New York and Houston are prime for meetings

Of the 100 hotels scheduled to open in major American cities in 2010, 46 hotels will open in New York, N.Y., and 30 in Houston, Texas, according to Smith Travel Research. Meeting planners can anticipate a broader choice of rooms at better prices in these cities as the new hotels are expected to add to what is already a buyer’s market.

“In general, new hotels will use discounting to try to gain initial market share,” Bjorn Hanson, a clinical associate professor at the Tisch Center for Hospitality, told The New York Times. “This will last a long time, because there is no imminent occupancy recovery. And existing hotels will face increased price competition from hotels, which will require additional discounting.”

The lodging markets in New York and Houston were ripe for hotel growth several years ago. From 2004 through 2008, occupancy levels were at 85 percent in New York. By 2011, New York City hotel inventory is expected to exceed 90,000 rooms. People relocating to Houston after Hurricane Katrina made occupancy rates unusually high, making the hotel market an attractive investment. Houston is now home to 60,000 hotel rooms ranging from limited service to luxury.

“Hotel building cycles rarely mesh just right with economic cycles,” says Mark Lomanno, president of Smith Travel Research. Planning a new hotel can take two to four years, with construction taking an additional one to four years. Most of the hotels opening in 2010 were on drawing boards years ago, when the economy was healthy and demand for rooms strong.

“Once you put the foundation in the ground and start with construction, from an investment point of view, it almost always makes the most sense to proceed, even if market demand appears shaky,” he says, “because a completed and operational hotel can generate some revenue to defray development costs.”

But the buyer’s market won’t last forever. Some industry insiders already see a rebound on the horizon. Smith Travel Research released encouraging year-end numbers recently, which show that luxury demand increased 5 percent to 8 percent in each of the last six months, and is now at levels comparable to demand levels during the boom that drove rates to record highs in 2007.