Market Able To Absorb More Hotel Rooms (Market Forecast)

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When grading the overall commercial real estate market in Northwest Arkansas, the grade assigned by Streetsmart Data Services for the first quarter of 2007 was a “B.” This was primarily due to the professional office sector, which showed increased vacancy as a result of the recent delivery of new product to the market.

The professional office sector of the market will be discussed in a later issue. In this article I would like to address the hotel sector of the commercial real estate market.

Streetsmart Data Services researches various sectors of the commercial real estate market in Northwest Arkansas, including professional office, office/retail, retail, medical office, office/warehouse, hotel and full-service restaurant. Reports are produced on a quarterly basis.

In the first quarter of 2007, Streetsmart Data Services researched 51 hotels comprising 5,060 rooms in Benton and Washington counties. The hotels examined included both limited-service and full-service facilities. These facilities are typically located along the Interstate 540 corridor, at or near major interchanges, between Bentonville and Fayetteville.

A limited-service hotel typically offers a continental breakfast, business traveler conveniences, etc., in addition to room rental, while a full-service hotel includes a restaurant and lounge, and possibly meeting rooms, in addition to room rental.

The majority of the hotels examined were limited-service facilities, as only seven full-service hotels were noted. Many of the newer limited-service hotels are being designed for extended-stay occupancy.

What appears evident is that Northwest Arkansas hotels are experiencing reasonably high annual occupancy rates.

Average, annual occupancy rates quoted ranged from a low in Fayetteville of 63.9 percent to a high in Springdale of 71.5 percent. Bentonville reflected an average, annual occupancy rate for the first quarter of 2007 of 68 percent, while Rogers indicated 68.8 percent.

Our research supports that occupancy rates are typically very high Monday through Thursday nights, tailing off somewhat on the weekend unless there is a Razorback sporting event or major convention/business meeting in the area.

Nightly room rental rates researched in the area hotels showed a significant variation from low to high. This is due to the type of room being rented, hotel amenities, etc.

When annual occupancy and average daily room rates are reasonably high, it should be expected that new hotel facilities will be added to the market. Benton and Washington counties are experiencing this now.

In the first quarter of 2007, our research indicates there are 1,189 hotel rooms under construction in the four major cities.

In addition to the hotel rooms under construction, several other facilities are in the planning stage for the Northwest Arkansas market.

Some of these planned projects are proposed to include condominium units, and possibly some retail space.

Our research of the hotel sector of the market in Benton and Washington counties expanded from 4,636 rooms at the end of 2006 to 5,060 rooms at the end of the first quarter of 2007.

This is the result of new product completed and added to the market. With the new facilities currently under construction, it appears that the Northwest Arkansas hotel market could increase by as much as 23 percent in total rooms available by the end of 2007.

The growth in the hotel sector of the commercial real estate market in Benton and Washington counties can be primarily attributed to the growth in Wal-Mart Stores Inc., Tyson Foods Inc., J.B. Hunt Transport Services Inc. and the University of Arkansas. The business traveler segment of hotel occupancy in Northwest Arkansas continues to grow, creating demand for additional rooms.

If new hotel construction continues at the current pace, there will be a point where the market is oversupplied in rooms; however, that point does not yet appear to have been reached.

(Tom Reed is a partner in Streetsmart Data Services. Streetsmart Data Services provides quarterly reports pertaining to the single-family residential, multi-family residential and commercial sectors of the real estate market in Benton and Washington Counties.)