Spokanes hotel industry, which has seen demand for rooms grow steadily over the last few years, expects that pace to quicken even more as Spokane becomes more well-known to tourists, and the expanded convention center draws larger groups from outside the region.


Meanwhile, though, new hotel facilities, including the Davenport Tower downtown, have been heightening competition, causing margins to tighten and at least one developer to rethink plans for adding rooms.


Hoteliers say that while demand has supported the increased room inventory so far, it hasnt grown to the point theyre hanging no vacancy signs in their windows yet.


Occupancy rates are up in Spokane, and our rates have been substantially better each year since weve been open, says Walt Worthy, who owns the Davenport Hotel and Davenport Tower with his wife, Karen. Spokane is a bit more prosperous, the industry is surging along steadily, and I think it will continue to get better and better.


Hoteliers say they got a boost from the U.S. Figure Skating Championships held here in January and the regional NCAA Mens Basketball Tournament held here last month, and theyre optimistic that demand will be strong throughout the rest of 2007.


The skating championships and NCAA tournament have helped, especially during the normally quieter winter months, says Matt Jensen, director of sales and marketing for the Davenport. Its been nice to have those events to rally around and show off Spokane, but I think the rest of the year will be strong as well.


Hoteliers here are projecting average occupancy rates between 60 percent and 75 percent this year. The average occupancy rate for 2006 was 61 percent, up 3 percent from 2005, says Smith Travel Research Inc., of Hendersonville, Tenn. Over the last few years, occupancy levels have hovered around 60 percent, despite moderate increases in the net number of available rooms here.


Cal Clausen, president of Spokane-based Sterling Hospitality Management LLC, which operates 10 hotels in Washington, Utah, and Nevada, including three in Spokane, says average occupancy at Sterlings three hotels here was in the low 70s last year.


He expects that percentage to rise to the mid-70s this year. Sterlings hotels here are the Holiday Inn Express, just north of downtown, the Quality Inn Valley Suites, and the Holiday Inn Express, both in Spokane Valley.


Spokane is healthier now than it has been since 1996; after that year we got new products and things slowed down some, Clausen says. We have all the different niches covered now, and we have a pretty healthy ratio of rooms to demand.


Since 1996, several new hotels have opened here, including the Residence Inn by Marriott, near the Spokane Valley Mall, the Hilton Garden Inn Spokane Airport, and the Davenport Hotel downtown, he says.


Clausen says that while the new, 328-room Davenport Tower has added plenty of rooms here, he doesnt think Spokane is as overbuilt as the other markets in which Sterling operates. Additional hotel rooms impact Spokane moreso than they do larger markets, but so far occupancy levels have shown that demand is high enough to fill the increased number of rooms here, he says.


Despite the additional inventory, big conventions still fill up most of the available hotel rooms in downtown Spokane, says Dan Zimmerer, general manager of the Red Lion River Inn downtown and president of the Spokane Hotel-Motel Association.


While the convention center expansion hasnt driven up demand for rooms much yet, Zimmerer expects that the facility will attract bigger regional and national events in the future.


Large groups and conventions are the bread and butter of the Red Lion River Inn and Red Lion Hotel at the Park, and those hotels have pre-sold most of their rooms for the year already, although theyre still booking some groups, he says. The hotels rely heavily on their free parking to compete with other hotels here, and the Hotel at the Parks 30,000 square feet of meeting space also has proven to be an advantage, he says.


Spokane-based Red Lion Hotels Corp. also announced plans last year to spend more than $40 million on improvements to its hotels companywide, with about 10 percent of that amount being spent on its hotels here.


The future looks very bright in Spokane, Zimmerer says. Well be able to compete with other markets on a citywide convention basis; we have good products and better price points than other markets like Seattle, Portland, and Boise.


Profit margins


While cheaper room rates might draw more visitors here, they also mean thinner profit margins for hotel owners and developers, which makes it more costly to develop new properties, Clausen says.


Meanwhile, building materials and construction costs have risen faster than hoteliers have been able to raise rates, which also makes hotel development more difficult, he says. For those reasons, KVC Development Inc., a Spokane-based hotel development company that Clausen co-owns, has shelved for now the idea of developing a new hotel here, which it had been considering.


I just dont see occupancy here as strong enough or the ability to drive up rates as enough to justify those deals financially, Clausen says.


Steve Tramp, co-owner of Spokane Princess Properties LLC, of Wenatchee, Wash., which bought and renovated the Budget Inn, at 110 E. Fourth, last year and renamed it Quality Inn at the Medical Center, agrees that cheap rates, in addition to rising costs, are squeezing margins, particularly for economy hotels.


The economy segment of the industry here is weak, but its highly unlikely that a developer will build a budget hotel because the return is so low, Tramp says. I dont think theres much more movement in the mid-tier and higher-end hotels, but I also dont think the area is overbuilt at all.


Mid-tier, or limited-service hotels, such as the Quality Inn, typically charge $79 a night currently, he says.


Tramp expects that to offset rising costs, hotels in that segment will start charging $109 a night within the next few years.


The Quality Inn at the Medical Center had a 41 percent average occupancy rate last year, although that number doesnt reflect demand accurately because parts of the hotel were closed during the remodeling project, he says. Tramp anticipates a 55 percent occupancy rate this year, and that the hotel will reach Spokanes current average of about 63 percent occupancy next year in its third year of operation.


Tourism


As Spokane gains more national recognition through events such as the recent athletic competitions here and through the efforts of Spokane organizations that market the region to groups across the nation, Tramp expects that more tourists will visit the Inland Northwest.


In addition, leisure travelers nationwide, who in the years following the terrorist attacks of 2001 stuck closer to home, now are more willing to spend money and travel farther distances again, he says.


In the travel industry over the last few years, Americans have watched our budget and been cautious about where we travel, Tramp says. Its like going on a diet; weve limited ourselves too long, and its about ready to break open at the seams again.


Business travelers also have been contributing to the growth of the hotel industry here, especially for the extended-stay motel market niche, says Ken Kalin, co-owner of Stratford Suites Inn LLC, which opened a Stratford Suites Inn extended-stay motel in Airway Heights last November.


I think things in Spokane are really cooking, and were really positive about the West Plains, Kalin says. Theres a lot of fresh money coming in, and people seem to really want to be involved in Spokane.


Stratford Suites Inn currently is operating at about 60 percent occupancy, he says. The average length of stay at the motel is three weeks, although guests also stay anywhere from one night to months at a time.


Kalin says the extended-stay market is becoming more popular as business travelers increasingly prefer surroundings more similar to their homes. Each 650-square-foot unit at the 60-unit Stratford Suites Inn features ground-floor access, kitchens, leather furniture, and big-screen TVs.


The company is looking at building an additional 120 guest units on land just north of the facility, and it thinks the market would support that expansion, Kalin says.


Contact Emily Brandler at (509) 344-1265 or via e-mail at emilyb@spokanejournal.com.