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Utah’s hotel industry booming

As occupancy rates rise, analysts see need for big project in downtown S.L.

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A killer virus, the war in Iraq and terrorist attacks once jolted confidence in U.S. travel safety. Now, a strong economic recovery and fond memories of 2002's Salt Lake Olympic glory are erasing old fears and boosting Utah's hotel industry.

In fact, Salt Lake's hotel rooms are filling up fast.

In 2005, the city's overall occupancy rate climbed to 69.1 percent, up from 62.9 percent in 2004, according to the Rocky Mountain Lodging Report, which tracks hotel trends in Utah, Colorado, Wyoming and New Mexico.

The 2005 rate is approaching those of the 1990s, when occupancy rates for the city floated in the mid-70 percent range. In 1994, Salt Lake's occupancy rate climbed to 80.1 percent, its highest ever, according to Robert Benton, sponsor of the lodging report.

"You are at an occupancy level where developers are going to start looking at the market and start looking at new projects and planning for new projects," Benton said. "Occupancies in Salt Lake have been improving since the 1999-2000 period. The market is not overbuilt."

Occupancy rates between 70 percent and 75 percent are considered good for a typical hotel, Benton said. Rates surpassing 80 percent indicate an establishment can raise room rates.

Salt Lake's occupancy rate in 2005 outperformed Albuquerque, which ended the year at 64.8 percent, and Denver at 64.1 percent, the lodging report said.

In addition to higher occupancies, average room rates for Salt Lake City also increased in 2005 to $76.85, up from $75.71 a year earlier.

"People remember Salt Lake City, but you've also had good snow. You had a record number of skier days last year," Benton said. "Commercial travelers are coming back. Now you've got group business coming back. The leisure market is coming back."

Steve Lindburg, general manager of the Hilton Salt Lake City Center and past president of the Utah Hotel and Lodging Association, said Salt Lake's hotel industry is healthy and growing.

"We became overbuilt just before the Olympic Games," Lindburg said. "In the years since then, we're starting to see a good balancing point. I think what we are going to see is demand is going to keep creeping up as long as the economy keeps going."

Lindburg said he considers an occupancy rate less than 65 percent a "bad" rate. The 499-room Hilton is currently running at a 72 percent occupancy rate, Lindburg said. Its average room rate was up 11 percent in 2005 compared to 2004.

"What we are seeing now is the average rate people pay for a room is actually growing pretty significantly," Lindburg said. "I think we are seeing positive demand growth as we move into 2006 and beyond.

"The business traveler is definitely back in a big way, and now what we are starting to see is the leisure traveler is starting to come back. I think what we are going to see is more folks getting out for long weekends."

Bobby Bowers, vice president of marketing for Smith Travel Research, said the national hotel occupancy rate in 2005 was 63.1 percent, up from 61.3 percent in 2004. Room rates across the country rose to an average of $90.84, up 5.3 percent from the previous year.

Bowers attributes the higher national occupancy rate to fewer hotels built over the past couple years. In 2005, the number of U.S. hotel rooms grew by only 0.4 percent.

"Historically, that's about as low as it gets," Bowers said. "In the Salt Lake-Ogden area, the room supply in the past three years has actually been down a little bit, which means that there may have been some hotels that have been taken out of inventory, leaving supply down."

And with The Inn at Temple Square expected to be razed to make way for a new downtown mixed-use development, as well as the partial conversion of the Salt Lake Plaza Hotel, 122 W. South Temple, to housing for LDS Business College students, hotel occupancy rates could be pushed even higher.

"It wouldn't surprise me if somebody comes in, with the development over near Temple Square," Lindburg said. "There might be room for a hotel development near the LDS Church development."

Mark White, vice president of convention sales for the Salt Lake Convention & Visitors Bureau, is hoping a large-scale hotel is soon built adjacent to the Salt Palace Convention Center.

"One of the big concerns expressed by convention planners is Salt Lake's lack of a headquarters hotel," White said. "We're talking about a property that's got to be in the 800- to 1,000-room range. Denver, our No. 1 competitor, has just opened up their 1,100-room Hyatt, which is directly across the street from their convention center."

Salt Lake's Grand America, with 775 rooms, is a little too far away from the convention center, White said. A Marriott hotel, located just east of the convention center with 515 rooms, as well as the nearby Hilton, act as the headquarters hotels for convention business.

But even those are not enough when Salt Lake's biggest conventions come to town.

Two dozen hotels accommodate the Outdoor Retailer winter show, which has attracted about 18,000 people to Salt Lake City this week.

"That's part of the reason that some of these giant hotels in Las Vegas have been so successful," White said. "They can put literally thousands of people in one hotel."

White believes the addition of a 1,000-room hotel would not drag down Salt Lake's hotel room rates or occupancies but instead would attract more business.

The addition of smaller hotels, with 40 to 100 rooms, White said, does not enhance Salt Lake City's attractiveness as a convention destination.

"Typically, those smaller hotels pull occupancy away from the big hotels," White said. "If a 1,000-room hotel were to be constructed, we're talking about a three-year period at least to get that thing built. So it would give us that long to start pre-selling it."

According to Smith Travel Research, hotel rooms in the Salt Lake-Ogden region declined to 19,276 rooms in December 2005, down from 19,347 rooms in December 2004. At present, there are two hotels under construction in the region that will add 256 rooms to the market.

E-mail: danderton@desnews.com