Report: Raleigh needs more hotels in and around downtown

City leaders want to make hotel development easier after hearing a report that Raleigh’s economy will slow without more hotels opening downtown.

The Raleigh City Council this week instructed city staff to reduce the number of parking spaces it requires of hotel developers. The city currently requires one parking space for every hotel room.

The action followed a presentation by Tom Hazinski, managing director of HVS Convention Sports and Entertainment Consulting, on Raleigh’s hotel market. The council – along with the Greater Raleigh Convention and Visitors Bureau, Greater Raleigh Chamber of Commerce and Downtown Raleigh Alliance – commissioned HVR to conduct the market analysis in December.

HVR documented everything from the number of current and future hotels and big businesses in the area to the number of flights at Raleigh-Durham International Airport, Hazinski said. HVR also interviewed dozens of event planners across the country about Raleigh’s feasibility as a destination for big events.

HVR concluded that the convention center will soon struggle and Raleigh will have trouble recruiting big businesses downtown if the city doesn’t add a 400-room hotel over the next few years, Hazinski said. Such a hotel would support the convention center without disrupting the hotel market too much, he said.

Lowering the city’s required parking space-to-hotel room ratio is the first and easiest step Raleigh can take to make the market more attractive for hoteliers, he said.

“That’s low-hanging fruit,” he said, calling Raleigh’s required ratio “a little unusual for urban areas.”

Councilwoman Mary-Ann Baldwin immediately motioned for staff to draft a change.

“Every meeting I’ve been in people have said this is the most important thing we can do,” Baldwin said.

Raleigh is home to 12 major hotels, four of which are downtown. Five new hotels, including two near the convention center, are expected to open by 2018, bringing about 750 rooms.

Nonetheless, Raleigh is viewed as a “second tier” city by event planners because it doesn’t have enough hotels and event venues, Hazinski said. Greensboro, Charlotte and Winston-Salem all have more rooms near their convention centers than Raleigh does. So do cities like Nashville, Tenn., Providence, R.I., and Savannah, Ga.

“The Raleigh Convention Center had a real flush of initial success, and since then has been flat,” Hazinski said. “We expect that would stay the same. In fact, it’ll be increasingly difficult to maintain the level of business at the Raleigh Convention Center without additional hotel supply.”

But without receiving incentives, Hazinski said developers are unlikely to build such a hotel because of the price of land, a weak average daily room rate of $135 and the current credit market.

“There’s a substantial barrier to entry for a full-service hotel,” he said.

The City Council should consider luring hotels with incentives, he said. Raleigh could do it by waiving property taxes, offering cash or through tax-increment financing – where taxes generated by the hotel go back to paying off the construction cost.

U.S. cities have created at least 95 public-private partnership deals with hotels, Hazinski said. In those deals, cities on average paid for 26 percent of the hotel construction cost, he said.

And Raleigh has competition right down the road. In Durham, the 21c Museum Hotel received $5.7 million from the city and county, the Residence Inn by Marriott received $1.7 million and The Durham Hotel received $1.2 million.

Council members indicated a change in required hotel parking might be just the start of more action to attract a hotel.

“The goodness we have today is not gonna be here if we don’t do something,” Councilman John Odom said.

This story was originally published October 23, 2015 at 6:12 PM with the headline "Report: Raleigh needs more hotels in and around downtown."