Getahn Ward

gward@tennessean.com

Nashville's rising national profile and the Music City Center have helped to make the city a sought-after market for hotel developers.

11,191 rooms are in various stages of construction or planning, according to research from industry tracker STR.

The Westin Nashville and Thompson Nashville hotels would add 678 rooms to downtown's inventory this year.

One point of consensus among industry watchers is that not all hotels on the drawing board for the downtown Nashville area will get built.

Chicago resident C.J. Davis had vastly underestimated the challenge before setting out to secure up to 100 hotel rooms for her son and soon-to-be daughter-in-law's November wedding in Nashville.

After hearing about room shortages — in part because of a Green Bay Packers-Tennessee Titans football game and a Keith Urban concert that same weekend — relief came when Davis learned that The Westin Nashville hotel rising across from Music City Center will be open in time to accommodate their guests.

"They just think it's a fun town," Davis said about why her son and soon-to-be daughter-in-law, who both live in the Windy City, picked Nashville for their destination wedding. "I think Nashville needs more hotels."

In reality a lodging construction boom is already underway with hotels such as The Westin expanding options for convention, business and leisure travelers to Nashville. The resulting bump to supply raises the question of how long will a run-up in room rates and other industry performance measures continue.

"I would imagine they'll keep where they are and continue to go up as long as demand continues," said Drew Dimond, a hotel industry consultant with offices in Indianapolis and Nashville. "And once demand levels off, you should see rates start to flatten out and decrease."

Strong demand for rooms, driven in part by Nashville's rising national profile and downtown's Music City Center, has made the city a sought-after market for hotel developers. The investors behind the 454-room, full-service Westin Nashville and the 224-room lifestyle luxury Thompson hotel underway in the Gulch were drawn in part by the city's ranking among the nation's top 25 markets in key industry performance measures.

Compared with 2010, average occupancy is up 27 percent to 73.9 percent, which according to Hendersonville-based STR put Nashville No. 1 in the nation for year-over-year percentage change growth.

Last month's $131.93 average daily room rate was more than 50 percent higher than 2010's. Nashville trailed only Los Angeles, Atlanta and San Francisco in May-over-May annual growth.

Dimond's analysis of STR data shows demand started to rise in Nashville and other markets in late 2010.

"What got the attention of hotel developers was that virtually no supply was added to downtown for a period of two to four years," he said, adding that fewer than 1,400 rooms were built downtown from 2000 to 2008.

Since 2008, 2,305 rooms have opened downtown, including the 800-room Omni Nashville. Counting 678 rooms at the Westin and Thompson Nashville hotels, Dimond sees 1,797 more rooms opening by the end of 2018.

Overall, 11,191 rooms are in various stages of construction or planning, according to research from the industry tracker STR.

For Music City Center CEO Charles Starks, new rooms at full-service hotels such as The Westin are a welcome addition that makes Nashville more attractive for larger conventions.

"We're losing business because of the lack of hotel availability," he said. "If everything that’s been said is going to be built downtown is built, I think we'll have adequate supply for the convention center. There's no question you're seeing supply growth, which should in time stabilize rates. But how quickly that occurs, I don't know."

Financing concerns

But not all of the hotels on the drawing board will get built as developers face more difficulty getting financing, industry watchers say.

"What I'm hearing is that lenders are definitely pulling back — getting nervous," said Philip Welker, whose BNA Associates is converting the former bank office building at 401 Union St. into The Fairlane boutique hotel. "It's eventually going to fall back to 2011 rates. It can't continue forever."

Bill Grice, who runs commercial real estate firm JLL's hotel debt financing practice out of Atlanta, said lenders remain highly interested in funding projects in Nashville.

In addition to The Fairlane, downtown projects with financing wrapped up and construction or remodeling underway include Turnberry Associates' JW Marriott Nashville near the Westin and the 21c Museum Hotel at 222 Third Ave. N. Construction should start soon on Atlanta-based North Point Hospitality's Tri-branded Marriott hotels at Fifth and Korean Veterans Boulevard.

Other projects on the drawing board include the luxury W hotel planned for the Gulch, the Margaritaville hotel planned in SoBro and the upscale Embassy Suites by Hilton, along with another hotel planned for 710 Demonbreun St., across from the Cambria Hotels & Suites site at Eighth and McGavock.

And Grand Rapids, Mich.-based Northern Capital Investments and The Congress Group of Boston are working to bring a five-star, 220-room luxury hotel to the SoBro site they have under contract for a 40-story project.

Mark Bloom, whose Corner Partnership is paired with Magellan Development Group of Chicago to bring the W hotel to the former Griffin Plaza site, sees such upscale, full-service hotels creating occupancy and rate pressures for limited-service hotels.

"The best of the best will do well," Bloom said.

Rising land and construction costs also create challenges for developers.

"To construct a luxury, four-star hotel here including furniture, fixture and equipment and land costs, you're looking at up to $500,000 a key," Bloom said.

Industry consultant Dimond doesn't see downtown Nashville getting overbuilt, but said signs to watch in terms of risks include weekend travel decreasing and office building development ceasing.

"Office space trends are a sign of economic growth and usually signal strong demand for hotel accommodations as they generate demand from the commercial guest," Dimond said. "I'd keep an eye on weekend travel. Nashville's Friday and Saturday business is fantastic — hotels sold out virtually for 28 straight months."

Room rates

Generally, hotels adjust daily room rates based on demand and availability with charges from $175 to $500 a night in downtown Nashville and group rates in the $200 to $300 range. During the recent four-day CMA Fest weekend, the average daily rate for downtown's central business district was $204.38 versus $132.51 for the overall Nashville market.

Dimond's recent analysis of the Vancouver, Canada, market shows that Nashville is hardly alone among destination cities with published weekend hotel room rates approaching and often exceeding $350 a night.

Ray Waters, general manager for The Westin, declined to discuss specifics, but he said rates at that hotel should be higher than at the Omni and Hilton Nashville Downtown.

The way Waters sees it, high hotel room rates aren't all that bad for Nashville.

"The city is making tons of money," he said, referring to hotel-motel tax collections. "Rates $200 and higher are healthy for the city and the community. As we get more rooms, we should be able to fill the convention center a lot more."

Davis, the Chicago woman who with her son, soon-to-be daughter-in-law and their wedding guests will be staying at the Westin, said finding hotel rooms in Nashville for the second weekend in November was critical because the wedding date was already set and a venue booked. Although other hotels had a limited number of rooms available, the couple preferred that their guests stayed close to each other.

"We wanted to be in the downtown area or close by in the Gulch," Davis said. "I've never needed that many rooms out of town. Usually, if you're planning a wedding in Chicago, you're planning a little further out than just five months."

Reach Getahn Ward at 615-726-5968 and on Twitter @getahn.

Leading the nation

From 2010 to 2015, Nashville led the nation in percentage growth in average daily revenue from each available room.

Nashville, 13.1 percent

San Francisco/San Mateo, Calif., 12.9 percent

Tampa-St. Petersburg, Fla., 10.2 percent

Oahu Island, Hawaii, 9.9 percent

Los Angeles-Long Beach, Calif., 9.8 percent

U.S. Average, 6.9 percent

Source: JLL (Jones Lang LaSalle) using STR data

Nashville's hotel pipeline

Under Construction,* 16 projects, 2,277 rooms

Final Planning,** 30 projects, 4,646 rooms

Planning,*** 41 projects, 4,268 rooms

* Ground has been broken or the owner is finalizing bids on the prime (general) contract.

**The project will go out for bids or construction will start within four months.

***An architect or engineer has been selected for the project and plans are underway. Initial approvals have usually been granted.

Source: STR

Strong lodging growth

Nashville’s lodging market ranks among the fastest-growing nationwide in three key hotel industry performance measures — occupancy, average daily room rates and average daily revenue from each available room.

Year Average Occupancy, Average daily room rate, RevPar (Average)**

2010, 58.2%; $86.68; $50.45

2011, 62.1%; $93.14; $57.87

2012, 65.4%; $96.42; $63.09

2013, 68.5%; $103.33; $70.80

2014, 71.9%; $116.48; $83.80

2015, $73.4%, $126.69; $93.05

2016*, $73.9%, $131.93, $97.49

* Through May.

** RevPar (average revenue per day from each available hotel room)

SOURCE: STR