Megaresorts are shaking up the Valley of the Sun

By Shane Sharp, Contributor

PHOENIX, Ariz. - That giant sucking sound coming from the Valley of the Sun isn't just the NFL's Phoenix Cardinals. A total of 2,200 rooms and $600 million in hotel investments have hit the market in the past few months, the largest influx of resort development in the region in more than 15 years. And this deluge of new supply could send the overall vacancy rate into a violent head spin.

Some experts say that the new megaresorts will pull much-needed business away from the older, established resorts that put the Phoenix area on the map. Other industry observers argue that the expansion of conference and meeting space will attract larger corporate outings, thus enabling the Valley to better compete with Las Vegas, Chicago and Dallas.

"We have experienced an overall increase of 17 percent in luxury rooms just in the past 90 days," says Greg Miller, president of the Valley Hotel and Resort Association. "The increase is almost unprecedented, and it will put downward pressure on the valley-wide vacancy rate."

The lineup of new resort hotels is formidable, and their amenities are first-class.

The JW Marriott Desert Ridge Resort is a $293 million, 950-room behemoth of a resort hotel anchoring two 18-hole layouts at the Wildfire Golf Club in burgeoning north Scottsdale. The $125 million Sheraton Wild Horse Pass on the Gila River Reservation is the centerpiece of a South Valley playground that includes two Gary Panks designed golf courses, a 2.5-mile-long winding river and a casino. Around the corner from Desert Ridge, the 11-story Westin Kierland features more than 700 rooms and access to the 27-hole Kierland Golf Club and a bevy of new shops and restaurants.

Miller says the immediate impact these facilities have had on the Valley's hospitality market will be staggering. Revenue per available luxury room - the industry benchmark in the hotel and motel business - will be negative going into 2003. However, he also points out that the long-term prognosis could be much better, and the new rooms could ultimately benefit the region.

"We are hopeful they will drive new business to the Valley in terms of larger groups," he says. "But the reality is that they will initially prey off of existing demand."

The future could be now at the JW Marriott, according to spokeswoman Christa Woods. Woods says the Marriott is almost booked for December and will begin to host group outings in January. College football's national championship game, the Fiesta Bowl held at Sun Devil Stadium in Tempe, also will bolster January's bookings, adds Woods.

"Desert Ridge (Marriott) isn't really taking away existing business," says Woods. "It is pulling in huge groups that were not able to meet here before. The intent of that resort hotel is to compete with Las Vegas, not with the smaller local resorts."

The Westin Kierland is also looking toward January for launching an all-out assault on group and corporate sales. Donna Butler, director of public relations for the resort, says the Westin also is gearing up for the Fiesta Bowl as well as the PGA Tour's perennially popular Phoenix Open.

"We are doing well in terms of our group bookings," Butler says. "We are focusing on groups in terms of our room nights. But we are also looking at individuals with the Fiesta Bowl and Phoenix Open. It's a touchy time and all the resorts are feeling it. In the long term, I think all the resorts will benefit."

Butler says one upside to the tidal wave of new luxury rooms is that older resorts are making much-needed renovations in the face of new competition. The winners in this case are Valley tourists, who now can choose from an array of amenities including spas, golf courses, equestrian centers, floating rivers, shopping and gambling. Whether or not the conglomeration of the new and old can be profitable in today's tenuous travel market remains to be seen.

The Phoenix area experienced a similar glut of new luxury rooms from 1986-1988 when 2,700 new rooms came online. During that period, the Valley welcomed such high-end properties as the Buttes Resort, Pointe South Mountain, the Hyatt Regency Scottsdale, the Scottsdale Princess and the Phoenician. The vacancy rate, which had gone as high as 74 percent in 1984, plummeted to 61 percent by 1988 as the market became saturated with luxury rooms. Unlike the mercurial NBA Phoenix Suns teams of the late 80s and early 90s, it took five years for the rate to hit the 70th percentile again.

Miller, also the general manager of the venerable Royal Palms Resort on East Camelback Road, says it will probably take the local market until 2004 to recover from the excess supply this time around. The demand should catch up with the supply more rapidly than it did in the early 90s because there are fewer discount hotel and motel chains set to open over the next few years, he adds.

While it's almost impossible to regulate the free market, Miller wonders if some of the resort planning took place in a vacuum.

"Westin and Sheraton are both part of Starwood, so it is rare that they would flood the market with that many new rooms," he says. "But those projects were built with an eye towards 2020, not 2004."

December 17, 2002