2014 is shaping up to be a great year for Boston’s hotel industry.

Following steady returns over the past three years, Boston’s hotel market stands to benefit from a number of external factors, and developers and investors are taking notice.

However, the Boston hotel market is also known for certain challenges that historically have tempered both the local construction and for-sale markets, and it will be interesting to see how these opposing forces play out over the coming year.

For most local hotel-watchers, projections start with a look at the Boston Convention and Exposition Center’s 2014 calendar, which has the most bookings since 2005. The promise of a proposed $1.1 billion expansion encourages confidence that room demand will be robust for many years, making hotel properties an attractive investment proposition, and providing a good foundation for new Mayor Martin Walsh’s economic development plans in the Seaport district.

Notwithstanding that institutional investors, who prefer the long-term strategy of rising annual yields to the headline-grabbing short-term sales, own most of the city’s major hotels, local credit markets are strong enough to make the prospect of a quiet year unlikely. As life insurance companies and commercial mortgage-backed security (CMBS) lenders return to the market, all-in rates are being driven below 5 percent for many borrowers, and even  hotel owners who choose not to sell this year may find themselves confronted with rates compelling enough to demand that they refinance.

Borrowers are coming back to the market and pushing the banks hard on pricing. Then, after securing low rates, they are hammering the banks for flexibility regarding prepayments, reserves, consent rights, limited recourse triggers and the like, in an effort to land long-term pricing without the protections customary for the shorter term lenders.

In addition to the favorable credit climate, the BCEC’s busy calendar and its proposed expansion, local experts like Jack Levy, Pyramid Hotel Group’s senior vice president of financial analysis, cite the advent of direct flights from China, falling domestic airfares and continuing growth in the city’s biotech and medical industries as additional market drivers.

Industry consultants Pinnacle Advisory Group and PKF Consulting project Boston per-room revenues to rise by 6.5 percent or more this year, with PKF forecasting an additional 7.5 percent boost through 2015.

Developers are taking notice. Six new hotels with a total of 1,300 rooms are slated to open by 2016:

• Godfrey Hotel, a 243-room boutique hotel at the corner of Washington Street and Temple Place in Downtown Crossing.

• Aloft Hotel South Boston, 330 rooms, a mid-priced hotel oriented for short stays.

• Element Hotel South Boston, 180 rooms, mid-priced, oriented for three- to five- 
day stays.

• Envoy Hotel Seaport District, a 136-room, luxury, boutique hotel.

• Courtyard Marriott, Boston North End, 209 rooms.

• A 202-room hotel at 240 Tremont St., in the Theater District.

In addition, the Massachusetts Department of Transportation last year green-lighted a 180-room, mid-priced hotel on the Greenway’s Parcel 9 tract. And in the final days of his term, former Boston Mayor Thomas Menino shepherded Boston Redevelopment Authority approval of a 306-room hotel in front of TD Garden.

No Vacancies

Boston remains, however, one of the most expensive cities in the country for real estate development. Land costs are high, and most large project permits are conditioned upon the use of union labor. Construction of a select service hotel that might cost $250,000 per room in Florida could easily cost $450,000-plus in Boston.

These “barriers to entry” are credited with preserving Boston from the oversupply that has crippled markets in many other cities, but Boston’s shortage of hotel rooms may be driving business away.

The Convention Center Authority says that it has been forced to turn down major bookings because of a lack of convention center space and a scarcity of hotels. The BCEC currently has 1,780 hotel rooms nearby, but says competing facilities in major cities each have more than 7,500 rooms within half a mile.

In addition to the Aloft and Element hotels, the Authority plans to expand the Westin next door and develop a 1,500-room headquarters hotel.  Local professionals are not concerned, however, that a flood of new hotel rooms will glut the market. An informal survey of contacts and clients of our firm, which helped arrange financing for the first major hotel in the Seaport District, reveals nothing but optimism, buoyed in large part by the phenomenal credit markets.

Sam Webb is counsel in the real estate group of Sullivan & Worcester’s Boston office. Email: swebb@sandw.com