Hospitality industry expands as demand for lodging falls
Hotels: Is there room for one more?
Hospitality industry expands as demand for lodging falls

By Steve Lackmeyer

Published: September 21, 2008

JOHN SWEENEY is keeping busy these days overseeing the construction of two hotels, with a third being planned for Bricktown.

The vice president of operations for Kusum Hospitality isn't alone in his expansion efforts. Industry reports indicate an estimated 3,000 hotel rooms are about to be added in the Oklahoma City metro area, even as occupancy has dropped 4 percent this past year.

"We're still confident in the market in Oklahoma City and Oklahoma as a whole,” Sweeney said. "We're moving forward, cautiously.”

Jeff Pener, executive director of the Greater Oklahoma City Metro Hotel Association, is less optimistic about continued expansion. He worries a long stretch of prosperity for the industry may be about to crash — yet another victim of rising gas prices, reduced travel and a souring economy.

"The last five years were outstanding,” Pener said. "But we've peaked. I think with the last three months citywide, based on the people I've been talking to, you have where we haven't achieved what we did for the year before.”

Another troubling number to Pener: 12,600 more room nights were available for the month compared with July, 2007, and yet 7,900 fewer room nights had been sold.

"Many of the hotels are not performing as well as they were,” Pener said. "That is alarming to us. And we know a lot of hotels are under construction, so we're looking at the industry having to absorb 2,500 to 3,100 new rooms in the market.”

Sweeny, however, isn't alarmed. His company, which owns five hotels, is building a Hampton Inn and Suites at Interstate 240 and Western Avenue and a Staybridge Suites at Memorial Road and May Avenue. He said his company is also moving forward with plans to build a 99-room Holiday Inn Express in Bricktown — one of at least three new hotels planned for the downtown area.

"We see the market as stable,” Sweeney said. "It's not a downturn; it's just flat. A couple of sectors are down, but overall, we're up.”

Sweeney added that any shifting caused by increased supply and decreased demand caused by rising fuel prices is more likely to hit full-service hotels. The emergence of self-sustaining newer hotel corridors in the suburbs is seen as yet another factor in lower occupancy rates.

"We're seeing some traffic move from Oklahoma City to Edmond or Norman,” Sweeney said. "Our belief is it (slowing occupancy rates) will create competition and you'll have to take care of what you've got. You may have to work harder.”

John Williams, general manager at the Skirvin Hilton Hotel, said occupancy rates are "doing fine” and special events are "far better than we ever expected.” But he's concerned about not just the growth, but what's being built.

"You have a lot of growth out on Memorial Road and you have the whole Meridian Avenue corridor that keeps on building and building,” Williams said.

"And to a greater extent, it's all limited service lodging. You don't have anything grand, anything significant, anything iconic — it's nothing but more of the same, and that's when it gets dangerous.”

"They bring the market down,” Williams said.

Likewise, Williams is concerned about the types of hotels being added downtown. A Hampton Inn and Suites being built in Bricktown, and a Candlewood Inn and Suites and a Holiday Inn Express, both on the drawing boards, all are limited service hotels.

Only one announced downtown area addition — an Embassy Suites in the Oklahoma Health Center — will be full service.

Williams wonders how those hotels might affect any future efforts by the city to lure a 600-plus room conference hotel as part of building a new convention center downtown.

"As a city, we need to be mindful of what we build now and what it might keep us from building later on,” Williams said.

The hotel industry grew dramatically during the boom years of the early 1980s, Pener said, only to succumb to a wave of bank foreclosures once the bust hit.

"It was terrible,” Pener said. "I worked for a company then as a young general manager. I had six hotels, and each varied by a dollar. It was, ‘What banner do I put up today?' I don't want to say what the rates were — they were just so low.”

The south I-35 corridor, he said, was heavily traveled and lined with nice hotels that included a well-kept Best Western with an indoor pool. Only now, Pener said, are there some signs of rebound on the strip.

Likewise, it was in the late-1980s that downtown was reduced to just one hotel.

Pener is hopeful a similar scenario will be avoided. He notes Oklahoma City has a lot more attractions than it did 25 years ago.

"There are warning bells ringing,” Pener said.

"We have a lot of new product now. But the older product is going to have a tough time if we continue to go into a downturn.”

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