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Hotel construction in a post-recession boom phase

Monday, 24 Feb 2014 | 10:37 AM ET

While some sectors of the economy may still be wondering which way is up, the hotel industry is confidently moving ahead, rapidly building projects that couldn't get financing during the recession and filing plans for more.

"They're all saying one thing: 'Go! Go! Go!' This is a hot market," said Jan Freitag, a senior vice president at Tennessee-based STR travel research.

Best Western Premier hotel in Herald Square, New York.
Adam Jeffery | CNBC
Best Western Premier hotel in Herald Square, New York.

At the start of 2014, there were 2,925 active hotel projects under construction in the United States, accounting for a total of 357,769 rooms. That's a 16.4 percent increase over January 2013, which was already a 48 percent increase from a year earlier. (However, it's still a leap to get to the 5,801 projects that were active in January 2008, according to the STR data. Most years since the recession saw declines, including an especially severe 76 percent drop from January 2011 to 2012.)

The cooling of construction during the recession had little to do with demand, Best Western CEO David Kong told CNBC. "It was hard to get a loan," he said, noting that all BW hotels are independently owned and operated and secure their construction financing usually through local banks.

The banks changed their tune last year and and Best Western now expects to add at least 130 properties this year with about 45 percent of the growth coming through new construction.

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"There's been a tremendous growth in demand," Kong said.

Nearly 65 percent of its openings this year will be in the Plus brand, consider "upper midscale" by STR's standards. Its "upscale" Premier brand will add a dozen more locations in the United States this year in gateway cities such as Chicago and New York. There are currently 24 Best Western Premier locations in the U.S. and 125 globally.

The big change post-recession, Kong said, is that "people are much more price conscious. They try to look for value."

They aren't looking for something cheap as much as they're looking for quality at a great price, he said. For example, when the hotel runs an Internet special for a 20 percent discount, reservations jump, and people seldom cancel those out of buyers remorse.

"That value is still king," Kong said. "I don't see that ending."

In addition to the new construction, Best Western also has moved its brand more upscale in part of separating from 1,000 properties in order to upgrade the brand's standards and image. Currently there are nearly 2,000 U.S. Best Western hotels and more than 4,000 hotels in 100 countries and territories.

The Best Western expansion is in line with other chains, targeting that upper-middle segment of traveler.

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Nearly 65 percent of those U.S. projects are in the "upper midscale" and "upscale" categories, according to STR's research. The top "luxury" and "upper upscale" categories account for almost 13 percent, while the bottom "midscale" and "economy" properties account for only 6 percent.

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Of the top 15 brands, InterContinental Hotels Group's Holiday Inn Express has the most projects in the works, with 21,333 rooms in some phase of construction. Hilton's Hampton Inn & Suites and Marriott's Residence Inn aren't far behind, each with more than 16,500 rooms active in their pipeline.

New York has the most rooms in construction, followed by Washington and Houston.

Another study published last week by corporate services company Hogg Robinson Group found two of those cities high up on its ranking of international "supercities" that are popular with both business and leisure visitors and can charge higher rates.

Globally, Moscow has topped the list for a decade. New York, San Francisco and Washington are ranked the highest among hotel supercities in the United States. Houston's hotel profits are also on the way up, due to a limited supply of beds and a high demand driven by the oil and gas sectors, according to the HRG report.

(Read more: Hotels in a dead heat to land new type of guest)

—By CNBC's Amy Langfield. Follow her on Twitter at @AmyLangfield.

Follow Road Warrior on Twitter at @CNBCtravel.

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