High End Hotels Show How Free Market Works

As politicians try to defy free global market forces, upscale hotels and multinationals freely move between markets and opportunities, in spite of blundering governments.

Master Hotel/Casino developer Steve Wynn has said it on many occasions: Washington is spoiling it for US businesses, big and small. There is rhyme nor reason to what comes out of Washington DC these days, says Wynn, who just announced that his company’s future growth will be focusing on Macao and China. In an effort to be diplomatically correct, Wynn vehemently denies that he is moving his headquarters overseas, by saying that he will have one headquarter in Las Vegas and one in Macao and he will spend half of his time at both locations. Everyone who has ever been in a corporate boardroom can tell you that it does not work that way. But Wynn’s dilemma is not a new one. Looking at the city of New York, in many aspects considered the capital of the World, the opening of high end tiers of upscale hotel properties is rapidly drying up as a result of funding disappearing during the financial crash of 2008.

While these hotels were very much at the forefront of a new generation of high-end hotels, because of the downturn and recession they also, somewhat paradoxically, represent the end of an era. They are among a handful of properties that represent the last newbuild hotels that this city, and most of North America, will see enter the upper-upscale and luxury arena for the next few years.

Financing for high-end hotels virtually dried up in North America when the credit markets crashed in 2008. While many hotels were just getting started then, few deals for new high-end hotels have been signed since. Although financing has begun to loosen a bit and plans for a few new high-end properties have been announced this year, most big brands have been focusing expansion efforts overseas in markets like Asia and Latin America.

As a result it is said that of 33 hotels scheduled to open this year in New York, about a half dozen fall into the high-end tiers of upscale and luxury. Next year, only 10 hotels are set to open in the city, just one of which will fit the luxury category and in 2012, only two hotels are set to open in New York: a Four Seasons downtown and a Hyatt Place in Brooklyn.

Hotel Numbers for the Next Couple of Years

According to Lodging Econometrics, only 715 hotels representing 80,830 guestrooms will open in the U.S. this year. That’s down 54% from last year. And the number of openings will drop to 654 hotels, with 63,141 rooms, in 2011.
All told, Lodging Econometrics said, at the end of the first quarter of this year, there were 3,395 projects with a total of 396,797 rooms in the U.S. pipeline, including projects in the planning and construction phases.
Of those, only 27 are luxury hotels, and only 80 fall in the upper-upscale category.
The bulk of development has focused on the midscale brands without food and beverage, such as Holiday Inn Express and Fairfield Inn, and the upscale markets, such as Courtyard by Marriott and Staybridge Suites.

Even in New York, most of the hotels in the pipeline are brands that previously were almost nonexistent in Manhattan. Staybridge Suites, by IHG, for example, recently opened its first property in Manhattan. The hotel, which offers all the traditional extended-stay hotel benefits, like an in-room kitchen, breakfast and evening happy hours, is on 40th Street, across from the Port Authority Bus Terminal and right next to a Fairfield Inn and a Four Points by Sheraton.

All that spells good news for existing luxury hotels, which were hit the hardest in the downturn as rates plummeted and new inventory flooded many markets. A natural market correction that didn’t need any stimulus or bailouts. A prime example of how an economy recovers: a falloff in supply, coupled with an uptick in demand, will help rates recover and over time balance supply and demand.

While most major developments are now focused overseas, the big companies are already aggressively scouring for the next round of opportunities, whether newbuilds or conversions, to continue growing their high-end brands here at home.
Large and powerful corporations have long ago established that supply and demand have a global scale. Consequently job and investment opportunities are created where government is pro-business.
In the past the safe places to invest were the US and Europe. This is no longer the case as Russia, the Far East, South America, Australia, the Middle East and now even South Africa have powerfully entered the playing field.

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