A dramatic change is underway in Bellingham’s hotel market.

Demand for hotel rooms in Bellingham has grown steadily during the last 15 years. But the number of available hotel rooms didn’t change until late 2013, when Marriot SpringHill Suites and La Quinta opened near the airport.

With three more hotels scheduled to be completed in 2015 and another in 2016, the number of three-star and above hotel rooms will soon be nearly double what it was in 2012, with 641 additional rooms.

The change in available three-star and above hotel rooms, from 671 to to 1312, has some hotel managers nervous. Bellingham Whatcom County Tourism and other local organizations see it as an opportunity.

The Bellingham Public Development Authority, before it was dissolved by the city council in December, commissioned a study to determine the feasibility of building a hotel on city-owned property near the waterfront. The study, titled “Bellingham Army Street Project Market Analysis,” predicted an oversupply in rooms by 2016.

“This pace of development is unprecedented, and represents a once-in-a-lifetime lurch from undersupply to oversupply of premium guest rooms in Bellingham,” said the study by Leland Consulting Group of Portland, Oregon. “In a market this size, and with the steady but not dramatic annual increases that are forecasted for population and job growth as well as Interstate 5 traffic and general tourism, we would expect that it will take approximately 10 years for this oversupply to be absorbed.”

For the analysis, Leland Consulting Group analyzed hotel occupancy data from a study that they had commissioned by Smith Travel Research, a company that tracks hotel supply and demand. Leland Consulting Group also did their own analysis of hotels that don’t report to Smith Travel Research, according to the study.

From 2002 to 2012, Bellingham hotels had a higher than average occupancy rate. In 2013, the occupancy rate at three-star and above Bellingham hotels was 77.9 percent, while the state average was 66.5 percent, according to the study.

Because of the high occupancy rate, hotel developers were eyeing Bellingham for years. After the recession, when developers could get money for new projects, six planned hotel projects popped up all at once.

The Hampton Inn had little competition in early 2013, said general manager Alex Nephew. At the end of the year, SpringHill Suites and La Quinta opened less than a mile away.

Before the other hotels opened Hampton Inn had a nearly 80 percent occupancy rate, Nephew said. Despite the high occupancy rate it only filled up a few times a year, he said.

“Ultimately, I think all the hoteliers agree that more rooms aren’t necessary other than two or three times a year,” he said. “Things like soccer tournaments, WWU graduation—those are the only times that many of us have felt it was necessary to have more rooms.”

Nephew said the increase in hotels has already affected business at Hampton Inn.

“We saw a significant drop in revenue when two hotels opened up near us,” Nephew said. “It’s a change and it’s a difficult change. The size of the pie doesn’t grow.”

Tourism in high gear

Loni Rahm sees it as her job to make the size of Bellingham’s tourist pie grow. Rahm, the president and CEO of Bellingham Whatcom County Tourism, thinks the hotel boom is an opportunity to attract more people to Bellingham.

In the past, she said the number of hotel rooms limited tourism efforts in Bellingham.

“When someone decides the days they are going to come to Bellingham and they can’t get a room during those days, that’s hospitality death,” she said. “Getting them to come back will be 10 times harder than consummating that deal when they were first ready to purchase.”

Rahm is working with a variety of groups who host events in town to attract more tourists. She sees promise in things like Bellingham Beer Week, a celebration of Bellingham’s local beer, she said.

Because of high occupancy rates, the City of Bellingham has collected more lodging tax—which tourists pay as part of stays at hotels and motels in the city—than projected in the last few years. So for next year, the city is offering $75,000 to help fund a new signature event. One stated goal for the event is to fill hotel rooms during the tourism off-season from September to March.

Bellingham Whatcom County Tourism is working with the city on the event.

“What we’re trying to do is develop something new that will ultimately be synonymous with Bellingham, as is Ski to Sea,” Rahm said. “As a bonus it would be nice if it filled a lot of hotel rooms because we’ve got the inventory.”

Rahm expects tourism to grow as new hotels open up she said. Bellingham Whatcom County Tourism is predicting that the amount of lodging tax collected in the city will grow by 7 percent next year.

Rahm calls that prediction extremely conservative.

“I think as the momentum builds I’m going to be ridiculed for how low I’m projecting our increases,” she said.

Though Rahm sees the explosion of new hotel rooms as an opportunity, realizing the opportunity will take work, she said.

“We have to sell an experience, not a bed,” she said. “The experience takes place outside the hotel just as much as it does inside the hotel room.”

Renovations

To stay competitive in the booming hotel industry, Nephew, the general manager of Hampton Inn, is looking into renovating his 23-year-old property in the next three to five years, he said.

Best Western Lakeway Inn, at 714 Lakeway Drive, is finishing a renovation project that general manager Larry MacDonald said cost nearly $6 million.

“Nothing is staying the same. It will be a brand new hotel,” he said.

The remodel includes renovations to the ballroom, meeting space, and lobby, a coffee shop with four 65-inch televisions, new work areas with tables, improvements to the hotel’s safety system and a redesigned fitness center. All 132 rooms were remodeled with new beds, furniture and bathrooms, MacDonald said.

Chinuk, a new restaurant serving local and seasonal food, will open early this year inside the hotel. The remodel should be finished in May, MacDonald said.

“Staying competitive is the whole reason we’re doing it,” he said. “It’s been a pretty small market, but now there are many choices.”

Hotels by the numbers

The first hotels of the current boom to open were Marriot SpringHill Suites and La Quinta, which opened in October and December 2013, respectively.

Marriot SpringHill Suites, at 4040 Northwest Ave., has 122 rooms, a swimming pool, hot tub, fitness center and shuttle service to the Bellingham airport.

La Quinta, a block away at 1063 W. Bakerview Road, has 81 rooms that general manager Tina Strode said attract a mix of corporate and leisure travelers. Strode expects demand for rooms to grow, she said.

“I think in the summer there’s strong demand. There’s going to be good opportunity for all of us,” she said. “It really depends on how the industry grows in Bellingham. If it keeps going how it is I wouldn’t worry too much.”

Marriot TownePlace Suites and Hilton Home2 Suites are both scheduled to open mid-February. TownePlace Suites, at 4040 Northwest Ave., will have 83 rooms. It’s connected to Marriot SpringHill Suites and will have much of the same amenities. The TownePlace Suites is designed for long-term stays, and has rooms with full kitchens.

Hilton Home2 Suites is going up across the street from the Marriots at 805 Home Lane. The four-story, 106-room project is Hilton’s brand of extended-stay hotel, and rooms will have full kitchens. General manager Sara Holliday said the hotel will cater to business and leisure travelers.

One reason that some of the new hotels in Bellingham are extended-stay hotels is the refineries at Cherry Point, which hire long-term temporary workers, Holliday said.

The Oxford Suites hotel, next to Bellis Fair Mall at 4051 Meridian St., will open next summer, said Roz Stelk, marketing director for the Oxford Hotel Group. The six-story, 99-room facility will feature an indoor pool, spa, sauna, steam room, and exercise facility, Stelk said. The hotel will also have nearly 2,000-square-feet of meeting space.

The largest of the new hotel projects, the Holiday Inn next to the airport, should open in 2016, said Lennart Bentsen, president of Hotel Services Group LLC of Mount Vernon, the project’s developer.

The Holiday Inn will be on land owned by the Port of Bellingham. Contractors should break ground on the 150-room project in spring 2015, Bentsen said. Construction was originally supposed to start in May 2014, but financing, permitting, and weather delays pushed the project back, Bentsen said.

Outside of Bellingham, the Silver Reef Casino in Ferndale broke ground last year on a 100-room addition to their hotel, which previously had about a 90 percent occupancy rate, general manager Aaron Thomas said. After the addition, the Silver Reef Casino will have 205 rooms.

Thomas said most visitors to Silver Reef come for gambling, but the hotel does fill up during Western Washington University’s graduation weekend, and during sports tournaments.

Oliver Lazenby, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or olazenby@bbjtoday.com.