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Developers eye Washington hotel market

By Steven Reilly,

The Washington hotel market continues to outpace the nation as a whole, and developers have noticed.

Third-quarter numbers for both national and regional hotel data show the continued strength of the hotel market in Washington. Key market indicators for the area are relatively stable compared with third-quarter figures from a year ago. However, as in previous quarters, they far exceed the national average.

In the third quarter of 2011, occupancy in the Washington area was 71.6 percent, compared with 66.5 percent nationally. The average daily rate in the metropolitan area was $134.72, down about 50 cents from the third quarter of 2010 but still well above the national average of $102.96. PKF Hospitality Research projects that revenue per available room, another key industry metric, will grow by 7.8 percent in 2012 and 9.1 percent in 2013 in the Washington area.

Developers and investors see these strong numbers as an indicator that the market is ripe for new development.

A number of new hotels are under construction, with still more in the planning phase and slated to be built in the near future. According to Smith Travel Research, the Washington market ranks third in the country for the number of hotel units under construction, with 2,674 rooms — well above the 10-year average of around 1,900 new rooms — coming online each year. Only New York and Orlando are adding more rooms. With total inventory in the Washington market at 104,000 rooms, the new rooms will increase total market size by about 2.5 percent.

The largest driver of hotel growth in the Washington hotel market is the Walter E. Washington Convention Center. After completing the new convention center, the District government estimated the need for an additional 1,600 hotel rooms near the site to ensure that the venue remained competitive with convention centers in other major markets. Set to open in 2013, the Marriott Marquis across the street is to have 1,175 rooms, making it the largest hotel currently being built in the United States.

Additionally, two other hotels have been proposed for sites near the convention center, one a Residence Inn by Marriott and the other a Courtyard by Marriott. Together, these two hotels would add about 500 rooms, more than matching the 425 rooms the city estimates are needed in addition to the Marquis.

On top of the hotels in the District already under construction and those set to begin in the next year, Lodging Econometrics estimates another 4,000 rooms are in the planning stages. Roadside Development announced recently it will include a 182-room Cambria Suites hotel in its CityMarket at O development in Shaw. Further west, a Courtyard by Marriott is set to open near the George Washington University campus in December. OTO Development is planning a Hampton Inn and Hilton Garden Inn to be located in the Golden Triangle and West End, respectively. Additionally, plans have been announced for new hotels in the Adams Morgan, U Street, Southwest, Georgetown and NoMa neighborhoods, among others.

Outside of the District, there are 815 rooms in suburban Maryland and 2,549 rooms in Northern Virginia either under construction or set to begin construction within a year. Additionally, another 3,295 rooms in Maryland and 6,439 rooms in Northern Virginia are in the planning stages. A 148-room Hyatt Summerfield Suites is under construction in Merrifield, with other new projects set to begin shortly in Arlington, Alexandria, Sterling, Stafford, Silver Spring and Gaithersburg.

Steven Reilly is an associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.

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