WILLISTON, North Dakota –The western part of North Dakota is experiencing an economic boom opposite of what is happening in many other areas of the United States, and consequently there is drastically more demand for housing of all types, including hotel rooms.
Because of the discovery of a massive oil shale formation in western North Dakota in recent years, that area of the state has grown most rapidly. The population of Williston, near the borders of Montana and Canada, nearly doubled from approximately 12,500 in the 2000 U.S. Census to an estimated 20,000 in 2011, according to Tom Rolfstad, executive director of the Williston Economic Development Commission. That doesn’t factor in the additional number of transient workers who stay in the area for a few months or more. The state currently sports the lowest unemployment rate in the country at 3.3%, according the Bureau of Labor Statistics.
The rapid growth in western North Dakota has led to challenges with infrastructure, including roads and housing. There is drastically more demand than supply for housing of all types, including hotel rooms, according to several sources.
|
Mark Williams |
“The oil shale discovery and the race to establish the framework from which to extract [oil] has caused a labor, housing and hotel shortage,” said Mark Williams, VP of North American Development for Best Western International.
Occupancy at hotels in Williston is typically 98% to 99% and rates range from US$169 to US$199 per night, Rolfstad said.
“There may have been four to five nights in the last eight months that I had an empty room,” said Dan Rogers, former GM of a Candlewood Suites and a Homestay Suites in Williston, who moved away from the area in December.
While there is economic growth throughout the state, occupancy and room rates are more stable across North Dakota as a whole. Occupancy ended 2011 at 74.7%, up 9.9% over 2010, according to data from STR, parent company of HotelNewsNow.com. Average daily rate jumped 15% to US$89.02, according to STR.
|
Tom Rolfstad |
Supply increases
Hotel chains and independents are flooding into the state to take advantage of the oil boom and other economic growth that is occurring throughout the state.
In 2011, several hotels began construction in Williston. A 69-room Motel 6 opened in December. Other hotels that currently are under construction or plan to break ground in 2012: An 88-room Holiday Inn Express; a 99-room Best Western Plus; a 98-room Hampton Inn & Suites; an 89-room Mainstay Suites; and, Rolfstad said, two Value Place locations are under construction with 224 units total.
While there is demand for many more hotels in western North Dakota—in cities such as Williston and Minot—the costs of building in the region are becoming too prohibitive for many companies.
“We are going as fast as we can. However, good sites are few, and the costs continue to climb. Weather, shortage of labor, where to house the workers and feed them, and rising costs have all combined to cause a great sense of urgency for hotel developers to build and get open,” Williams said. Williams declined to say how many Best Western units the chain would add in the state in the coming years.
“There are so many competitors that want to build, and bringing goods in and out of there is very expensive,” said Dean Savas, senior VP of franchising for Accor NA. In addition, there is a shortage of housing for the workers needed to build new hotels.
|
Dean Savas |
Once new hotels open, Savas explained, the shortage of workers forces hotels to pay their staff high wages and the hotels’ other operating costs are high. “Our business model for Motel 6 is that we are normally the lowest price in the market. The moment you open in Williston, the lowest price can be well over US$100 (per night),” Savas said.
Rogers said turnover was high at the two properties he managed in Williston. “We tried to hire the best people we could, then the oil companies would come and hire them for double. We offered them a retention bonus—an amount they could receive per hour if they were still an employee at the end of four months,” he said.
Banks are more hesitant to issue loans for new construction, according to Savas, because of the escalating costs of land, construction goods, workers and related costs. “They want to take a second and third look before they commit. In the economy segment, the time to build was a year or two ago, because the costs were less then,” Savas said.
Many of the Williston hotels that have been built or are under construction end up contracting a majority of their rooms to oil companies who need housing for their workers. But not all branded hoteliers are willing to do that. “To put a brand on your property, then lease it out for a long period of time is counterproductive to what you want to do,” Savas said. Contracting with oil companies at a certain rate for years into the future does not allow the brand to adjust rates relative to the market at the time, Savas said.