Photo by Steve Adams | Banker & Tradesman Staff

Traditionally a lower-priced spillover market when Boston hotel rooms become scarce, the city of Revere suddenly is positioned to tap into a growing hospitality market in its own backyard. 

The scheduled June opening of the $2.6 billion Encore Boston Harbor casino in Everett – which is listing its 671 guest rooms with rates starting at $645 a night – is likely to bring an infusion of leisure travelers looking for more affordable nearby lodgings. And the proposed 16.5-million-square-foot redevelopment of the Suffolk Downs racetrack property on the East Boston-Revere border points to longer-term opportunities to capture more bookings from business travelers. 

Transit, Airport Access a Boon 

That’s a welcome bonus for hotel developers such as XSS Hotels, a Hooksett, New Hampshire company that is building a $19 million Holiday Inn Express and Staybridge Suites at 245 Revere Beach Parkway. The project, scheduled to open early next year, is the leading edge of a 1,000-room pipeline of hotels under construction or seeking approval in Revere, more than doubling the city’s existing room inventory. 

With its proximity to the MBTA Blue Line and Logan International Airport, 245 Revere Beach Parkway checks off several important boxes sought by north suburban hotel developers, said Christine Thomas, development partner at XSS Hotels. 

“We like transit-oriented development and the proximity to Beachmont station,” Thomas said. “We decided this project could sustain itself with the airport and other regional growth affiliated with the airport, and the leisure component of the casino.” 

Part of a former Shaw’s supermarket property, the XSS parcel became available in 2017 and was acquired by XSS for $3.3 million. The dual-branded Holiday Inn Express and Staybridge Suites is scheduled to open early next year. The seller, Boston-based Gate Residential, is developing the rest of the 6-acre site into a 195-unit apartment complex targeting Boston commuters. 

XSS anticipates that 65 percent of the hotel’s guests will be leisure travelers, including casino visitors, Thomas said. The extended-stay Staybridge Suites component, comprising 72 rooms, will cater to business travelers, a market that could expand if Boston-based HYM Investment Group succeeds in building a 10-million-square-foot development on the 161-acre Suffolk Downs site over the next two decades. 

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Development Cycle Favors Suburban Sites 

The focus on the north suburban market comes as the Greater Boston hotel market appears to have passed its peak in the current real estate cycle, according to CBRE Hotels research.  

The region reached a peak occupancy rate of 76.4 percent in 2015, three years earlier than the nation as a whole, said Jenna Finkelstein, senior consultant at CBRE Hotels. Lower development costs in the suburbs make that market more attractive, as hotel developers compete against office and multifamily projects for the construction labor pool. 

“Boston has had a lot of new construction and that has raised construction costs because of labor, and Boston is still a very expensive place to build,” Finkelstein said. 

CBRE Hotels projects that Greater Boston occupancy rates will fall to 74.9 percent in 2019, while average daily rate growth slows to 1.1 percent compared with 1.6 percent in 2018. And CBRE predicts that revenues per available room, a key metric of hotels’ financial performance, will drop to 0.1 percent after gaining 3.9 percent in 2018. 

Amid predictions of a national economic slowdown as soon as 2020, developing dual-branded properties sharing common core amenities is one way that hotel developers can shave costs while appealing to a broad guest demographic. The strategy makes properties more appealing to financing sources, which are looking for strong brand sponsorship given the amount of supply set to hit the market, XSS’s Thomas said. 

The economics of development increasingly favor suburban properties, said Alan Suzuki, a senior director at HFF Boston’s hotel advisory group. 

“Hotels are generally undersupplied in the Boston area and developers are looking for potential opportunities just outside the city, where you may be able to access public transportation and prices are cheaper,” he said. 

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Guests Outside Boston Seek Value 

The value strategy carries over to the guest demographic, which typically includes one-night stay airport travelers and those unable to find rooms in Boston because of large events.  

“If you’re thinking about staying outside Boston, you’re rate-sensitive and you don’t want to spend $500 or $1,000 for a room downtown,” Suzuki said. “It’s a little bit more inconvenient, but it’s a fairly quick Uber ride or public transportation to the city.” 

Average daily room rates in downtown Boston and Cambridge averaged nearly $257 in 2018, according to research by CBRE Hotels, while suburban properties averaged $158 per night. 

Developers have taken note of the strong performance of recent hotel developments in East Boston and Chelsea, said Sebastian Colella, vice president at Boston-based hospitality consultants Pinnacle Advisory Group. 

“Developers seek to take advantage of the public transportation and beachfront property less than 10 miles from downtown Boston,” Colella said. “The Encore Boston Harbor could potentially have a positive impact on these markets as well, and the less expensive land and lower construction costs compared to Boston help, too.”