Area Hotel Market Depends on Weekly Business Traveler (Commentary)

In the first quarter of 2008, Streetsmart Data Services researched 67 hotels in Benton and Washington counties. These facilities comprised a total of 6,600 rooms, reflecting an average number of rooms per hotel of 98 to 99. The total number of hotels and rooms surveyed increased from 51 and 5,060, respectively, in the first quarter of 2007. The hotels examined included both limited-service and full-service facilities. The average number of rooms per hotel was also 99 in the first quarter of 2007. The hotel facilities researched are typically located along the I-540 corridor, at or near major interchanges, between Bentonville and Fayetteville.

A limited-service hotel typically offers a continental breakfast, business traveler conveniences, etc., while a full-service hotel includes a restaurant and lounge, and meeting rooms, in addition to room rental. In the first quarter of 2008 less than 15 percent of the hotels examined represented full-service operations. The bulk of the hotel market in Northwest Arkansas is comprised of limited-service facilities.

Many of the newer limited-service hotels are being designed for extended-stay occupancy.

Our research supports that a total of 408 rooms in four hotels were added to the two-county market in the first quarter of 2008. One of these facilities represented a full-service hotel in Bentonville. An additional 799 rooms in the two-county area were reported to be under construction in the first quarter of 2008. This new construction represents approximately 12.1 percent of the total rooms surveyed in the first quarter of 2008.

Demand for new hotel construction is obviously the result of area business and job growth, as well as the success of existing hotel operations. Management at area hotels reported average annual occupancy rates in the first quarter of 2007 generally in the 63 percent to 68 percent range. The occupancy rates were typically high Monday through Thursday nights, tailing off somewhat on the weekend unless there was a Razorback sporting event or major convention/business meeting. Favorable occupancy rates, along with reasonably high average daily room rates, created positive signs for developers to add new hotel product to the market. Considerable new hotel construction has occurred in Northwest Arkansas over the past year and, as previously indicated, a significant number of rooms are currently under construction. With this addition of new hotel product, and weakening in business and job growth, the average annual occupancy rate in the Fayetteville-Springdale-Rogers MSA declined in the first quarter of 2008. The reported average annual occupancy rate for the MSA was below 60 percent.

Daily room rental rates researched in the area hotels in the first quarter of 2008 showed a significant variation from low to high. This is due to the type of room being rented, hotel amenities, etc. The following average low and high rates were reported: Bentonville from $32.71 to $159; Fayetteville from $32.71 to $207; Rogers from $44.96 to $199; and Springdale from $32.71 to $129.00.

The average quoted rate indicated by hotel management in Benton and Washington counties for the first quarter of 2008 was $90.10. This represented an increase from $81.26 for the fourth quarter of 2007.

The growth in the hotel sector of the commercial real estate market in Benton and Washington counties can primarily be 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 has been a driving force in creating demand for additional hotel rooms. With the slowdown in business and job growth, coupled with increased fuel cost, this segment of hotel occupancy needs to be watched closely. The pace of new hotel construction should, and is likely to slow. We certainly don’t need an oversupply issue in this sector of the commercial real estate market in Northwest Arkansas.     

(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. The phone number for Streetsmart is (479) 575-9100.)