The Dallas hotel market comprises nine submarkets located throughout the greater Dallas area. While the greater Fort Worth area, inclusive of such suburban cities as Grapevine and Arlington, is not addressed here, it is important to note the Fort Worth market is also experiencing significant growth. The greater Dallas area has strengthened and expanded in recent years and benefits from a vast transportation network that includes a web of highways, commuter-rail service, a light-rail line, and two major airports. Occupancy registered above the 60% mark from 2005 through 2007; during that same period, average rate increased above the rate of inflation year-over-year. The effects of the Great Recession caused occupancy to notably decline in 2009; however, the Dallas market has proven resilient in the face of economic challenges because of its diverse economic base. The overall strength of the local economy allowed occupancy to rebound in 2010. Occupancy continued to improve through 2016 and reached a new peak above the 71% mark that year. As shown, demand growth exceeded the change in new supply from 2010 to 2016. Recent data show that demand growth tapered off in 2017, with continued new supply additions affecting market-wide occupancy, pushing this metric just below the 70% mark. Average rates (ADR) rose annually from 2011 through 2016, concurrent with the strengthening economy and high demand levels. In 2017, the pace of ADR growth slowed, concurrent with a more competitive environment as a result of diminished demand being spread among more rooms.
A building boom has taken hold in the northern suburbs, and new construction of corporate campuses (including Toyota Motor Corporation’s new U.S. headquarters), office towers, and mixed-use developments dot the region. Frisco's North Platinum Corridor is the focus of major development, including major mixed-use developments such as The Star in Frisco, Frisco Station, and The Gate. To the south of Frisco, Plano's $3-billion, 250-acre Legacy West mixed-use development opened in 2017. New construction and revitalization efforts are also evident in the northern portion of Dallas; namely, the $4-billion Dallas Midtown mixed-use development near Interstate 635 and the Dallas North Tollway is expected to transform the Valley View Mall site. Closer to the nucleus, the Central Business District (CBD), Uptown, Victory, and West Dallas areas have benefitted from revitalization efforts, with growth occurring in the high-density residential, office, hotel, and retail/restaurant sectors. Attractions, such as Klyde Warren Park, the Perot Museum of Nature and Science, and the Dallas Farmers Market, have helped rejuvenate urban living and pedestrian traffic in Dallas. The sports and entertainment events held at the American Airlines Center and the historic attractions within the city of Dallas draw significant leisure demand. The addition of Dallas's new headquarters hotel in November 2011 improved the salability of the Kay Bailey Hutchison Convention Center, booking more citywide conventions and other large exhibits and events. Healthcare development has also surged, with significant expansions at both Parkland Memorial Hospital and the UT Southwestern Medical Center. Moreover, in addition to Dallas/Fort Worth International Airport’s status as one of the nation's largest airports, the end of federal flight restrictions at Dallas Love Field in October 2014 has significantly boosted operations out of the airport. The outlook for the Dallas market is optimistic; however, the effects of new supply will result in a slightly reduced occupancy trend and a contraction in rate in the near term. Improvements in RevPAR are on the horizon, with a modest increase expected in 2019; by 2020, RevPAR is anticipated to surpass the prior 2016 peak.
The increased commercial development activity and redevelopment efforts has attracted developers to the northern suburbs. Following the 2017 openings of the Omni Frisco, Renaissance Dallas at Plano Legacy West, Drury Inn & Suites Dallas Frisco, under-construction hotel projects include Sandman Signature Plano and Hyatt Regency Stonebriar. Frisco Station is also expected to be the site of the world's first quad-branded hotel property, which is planned to boast a total of 600 rooms; the first phase will include an AC Hotel by Marriott and Residence Inn by Marriott, and a future phase is slated to include the Canopy by Hilton and Hyatt Place brand affiliations. Additional luxury-oriented and boutique hotel concepts along Frisco's North Platinum Corridor are in planning stages. To the east, a new resort hotel and conference center is planned in McKinney's Craig Ranch master-planned community, and a Marriott Delta Hotel with an expansive convention center is expected to open in Allen in late 2018. Other notable full-service projects in suburban markets include a Westin at the Irving Convention Center and the Irving Music Factory, as well as the dual-branded AC Hotel and Residence Inn by Marriott near the Galleria. Within the core submarkets of Downtown, the Lorenzo Hotel, Curio Collection Statler, and Cambria Hotel & Suites hotel redevelopment projects opened, and a host of additional hotels are proposed, spanning a variety of service levels. Projects within the CBD under construction include brands such as Fairfield Inn by Marriott, TownePlace Suites by Marriott, AC Hotel by Marriott, and Residence Inn by Marriott. The former First National Bank Building is planned for conversion to a Thompson Hotel, the Trammell-Crow Center is anticipated to be rehabilitated into an upper-upscale hotel, and the Dallas Arts District is slated to be home to a new high-rise Hall Arts boutique hotel. Proposed hotels in Uptown include a Marriott and Dream, while a Canopy by Hilton is under construction. The Uptown area is also being vetted for additional luxury hotel concepts. Within the Deep Ellum neighborhood, a boutique hotel at the Epic mixed-use development is planned; an Element by Westin is also proposed for the neighborhood. Two lifestyle concepts, a Virgin Hotel and a select-service hotel, are planned within the Design District. Moreover, the Trinity Groves neighborhood and other unique Dallas landmarks, such as the former Cabana Motor Hotel, have peaked the interest of hotel developers.
Similar to 2016, transaction activity remained relatively stable in 2017. The top single-asset sale in 2017 was the 404-room Dallas/Plano Marriott at Legacy Town Center, which traded at approximately $260,000 per room. The top single-asset sale in 2016 was the 220-room Hotel Crescent Court, which traded at approximately $350,000 per room. Given consideration to transaction volume, new supply, and demand trends, we anticipate the value of Dallas hotels to remain fairly steady over the next two years.
