Like many U.S. markets, Denver’s hospitality industry has faced some challenges. It’s received little new supply following a period of significant deliveries, navigated economic speedbumps and has yet to fully see its business travel return.
“The Denver hospitality market is in recovery,” says Geoffrey E. Davis, senior principal at locally based Davis Hotel Capital. “A post-COVID reset from demand drivers, such as the office sector, has reduced commercial visitations to Downtown Denver.”
The result has been a relatively stalled market for the year, explains Katy Black, managing director at HVS.
“No significant changes in December will likely result in little to no revpar growth in Denver from 2023 to 2024,” she says. “This nominal growth is coupled with a lack of net supply changes in 2023 or 2024, as any new supply has been offset by hotel closures.”
Denver’s overall revpar growth through August was less than 0.5 percent. A lack of growth paired with the increasing costs of just about everything have made for a challenging environment, Davis adds.
“The main challenge for hotel owners will be cost control,” he says. “Labor costs, property taxes, cost of goods are all going up faster than revparincreases. The opportunity for hotel owners is to be nimble and ready to move quickly when an opportunity arises. Initial yields will have to give way to long-term returns.”
Opportunities in the new year
Fortunately, those opportunities may come sooner than later in this Rocky Mountain market. Part of this activity is attributed to the way Denver is positioning itself as it looks to support leisure travelers while bringing back the business sect, says James Stockdale, managing director of JLL's Hotels & Hospitality Group.
“Look for hotel demand to accelerate in the coming years as the city continues to invest in tourism, underscored by the ongoing $2.4 billion expansion of Denver International Airport, the recent Colorado Convention Center renovation and the proposed $150 million 16th Street Mall revitalization project,” he says. “These projects are expected to significantly boost the market, with predictions for 2025 revpar growth placing Denver among the top 20 U.S. markets.”
Black adds that group pacing already “looks good” for 2025. She anticipates occupancy gains of 1.5 percent next year, with another 1 percent coming in 2026. In terms of rate growth, Black expects it to remain near the 1.5 percent mark in 2025, increasing to 2 percent in 2026. This pace would put Denver’s revpa growth near 3 percent in 2025 and 2026.
Davis also sees opportunities opening up for investors…as lenders open up their purse strings.
“We are seeing an uptick in lender confidence, which will lead to more hotel transactions,” he says. “The availability and cost of debt capital is the grease that drives the hotel transactions market.”
Recent success stories may also influence this market. Aspen Hospitality acquired an interest in the 200-room Kimpton Born Hotel in February 2023. The hotel, which was rebranded the Limelight Denver, sold for a record price of $753,000 per key, Stockdale notes. Continuum Partners originally developed the hotel and will maintain an ownership interest in the asset.
Another success story is the Hotel Teatro in Downtown Denver, which was acquired by RLJ Lodging Trust in June for $324,000 per key. Stockdale says it’s been one of the best-performing hotels in the Denver market for more than 25 years.
“This sale is perhaps the most emblematic of Denver’s strength,” he notes. “RLJ is a REIT with institutional investment criteria. This sale shows how Denver continues to evolve into a top-tier investment market for hotel capital.”
When it comes to capitalizing on this investment market, Davis believes investors should use the full range of capital sources available to overcome the current financing obstacles and close on a deal. This includes bridge and construction loans, C-PACE (commercial property assessed clean energy, mezzanine financing, preferred equity and more.
Partnerships can also bring efficiency and opportunities to investors, Davis notes.
“Align with an operator who has an existing or recent past position in the market,” he recommends. “Multi-unit management in a particular market is a big positive when it comes to marketing and cost control.”
Areas of interest
Stockdale believes Denver’s upscale market will continue thrive, particularly among leisure travelers.
“From the Thompson in Downtown Denver to the Eddy Hotel and Taproom in Golden to the Kimpton Claret in the Tech Center, the area is absorbing a number of great lifestyle properties that are expanding boundaries in ADR,” he says. “As the launching point to so many amazing ski resorts in the Rockies, Denver has seen an influx of leisure customers since the pandemic who are expected to continue to drive room night demand in the market.”
He's particularly bullish on the boutique segment.
“The market has a number of high-quality, lifestyle upper-upscale and luxury assets and a wide array of branded upscale properties,” Stockdale notes. “However, introducing an upscale boutique asset priced below the highest-rated properties – targeting leisure guests who want a unique experience without the high price tag – is a strategic advantage in the market.”
Black agrees, adding “the ability to drive rate is a major differentiating factor.” She notes that, in Downtown Denver, rates are driven by the Four Seasons, Ritz-Carlton and Crawford. These assets also face higher costs when it comes to property taxes, insurance and payroll expenses.
“The larger hotels with more facilities, amenities and services are being impacted more from those three items from a profitability perspective,” Black explains. “Right now, extended-stay, limited-service hotels are naturally going to be a less risky investment given their operational efficiencies.”
Then there’s the supply issue. Black notes a “significant amount” of higher-end, full-service hotels came online in Denver in 2021 and 2022. These included the 264-unit Hyatt Centric Downtown Denver, the 251-room Slate Denver (Tapestry Collection by Hilton) and the 216-room Thompson Denver, among a slew of smaller assets and boutique hotels. This glut slowed the overall market’s recovery compared to other downtowns.
Denver’s hospitality sector seems to be righting itself, however. First, there hasn’t been a ton of new development since then. Second, the City and County of Denver took four hotels offline in late 2023 to use as temporary housing for the homeless. Among these assets were a 289-unit DoubleTree, a 220-unit Radisson Hotel, a 205-unit Embassy Suites and a 194-unit Best Western.
With so many sales from the past 12 to 18 months occurring due to distress, housing conversions, rebrands or partial interest transfers, Black cautions investors to do their homework before jumping in.
“Investors should really take a deep dive into any sale comparables that they are reviewing in Denver, particularly if they are trying to derive a cap rate from that sale,” she says. “The trends in pricing are direct results of profitability and cash-flow production.”
Still, both the short- and long-term outlooks for Denver remain positive. Increasing RevPAR projections, lender confidence and a more balanced supply bode well for 2025 and 2026. Meanwhile, the strengths of certain sectors and submarkets, combined with significant infrastructure investments, should keep Denver in a favorable position for the long haul.
Black notes the government sector (aerospace), distribution and aviation should bolster Denver’s long-term economic strength. Stockdale is confident in the overall Denver hospitality market, but adds that he’s most excited about some of the smaller, more under-the-radar submarkets, including Golden and Arvada in Denver West, and Boulder in Denver North.
“Recent interest rate cuts and more political clarity have resulted in renewed investor optimism,” he says. “Denver presents a strong hotel investment opportunity given the market’s diverse demand drivers, ease of access and strong tourism infrastructure. With acquisition costs generally below pre-COVID levels and supply still relatively constrained, now is the opportune time for well-capitalized investors to inject capital into the market.”