TULSA, Oklahoma—A hotel building boom is underway in Tulsa, Oklahoma. According to STR, the parent company of Hotel News Now, 27 hotels with 3,003 rooms are under contract in the Tulsa market. Four of the hotels are under construction. If all the hotels in the pipeline open, the market will see a nearly 20% increase in the number of rooms available.
The upswing in development is in part a cyclical response to the economy, said Brittany Sawyer, executive director of the Metro Tulsa Hotel and Lodging Association.
“About every 10 years nearly 30% more hotels are added to the market,” she said. “But when the recession hit, a lot of projects were put on hold, and now with some properties ageing it’s time again to add new products to the market.”
She said the political and economic environment also is conducive to development.
“We have low barriers to entry and not a lot of regulations,” she said. “Costs are generally low. We have strong public-private partnerships, and it’s easy and quick (for developers) to get permitting, financing and projects off the ground.”
The market didn’t suffer as much as other parts of the United States during the recent recession and that helped stabilize the Tulsa economy and its hotel industry, said Mike Craddock, hospitality industry investment property specialist with First Commercial Real Estate Services.
“We maintained steady growth during the downturn,” he said. “The economy slowed down a little, but we didn’t crater and were able to maintain a decent growth streak.”
Market drivers
The Tulsa hotel market has performed well during the past three years, according to data from STR. Revenue per available room rose 2.3% in 2011, 2.7% in 2012 and 9.4% last year. Year to date through June, RevPAR was up 5.6% on a 2% increase in occupancy and a 3.4% rise in average daily rate.
Pete Patel, president and CEO of Tulsa-based Promise Hotels, credits the region’s two economic drivers—energy and manufacturing—for the strong business climate.
“We’re seeing a bit of an energy boom in the area, nothing like what’s happening in western Oklahoma, but the energy sector is very strong,” Patel said. Promise owns seven hotels in the Tulsa area and has six projects under development—three in the suburbs and three in the city’s urban core—under the Holiday Inn Express, Hilton Garden Inn and Hampton Inn brands.
“We’ve had some older, dated hotels, but now some new, fresh product will replace some of the older stuff, especially downtown,” he said. “Like a lot of metropolitan areas, our downtown is seeing a huge resurgence. Corporations are moving back downtown as well as a lot of residential development. I’m very bullish on downtown Tulsa.”
Sawyer said there has been nearly $500 million in public and private investment in downtown Tulsa in recent years. Projects include development of the Brady Arts District, a neighborhood of restaurants, bars, galleries and residential space; and A Gathering Place for Tulsa, a $300-million, 90-acre park under development along the Arkansas River the city’s downtown.
Developers are also targeting the suburbs of Tulsa to build new hotels. According to Craddock, a new suburb, Tulsa Hills, blossomed a few years ago when developers carved a shopping district out of a former hillside.
“It opened up all kinds of new avenues for development, and that includes hotels,” he said. “We’re seeing the potential for further hotel development throughout the suburbs.”
Market challenges
Hotel executives in the Tulsa area have different opinions on possible dangers of too much development in the market.
“You’ve got to ask what’s driving the market and are those drivers sustainable?” Craddock said. “One of the main economic drivers in Tulsa is the energy sector, and that doesn’t seem to be slowing down.”
Overbuilding is a concern for Andy Patel, president of Anish Hotel Group, operators of 12 hotels in the Tulsa market, including an Aloft Hotel downtown, as well as properties branded under Marriott International, Hilton Worldwide Holdings and La Quinta Holdings.
“Being a local developer who has been in the market since 1990, I’m very concerned that we’re building too quickly and adding to supply more quickly than demand is growing,” Andy Patel said. Anish has four hotels under development in the market, including a Residence Inn by Marriott in downtown, a Home2 Suites by Hilton, a Hilton Garden Inn and a Holiday Inn & Suites.
Promise’s Pete Patel believes market forces should take care of any oversupply concerns.
“As a developer, oversupply is always in the back of my mind, but ultimately the right brands will gain market share and be the winners,” he said. “You can’t worry about competition; you can only worry about what you’re doing right and wrong.”
Another potential challenge for hoteliers is the continued availability of labor as these new properties open.
“I wouldn’t have said it a year or so ago, but it’s becoming difficult to find quality employees, especially quality GMs and department heads,” said Andy Patel of Anish Hotel Group. “It’s only going to get harder as we open new hotels.”
Sawyer of the hotel association concedes there are issues in finding top-notch employees to staff the city’s hotels. She cites low levels of unemployment in Oklahoma (4.5% in June) and Tulsa (4.8% in May) as one issue.
“On the other hand, Forbes named Oklahoma one of the best states for college graduates to find a job, so I’m optimistic we will be able to support all the new hotels in the market,” she said.