The Dallas hotel market comprises nine submarkets located throughout the greater Dallas area. We note that the greater Fort Worth area, inclusive of such suburban cities as Grapevine and Arlington, is not included here. 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 reached a new peak above 71% in 2016. As shown, demand growth exceeded the increase in supply from 2010 through 2016. Demand growth waned in 2017 while new supply swelled, pushing occupancy below the 70% mark. The pace of demand increased in 2018; however, occupied room nights continued to be exceeded by the number of rooms added to the market, resulting in a continued, but less severe, correction in occupancy when compared to the previous year. Average rates (ADR) rose annually from 2011 through 2016, concurrent with the strengthening economy and high demand levels. In 2017 and 2018, the pace of ADR growth slowed, concurrent with a more competitive environment as a result of diminished demand being spread among more rooms.
The northern suburbs continue to be a focal point of new development, with the continued construction of corporate campuses, office towers, and mixed-use developments. New construction and revitalization efforts are also evident closer to the nucleus, within the Central Business District (CBD), Arts District, Uptown, Victory, Deep Ellum, and West Dallas areas. Attractions such as Klyde Warren Park have helped rejuvenate urban-living and pedestrian traffic in Dallas, while museums and historic attractions within the city of Dallas draw significant leisure demand. Sports and entertainment events held at the American Airlines Center also generate leisure room-night demand. The new Dallas Holocaust and Human Rights Museum will open in the West End in the fall of 2019. Healthcare development has surged, with significant expansions at both Parkland Memorial Hospital and the UT Southwestern Medical Center, while passenger traffic at Dallas Love Field Airport has increased significantly. Both events and attendees at the Kay Bailey Hutchison Convention Center Dallas declined in 2017/18; however, a new convention center management company, Spectra, engaged by the City in early 2019 will reportedly focus on booking short-notice events at the convention center and will work with VisitDallas on long-range convention planning in order to boost business to historical levels. The outlook for the Dallas market is optimistic; however, the effects of additional new supply will result in modest contractions in occupancy in the near term. ADR is expected to rebound quicker than occupancy given the quality of products opening in the market, significant renovations at existing hotels, and continued demand growth. Improvements in RevPAR are on the horizon, with 2019 RevPAR anticipated to surpass the 2018 peak.
Following the opening of several hotels in the northern suburbs in 2017, the Sandman Signature Plano opened in this area in 2018, while the Delta Hotels Dallas Allen & Watters Creek Convention Center opened in in early 2019. The only full-service product under construction is the Hyatt Regency Stonebriar; however, additional luxury-oriented and boutique hotels are in the planning stages for sites in Frisco and Plano. Frisco Station is also expected to be the site of the world's first quad-branded hotel property. A resort hotel and conference center is planned for McKinney's Craig Ranch master-planned community, and an Omni is proposed for development adjacent to the planned PGA of America headquarters on the northern edge of Frisco. Furthermore, the Westin Irving Convention Center at Las Colinas opened in early 2019. Numerous hotels are planned for the core submarkets of Downtown. In the full-service arena, a new high-rise Hall Arts boutique hotel is planned to open within the Dallas Arts District in 2019, while a hotel is also planned for the expanding Trammell-Crow Center. A Thompson Hotel has been proposed for development in the former First National Bank Building. A Canopy by Hilton opened mid-year 2018 in Uptown, while two hotel projects—a Marriott and a luxury Harwood hotel—have broken ground in the Uptown enclave; both the Uptown and Turtle Creek areas are being vetted for additional luxury hotels. A Virgin Hotel is under construction in the Design District with an anticipated late-2019 opening, while the nearby Feizy Center is being converted to a Tru by Hilton. Within the Deep Ellum neighborhood, a Kimpton hotel at the Epic mixed-use development is underway. Moreover, the Trinity Groves neighborhood and other unique Dallas landmarks, such as the former Cabana Motor Hotel, have piqued the interest of hotel developers.
The number of Dallas hotel transactions remained relatively stable in 2018 when compared to 2017; however, the number of assets that sold as part of a portfolio increased. In 2018, nearly all transaction activity was represented by nationally branded, limited- and select-service assets, while 2017 sales activity included five full-service hotel properties, the majority of which were 300 rooms or larger. The top single-asset sale in 2018 was the 167-room Courtyard by Marriott Dallas Downtown Reunion District, which sold roughly three months after opening for approximately $290,000 per room. Considering transaction volume, anticipated new supply, and demand trends, we expect the value of Dallas hotels to remain fairly steady over the next two years.
