Building boom: Pace of hotel construction hits nearly 30-year high in Colorado Springs
Jerilee Bennett, The tribune
The Colorado Springs-area lodging industry has remained in good health amid one of the biggest hotel building booms in nearly 30 years — and that wave of construction shows no sign of slowing.
Developers completed 10 hotels or additions with more than 1,200 rooms over the past two years and six more projects with nearly 900 rooms are under construction, according to data compiled by Emmy Hise, a Denver-based hotel industry analyst for CoStar Group, a Washington, D.C., real estate data company.
Though hotel construction is taking place statewide, Colorado Springs is leading that trend because of the area’s appeal as a destination for hiking, bicycling and other outdoor activities, she said.
Many of the hotel projects are clustering in busy areas of the city, where businesses, employers and visitors generate strong demand, said John Kelley, senior vice president of hospitality, gaming and leisure for commercial real estate consulting firm Newmark Valuation & Advisory in Denver.
Those areas include northern Colorado Springs, especially near the InterQuest Parkway commercial corridor; the Colorado Springs Airport and Peterson Space Force Base on the southwest side; and in or near downtown.
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“Though Colorado Springs is experiencing strong growth in hotel construction and proposals overall, recent major investment is being concentrated in key submarkets,” Kelley said.
“These submarkets have attracted considerable development due to reliable, year-round demand. The appeal of Colorado Springs is further strengthened by its proximity to renowned outdoor sites such as Garden of the Gods, Pikes Peak and various national and state parks.”
The six projects under construction might not be the end of the boom.
Developers plan another 16 hotels over the next several years that could total more than 2,000 rooms, according to lists maintained by Newmark and Visit Colorado Springs, the agency that markets tourism in the Pikes Peak region. Rising construction and financing costs, though, have made hotel development more difficult and prompted developers to slow or cancel several projects in the past two years.
All told, 32 projects completed, under construction or on the drawing board would add more than 4,100 hotel rooms, which would expand the area’s supply by about 15% to 20%.
A dual-branded Hilton, which combines the first Tru hotel in Colorado Springs and a Homewood Suites, is under construction near the Colorado Springs Airport with an opening scheduled this summer.
Industry experts, however, aren’t worried that too many hotel rooms will flood the market, in large part because local tourism has grown dramatically since the last construction boom 25 years ago.
Southwest Airlines’ arrival in the Springs in 2021 helped boost tourism; the low-fare giant immediately became the largest carrier at the city airport and has since expanded.
The U.S. Olympic & Paralympic Museum that opened four years ago in downtown Colorado Springs, meanwhile, is one of several new tourist attractions in the area. An Air Force Academy visitor’s center under construction and scheduled to open in 2025 and the north-side 8,000-seat Sunset Amphitheater outdoor music venue that debuts in August are being counted on to entice more visitors to the region, Hise said.
Also, some of the new hotels will offset the loss of about 700 rooms that have been converted into apartments. One example: the former 496-room south side Hotel Elegante Conference & Event Center has been transformed into Alta Living.
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The 1990s hotel building boom added about 3,800 rooms and expanded the area’s lodging inventory by nearly 44% in three years, pushing occupancy sharply lower. The current construction wave is adding 300 more rooms into a much larger market over several more years.
Still, the new rooms added appear to be having some impact on hotel occupancy, with the local rate edging down to 64.3% in the 12 months ending Jan. 31, from 65.3% during the same 12-month period a year earlier. And room rates were largely flat during that period, with the average daily rate edging up just 0.6% to $145.
“Part of the decline (in occupancy) is from the new supply, but overall market demand last year declined slightly,” Hise said.
“We saw that with most drive-to destinations where travel normalized after the pandemic. People started to travel more internationally instead of domestically. However, the dip in Colorado Springs was not as significant as other leisure destinations. Compared with other markets, Colorado Springs is absorbing new supply fairly well.”
Hise, however, expects occupancy to remain relatively flat due to the new supply of rooms — even as she forecasts stronger demand in the next 12 months as domestic travel grows.
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Doug Price, Visit Colorado Springs’ president and CEO, said two weeklong athletic events, held in June and July at Colorado College’s Ed Robson Arena, filled thousands of rooms, including some in recently completed hotels. The events helped the tourism industry bounce back after a slow start, he said.
That recovery continued after President Joe Biden on July 31 reversed a 2021 decision by former President Donald Trump to move U.S. Space Command to Alabama. Several defense contractors announced plans to expand in Colorado Springs and hire thousands of additional employees in the months after Biden’s decision, boosting the local economy and helping the tourism industry, Price said.
Double-digit percentage gains last year in passenger numbers at the Colorado Springs Airport and Denver International Airport also helped fuel tourism growth in the Pikes Peak region and in the state, he said.
Despite the hotel occupancy decline, collections of the city’s tax on hotel rooms and rental cars — another tourism indicator — rose 2% from the previous year to a record $10 million for all of 2023, Price said. It was the third consecutive annual increase in revenue from the tax.
He also said the number of rooms booked for a night for conventions and group meetings grew by more than 100,000 last year, a major recovery for an industry segment that had cratered during the pandemic.
The WoodSpring Suites is one of several hotels in the InterQuest commercial area in northern Colorado Springs.
Kelley, the hotel expert with Newmark, and Robert Benton, a Parker-based industry consultant, doubt the Springs will see a glut of rooms.
“Drive-to destinations such as Colorado Springs are poised for long-term benefits,” Kelley said. “As consumers begin tightening their belts on discretionary spending, the appeal of accessible locations like Colorado Springs is expected to rise. Consequently, the current wave of new hotel supply entering the market is predicted to be gradually absorbed, safeguarding the overall vitality of the Colorado Springs market without leading to an oversaturation.”
Many of the new hotels are limited-service properties that don’t include extensive meeting space, restaurants with wait staff or other amenities and charge lower rates because they cost about two-thirds or three-quarters of the cost of building a full-service property, Benton said. The lower rates help limited-service hotels maintain higher occupancy rates than full-service lodgings.
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Another reason a glut isn’t likely: Benton expects some planned hotels to be postponed or canceled due to the market softening, more expensive financing costs because of rising interest rates and higher construction and operating costs. Some developers have slowed their projects in hopes that interest rates will decline this year and make their projects more affordable.
Higher financing and construction costs forced construction to be suspended a year ago on the first of two hotels planned in the Colorado Springs Airport’s Peak Innovation Park, said Jim DiBiase, a partner in the hotels.
Construction should resume by May on a 121-room Residence Inn after securing new financing, he said. The hotel is targeted to open in late 2025 with an attached 127-room Courtyard by Marriott scheduled to begin construction a year later and open in late 2027 or early 2028.
“Financing has been challenging, but the airport submarket has been doing very well. A lot of the product (hotels) in that area are 25 to 30 years old and there is a need for new hotels there. These hotels will be the market leader,” DiBiase said.
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Ketan Shah, managing partner of Denver-based Shahford Hospitality, also said higher costs to borrow and build prompted his company to scale back a 115-room Cambria Hotel planned in the north-side Victory Ridge development, southeast of InterQuest and Voyager parkways.
Shahford pared the number of rooms to 100 and reduced the size of the hotel’s meeting room, restaurant and rooftop bar to cut costs. The redesign delayed the project by more than a year; construction now will begin in the fall and be completed in early 2026.
Cambria is a new upscale chain from Choice Hotels catering to business travelers and featuring rooms, lobbies and restaurants that are customized to reflect the local community — Shah said his company’s hotel will feature Pikes Peak, the academy and other local landmarks.
Reuters reported in June that hotel construction nationwide was slowing as banks tightened lending standards in the wake of the failure of three major regional banks last year; regional banks are the largest lenders for hotels and other commercial real estate. Nearly 100 hotel developments were put on hold last year due to financing issues and the number of new projects nationwide fell from 324 to 98, the news service said.
CoStar reported in January that the number of new rooms under construction nationwide fell 3.1% to 200,615, but the number of rooms in initial planning stages rose 30% to 300,033 and those in the final planning stages were up 18.1% to 289,394.
The 375-room, nine-story Hotel Polaris that’s expected to open late this year outside the Air Force Academy’s north gate is arguably the area’s highest profile new lodging property.
It will be the first full-service hotel built in Colorado Springs in nearly 40 years and will be the area’s second largest (after The Broadmoor) when it opens. The hotel is part of the 51-acre True North Commons development that includes the academy’s new visitor’s center, an office park and land for retail and restaurants.
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Hise has included the Hotel Polaris as one of 10 “hotels to watch” in the western U.S. in a recent report because it is the largest hotel under construction in Colorado and will include flight simulators in its lobby — a unique amenity.
Price called Hotel Polaris a “game changer for both Colorado Springs and the Air Force Academy, especially in the summer of 2025. The hotel is in a perfect location for those doing and attending shows at Sunset” Amphitheater.
Several of the hotels under construction or planned are new brands expanding to Colorado Springs, including Cambria; Tru by Hilton, a midlevel hotel focused on younger, technology-savvy travelers; EverHome Suites, a midlevel extended stay offering also from Choice; and Atwell Suites, an upper-midlevel, all-suites chain by InterContinental Hotels Group.
