NATIONAL REPORT—Located at the entrance of San Francisco International Airport (SFO), the Grand Hyatt San Francisco International Airport will welcome travelers in mid-2019 at one of the busiest airports in the U.S. SFO recently achieved a new all-time passenger traffic record of 50 million annual passengers in 2015, according to the airport.
“More than ever before, travelers today are time-constrained,” said Doug Yakel, public information officer, SFO. “Every minute counts in their hyper-busy schedules. Key drivers fueling consumer demand for full-service, on-airport hotels include the need for convenience. Being proximate to the terminals and not having to deal
with traffic delays and the stress related to missing a flight is vital. Stranded passengers are also driving demand at full-service,
on-airport hotels.”
Grand Hyatt San Francisco International Airport will sit on a 4.7-acre site close to terminal buildings and parking garages with direct accessibility via an AirTrain station to the terminals. The 350-room hotel is being designed with 17,500 sq. ft. of meeting space; business center; health club and spa; indoor heated pool; whirlpool and sauna. F&B offerings will include both full-service and casual restaurants; a wine and sushi bar; and a rooftop cocktail lounge.
Once considered a convenient alternative for stranded or road-weary travelers and low-budget conferences, airport hotels have increased in demand, especially among business and group travelers. Within the past few years, airport lodging properties in the U.S. have increased in occupancy; ADR and RevPAR, according to data from STR. Occupancy grew from 59.9% in year-end 2009 to 73.7% in year-end 2015. ADR climbed $90.52 to $109.39 and RevPAR surged from $54.24 to $80.63 in that same time frame.
New supply for airport hotels in the U.S. has grown as well. According to Lodging Econometrics, 22 hotels with 3,524 rooms are forecast to open in airport locations this year, while 36 hotels and 3,983 rooms are slated to open in 2017. As of Q3 2015, the U.S. construction pipeline consisted of 136 projects and 38 under construction. Approximately 59 projects are scheduled to start in the next 12 months. Hilton Worldwide has the largest airport pipeline with 29 projects.
As the economy has continued to recover in recent years, both leisure and corporate demand for full-service airport hotels has rebounded, particularly in the large group or meeting space segment, according to Jones Lang LaSalle (JLL). “Full-service, branded hotels only account for approximately one-fifth of the supply of airport hotels in the country; accordingly, many airport hotels aren’t often able to cater to group demand,” said Kent Michels, VP of research & strategic advisory, JLL.
However, airport hotels that do cater to group demand benefit from the ease of access to major travel hubs that would bring non-local meeting participants together in a much more time efficient manner, observed Michels, who added, “Investors are taking note, and there are some notable examples of new full-service hotels positioning themselves to capture the increase in group demand.”
For example, the Westin Denver International Airport, which opened last November, is located within walking distance to the airport and offers a 37,500-sq.-ft. conference center, 15 meeting rooms and a grand ballroom. These features are key marketing points for consumers, noted Michels. Additionally, business travelers would value branded hotels due to the widespread adoption of their rewards programs, creating a higher need for branded product near airports vs. independent properties.
As in the case of the Westin Denver International Airport and Grand Hyatt San Francisco International Airport, gateway airports across the nation are aiming to attract the development of large, upscale, full-service hotels on airport property. JLL’s research has found that hotels connected to the airport terminal or located on airport property outperform other full-service hotels in the airport submarket in RevPAR by 130%.
“Furthermore, the net operating income (NOI) of on-airport full-service hotels often matches or even exceeds their full-service downtown counterparts,” said Michels. “For this reason, on-site airport hotels are a favored asset class. Across the U.S., airport authorities are competing with one another to offer the nicest airport hotel, and are often developing new, on-site properties themselves. This is made possible through the issuance of bonds and other public financing structures and, in other cases, by inviting private hotel developers to bid on the opportunity to do so.”
The strategic location of on-airport hotels presents a significant advantage to satisfying the meetings demands for a rising consumer segment known as “fly-in/fly-out group meetings,” said SFO’s Yakel. “This group would be able to easily converge at airports without the inefficiency and cost of having to commute from the airport to an alternate lodging venue. By capitalizing on location, which is very convenient for the transient business traveler and fly-in/fly-out meetings segments, full-service, on-airport hotels have the opportunity to tailor a product/service that meets the needs of today’s extremely busy and demanding travelers.”
The largest markets for airport hotels are centered on the nation’s busiest airports, according to JLL. The largest airport hotel markets by number of guestrooms available are the Los Angeles airport submarket with nearly 13,000 rooms; the Chicago, Atlanta and Dulles (Washington, DC) airport submarkets with 10,000 rooms; and the San Francisco airport submarket with 9,000 rooms. Cities with Central Business Districts (CBD) in close proximity to airport hotels, such as San Diego and Boston, offer less prominent airport submarkets, as it is easy for travelers staying in the CBD to access the airport.
“Hotels located near airports are a growing target for investors, as we’re seeing the location convenience factor really drive demand,” said Mark von Dwinglo, SVP, JLL, who co-led the transaction of Ditmars Lodging, LLC’s $18-million sale of Clarion LaGuardia Airport in February 2015 to 9400 Realty, LLC.
Kokua Hospitality LLC, a Chicago-based hotel management firm, added the LEED-certified, 159-room Courtyard by Marriott Long Beach Airport to its portfolio in October 2015. Opened in 2013, the upscale, limited-service hotel is located in the Douglas Park District of Long Beach, CA, and offers a bistro-style restaurant, fitness center and more than 2,000 sq. ft. of meeting space.
“Many corporate travelers will stay at an airport hotel because of the convenience of staying somewhere close, based on a late flight arrival or early departure,” said Phil Tufano, COO at Kokua Hospitality. “The fact that the airlines have mastered flight capacity and most planes these days are full, many evening flight cancellations leave travelers stranded and in search of a full-service hotel, where they can eat, drink and get a good night sleep before heading back to the airport in the morning.”
To meet the expectation of today’s travelers, airport hotels require enhanced facilities. “Because many passengers at airport hotels are stranded, offering amenities that may have been forgotten is essential,” said Tufano. “A great health club and restaurant and bar and room service that is open late, with a good variety, is also essential. Most of the large, full-service hotels that cater to groups offer all the same amenities as group hotels in downtown locations. The key is that the hotel needs to be self sufficient and offer variety to keep their customers satisfied.”
Global chains are striving to provide a comfortable, inviting atmosphere at full-service, airport hotels. “We design them to be intuitively understood and easily navigated,” said Kristin Conry, director, product and brand development, Hyatt Hotels Corporation. For airport hotels in both Grand Hyatt and Hyatt Regency brand portfolios in the U.S., Hyatt includes social spaces with a variety of interconnected settings for dining, working and socializing.
“We anticipate our guests’ needs and design for maximum versatility and multi-functionality, so that our social spaces are relevant and activated all day,” Conry said. “In larger Hyatt Regency airport hotels, we focus on creating human-scaled spaces with thoughtful features within our hotels to make guests comfortable and defy the stereotypes of large group hotels.”
Key demographics of full-scale airport hotels include younger business and leisure travelers focused on combining business and pleasure; meeting and convention planners looking for stress-free, high-quality conference experiences; and a growing foreign travel base, according to Tom Curley, general manager of the 519-room Westin Denver International Airport.
“As standards of living increase, so does consumer demand for more services and luxury travel experiences. Changing lifestyles, especially with increased and new travel habits of Millennials, is also fueling a demand for easy, low-hassle travel with enhanced amenities,” said Curley. “The result is more luxury, full-service hotels located near airports.”
Increasingly important for meetings, conferences and events are the enhanced experiences that the airport hotel would provide. “F&B sophistication, a restful sleep and state-of-the-art technology will help hotels at airports drive conference bookings, with the added convenience of being able to bring in hundreds from across the country,” said Curley. “Flexible meeting space to accommodate large or small group; transportation to and from the conference or other entertainment; and a high-end experience will win out.”
In addition to upgrades in design, airport hotels with abundant flex and work space located in public areas gives guests the opportunity to streamline their work experience with smart technology, and help them to connect with colleagues around the table or across the world. Westin’s Tangent guest experience, for example, allows guests to seamlessly share digital content with the latest media scape technology.
“Available by the hour, for small groups of up to four people, Tangent allows guests to be their best from the moment they walk up and plug in,” said Curley. “Also, spaces like the lobby, complete with USB and electrical options, are available with upgraded WiFi and other inviting amenities to draw the younger workforce to the hotel.”
A shift in the profile of full-service, on-airport hotel guests is underway and it is redefining the way brands connect with their guests, according to SFO’s Yakel. “More specifically, the attitude of the high-end/luxury guest is changing in large part in response to the severe economic downturn of 2008, and the emergence of the next generation of high-end travelers—the Millennials,” he added.