occupancy rates would have been even higher if not for House Bill 2, said Loren Gold, executive vice president of the Greater Raleigh Convention and Visitors Bureau. The legislation, enacted in March, restricted access to government bathrooms for transgender people, and barred local governments from passing their own anti-discrimination ordinances. The law, which critics called discriminatory and regressive, prompted a spate of cancellations of conferences, concerts, sporting events and other functions that typically fill hotel rooms.
Gold said HB2 will continue to undermine hotel performance in the state, because some groups are no longer considering North Carolina as a potential event venue.
The eight hotels opening in 2017 are concentrated in Raleigh’s economic and residential boomlet zones: North Hills, North Raleigh, Brier Creek, Triangle Town Center and N.C. State University’s Centennial Campus, in addition to downtown and the two outlying communities.
Seven are listed as being under construction or as announced, in a list compiled by the Convention and Visitors Bureau, and are considered certain or very likely to open this year. One, a 114-room Four Points Sheraton on Capital Boulevard scheduled to open Feb. 21, is not listed on the bureau’s roster but was confirmed by Four Points’ public relations firm.
Adding more than 1,000 hotel rooms in Wake County is unsustainable for any extended time, and is not expected to repeat in the coming years.
Still, several thousand additional hotel rooms are in various states of proposal in Wake County, including downtown, Crabtree Valley and Brier Creek in Raleigh as well as in Cary, Morrisville and Garner. But the farther out they are on a tentative time line, the less certain they are to be built, Gold said.
Among those advancing is a planned Westin hotel near Crabtree Valley Mall that’s scheduled to start construction by autumn. It would have about 250 rooms, a rooftop lounge and bar, and a large ballroom, said Jay Shah, vice president of development at Shamin Hotels. That site, formerly known as the Soleil Project, has a long and circuitous history as it changed ownership, and once called for 54 luxury condos atop a 290-room hotel.
The current project has been scaled back to 10 to 15 stories, Shah said. And it will not be continuing with the Soleil brand name.
A lingering anxiety for hotel developers is over-developing and creating market saturation, which undercuts prices and thins reservations for all hotel operators.
“You start to cannibalize each other,” Gold said. “You get too many like products and they’re all fighting over the same client.”
Downtown economic developers say they have the opposite problem. Diaz said 51 percent of downtown hotel reservations come from business travelers, and he constantly hears from executives with companies in downtown Raleigh who can’t book clients into downtown hotels because of a chronic room shortage. Diaz said the executives tell him they desperately need more hotel rooms to book workers for extended visits to work on projects, audits and other long-term assignments that can span several weeks to several months.
Gold is familiar with the same grievance, but from event coordinators.
“A national meeting planner is not going to bring an event to Raleigh, book the Convention Center, and say: ‘OK folks, you’re going to be bused 15 minutes from Crabtree Valley,’ ” Gold said. “Not when there are 20 or 30 cities out there that keep their hotels within a two-to-three block radius.”
John Murawski: 919-829-8932
Hotels slated to open in Wake County this year
▪ Residence Inn, 175 rooms, downtown Raleigh
▪ AC Hotel, 135 Rooms, North Hills
▪ Hyatt House, 130 rooms, Brier Creek
▪ StateView Hotel, 156 rooms, N.C. State University Centennial Campus
▪ Four Points Sheraton, 114 rooms, North Raleigh
▪ Fairfield Inn, 88 rooms, Triangle Town Center
▪ Fairfield Inn, 120 rooms, Cary
▪ Hampton Inn & Suites, 110 rooms, Knightdale
SOURCE: Greater Raleigh Convention & Vistors Bureau, Think PR