Hotel construction companies, despite some challenges, have had a productive 2024—and they look forward to continued positive returns in 2025. Hotel Business caught up with Randy Shelly, EVP, Shawmut Design and Construction; Robert Smith, CEO/chief satisfaction officer, The Allied Group; and Bill Wilhelm, president, R.D. Olson Construction, to discuss how their companies performed this year and offer their forecasts for 2025.
—Adam Perkowsky
Did 2024 live up to your expectations? Why or why not?
Shelly: Overall, there was continued optimism in the hotel sector, but a lot of the pent-up demand we anticipated breaking loose didn’t come to fruition due to the continued high interest rates and resulting hesitancy, along with the softening of the market leading up to the election. From a project perspective, we completed major renovations for The Peninsula New York, The Benjamin Royal Sonesta New York, JW Marriott Essex House New York and Sheraton San Diego Hotel & Marina.
Shawmut also acquired First Finish, a premier full-service hotel renovation contractor, to create a unique offering in the hotel market. The partnership combines the specialties of each firm—large, complex hotel projects and fast-track, luxury interiors—to provide a more strategic analysis of an overall project. While most full-scale hotel renovations require two contractors or more, Shawmut and First Finish provide one team that can execute structural, infrastructure, public space and room work cost-effectively.
Smith: Overall, 2024 was a solid year for The Allied Group, despite the volatility of the election-year cycle. Leading up to the election, we noticed some hesitation and uncertainty around the timing of renovation project releases. However, we expect this to dissipate as the year ends and markets digest the election results.
Robert Smith, The Allied Group
Wilhelm: 2024 did live up to our expectations as we knew this year was going to be challenging. Developer financing was difficult to come by in 2024 as construction costs were relatively high, and loans were more expensive to purchase. Even as we faced these challenges with our trusted developer partners, we were able to make progress on many of our projects this year.
Our first half was especially prosperous. We had two notable groundbreakings and one completion within the span of three months. In March, we began the groundbreaking on Appellation Healdsburg, a food-immersive experience that includes a partnership with celebrity chef Charlie Palmer. In November, we also saw the completion of Springhill Suites in San Diego. In June, we commemorated the groundbreaking of Element Mission Valley, a 98,000-sq.-ft. property designed for all travel needs in mind.
Are project delays continuing to be an issue? Please explain.
Shelly: Project starts continued to be delayed due to high interest rates, but we saw these delays lessen throughout the year. The overall duration from preconstruction to a project’s official start also continued to be longer than average. Looking forward, hotels are one of the sectors that will start to see much more movement in 2025 thanks to the September and November interest rate cuts.
From an execution standpoint, projects are continuing to navigate supply change and long-lead procurement challenges. This is heightened on repositioning projects that require heavier MEP equipment, with lead times up to 56 weeks long. At Shawmut, we work with our clients to mitigate these schedule impacts through upfront, collaborative work during preconstruction.
Smith: Allied is experiencing minimal project delays compared to previous post-pandemic years, as the materials market and labor availability have largely stabilized. Savvy owners now ensure FF&E is consolidated and available before a project starts, a smart approach that reduces delays and go backs.
Wilhelm: Project delays are still an issue and will continue to be so for at least the first half of 2025. This is due to continued high construction costs and expensive loans, but also the Fed’s rate cuts. These factors have definitely impacted our pipeline as our clients can only do so much with the budgets they have. However, now that we know more about the impacts of rate cuts, we are able to connect with clients to plan accordingly for any future financial issues.
Bill Wilhelm, R.D. Olson Construction
What are some other challenges your company faced in 2024?
Shelly: The majority of the large-scale hotel projects in the marketplace require a lot of work—whether they’re outdated or undercapitalized—through renovation or adaptive-reuse. In these types of projects, unforeseen conditions are one of the main contributors to schedule delays. It is critical to take a proactive approach to identify and solve challenges ahead of the project’s start. During preconstruction, Shawmut performs exploratory work around existing conditions to mitigate schedule delays, creating a plan that solves both known and anticipated problems.
Smith: We are seeing increased competition from larger multinational construction firms entering the hospitality renovation sector. Traditionally, this space has been primarily served by specialized competitors like us. However, these newcomers are pivoting due to a slowdown in new-build opportunities in office, hotel and multi-family housing. It remains uncertain if their presence in this niche will be long-term or temporary.
Wilhelm: Subcontractor resources, product availability and architectural and city staff shortfalls continue to provide challenges on multiple fronts that have impacted project schedules. Even with early procurement and delivery of various material products, the lead times remain lengthy. As subcontractors work off their existing backlogs, they’re still dealing with manpower allocation shortfalls.
What is your outlook for 2025?
Shelly: Overall, there’s a lot to look forward to in 2025. There will be steady growth to start, with both project and transaction volume picking up at the midyear point to fuel a robust second half of the year. In the winter of 2025, we anticipate the pent-up demand will reach critical mass, with immense opportunities, which will continue into 2026. Due to the labor shortage in the construction industry, one challenge will be the skill and labor to execute all the work. That’s why our acquisition of First Finish is so well-timed. We provide an all-in-one solution for clients not only with our expertise but also with our extensive, highly-skilled trade partner and supplier network.
Smith: We are optimistic for 2025 considering the election cycle is behind us, and there is an overall emphasis on returning to robust economic growth. This, coupled with the interest-rate trends and pipeline of deferred hotel projects, is a recipe for great opportunity. The Allied Group is well positioned to deliver outstanding renovation services to our customers anticipating healthy growth over 2024 performance.
Wilhelm: Our outlook for 2025 is practical, yet positive. We are expecting the ripple effects of high construction costs, financing and the discussions of tariffs with increased inflation to add to the havoc through the first two quarters. Even if this is the case, it isn’t a doomsday scenario. Now that we have more of an understanding of the market and what can happen under a new administration, we can work with clients to proactively anticipate any challenges and plan accordingly. We still have a bustling pipeline that will come to fruition in 2025. This will include the completion of much-awaited properties like AC Hotel Pasadena, Appellation Healdsburg and Hilton Arcadia, while we anticipate six new groundbreakings scheduled to start in the second half of 2025.
