Focus on Hotel Construction Costs 2018

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According to the report titled “The State of the U.S. Construction Pipeline” by Lodging Econometrics, approximately 3,300 new hotels are predicted to open in the U.S. between Q3 2017 and the end of 2019. Of course, having a good overview of the costs involved with constructing a new hotel is critical to securing financing and successfully completing a project — and construction costs can fluctuate depending on a wide range of factors. Here’s what you need to know about hotel construction costs for the remainder of 2018 and beyond. To get in touch with a hotel renovation company to discuss your options and construction costs, reach out to our Interserv team.

Construction Costs Are Rising

Hotel construction costs are rising. In fact, experts estimate that in some areas, they’ve increased by more than 20 percent in the past 12 months. This is in large part due to two factors:

The cost of skilled labor has risen dramatically. According to Hotel News Now, the recession of 2008 – 2009 caused many tradespeople to leave the hotel construction industry. Moreover, relatively few new workers have entered the sector. As a result, there’s a much higher demand for skilled contractors than there is supply, which allows tradespeople to charge higher rates. In some areas that have been affected by hurricanes, wildfires and mudslides, such as South Florida, Houston and California, this labor shortage is even more acute, and rates are even higher.

The costs of construction materials are rising due to tariffs. The recently imposed 25 percent tariff on steel and 10 percent tariff on aluminum, as well as other tariffs, are making construction materials more expensive. As a result, contractors have to pass these increased costs on to their clients in order to maintain their profit margins.


Cost-Effective Solutions for Hotel Development

Considering the higher costs of hotel construction, it should come as no surprise that there’s a push towards more cost-effective solutions. For instance, Lodging Magazine reports that some projects are more focused on limited- and select-service hotels, which produce more revenue per square foot than more upscale hotels. Another solution is modular construction, which facilitates the timely opening of new developments.

For some developers, rising costs are reason to avoid new construction projects altogether. Instead, they’re looking for other options. For example, acquiring and renovating an existing hotel has several benefits, including lower costs and a shorter project life-cycle, which means the property can start generating income faster than new construction.

Similarly, adaptive reuse can provide an attractive alternative. As Hotel Business points out, old, historic buildings can be the framework for unique properties that are attractive to guests. At the same time, depending on the property, the project may be completed faster; plus, there may be subsidies and tax deductions available.

Work With an Experienced Hotel Renovation Company to Control Costs

One of the best ways to control hotel construction costs is to work with a hotel renovation company with a proven track record of successfully completing projects on time and within budget — like InterServe LP. To learn more about our services and discuss how we can help your project, please contact us today.



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