An office tower project planned next door to the Dunwoody MARTA Station finally moved along when it added a 10-story hotel to its blueprints — one of three such hotels in mixed-use projects proposed last year around Perimeter Mall.
Meanwhile, Buckhead’s Phipps Plaza mall announced it was replacing a classic anchor store, Belk’s, with a hotel and an office tower. And hotels seem to show up in every major mixed-use plan, from Sandy Springs’ Pill Hill to Dunwoody’s High Street.
Why are hotels so often in the mix of the mixed-use development trend? Financing, marketing, customer satisfaction — lots of reasons, in fact, says Scott Smith, managing director of Buckhead-based CBRE Hotels’ Consulting, a division of the national commercial real estate services and investment firm.
“It makes [a project] more economically viable, as well as makes it more attractive,” Smith said of a hotel component. “It provides a synergy that is attractive to the primary developer and, most importantly, to users who are going to pay a premium rate.”
The concept is not new — downtown Atlanta was transformed in the 1970s by John Portman’s Peachtree Center, a sprawling mixed-use complex including several hotels. But hotels do play a new role in serving today’s “live-work-play” trend by providing social events and other planned activities.
“There always has been, historically, that kind of development. What’s new is the programming,” Smith said.
Nationwide, a hotel-building boom is slowing and never quite reached the heights of the last cycle, which ended about 10 years ago with the Great Recession, according to Ali Hoyt, senior director for consulting and analytics at STR, a firm that compiles hotel business data.
“We’re actually starting to see the first slowing or decline in the number of rooms under development,” Hoyt said. “In terms of hotel development, it’s certainly true that development has been slower than in other cycles.”
But if it seems like hotels are popping up everywhere, that’s because they are. The metro Atlanta market has about 3,300 hotel rooms under construction, making it Number 8 in the nation by number of rooms, Hoyt said. The top 10: New York City; Dallas; Nashville, Tenn.; Los Angeles; Houston; Denver; Seattle; Atlanta; Orlando, Fla.; and Boston.
Most of Atlanta’s growth is centered downtown or in suburbs farther north and south, Hoyt said. But projects in the pipeline will bring some of that construction soon to Perimeter Center and Buckhead.
The metro Atlanta market currently has about 96,600 rooms and average annual occupancy rates that have hovered in the 68 to 70 percent range since 2014, according to STR data. That makes for a $2.6 billion industry.
When hotels are built within a mixed-use project, they are typically not an anchor, but rather a bonus, said Smith. One example is an Omni Hotel that opened last month as part of the mixed-use development around the Atlanta Braves’ new SunTrust Park in Cobb County. The hotel opened months after the Braves’ debut season at the ballpark and wasn’t there to drive the business, but can boost it now that it is in the mix.
Paired with an office building, Smith said, “The hotel component provides amenities and services to the office workers.” There can be cost savings, too, as all of the buildings can share such common facilities as a parking garage, with the different uses taking advantage of them at different times of day.
A hotel brand is also a way to add a familiar, respected name to the larger project, Smith said. That quality development kind of denotes the overall quality of office and retail space as well,” he said.
In the long term, hotels often provide developers with the flexibility of converting the building into apartments or condominiums later in their lifespan or during an economic shift. Smith said that when the extended-stay hotel concept was pioneered about 25 years ago, many companies built the units with individually metered utilities so they could make that flip if it didn’t work out.
Partnering with a mixed-use developer can help hotels in today’s lending environment and rising construction costs, Smith said.
“It’s very difficult to build a standalone, full-service hotel without public assistance,” he said.
Indeed, most of new hotel development — 72 percent nationwide and 75 percent in metro Atlanta — consists of limited-service hotels of “upper midscale” and “upscale” brands, Hoyt said. “Upper midscale” and “upscale” are industry jargon referring to average daily room rates that fall on a spectrum of “economy” to “luxury.”
A “limited-service” hotel means fewer amenities, such as having a bar rather than a full restaurant; full-service means a full slate of such amenities as restaurants, fitness centers and event spaces. In a mixed-use complex, hotel guests can get such amenities from other nearby businesses. The hotel won’t get direct revenue, but it also doesn’t have the expense of building and maintaining them.
While the national hotel boom may be cooling, the office/hotel combo in particular will remain popular, Smith said.
“I think you’ll continue to see more of that,” he said.
This story is part of Perimeter Business, the Reporter Newspapers’ quarterly business section. The Winter 2018 Perimeter Business is focused on the local hotel industry boom. Other stories include a profile of hotel concierges, who work to be a “tourist’s tourist.”