After one of the biggest hotel building booms in Colorado Springs in three decades, occupancy rates and room rates are falling as the supply outstrips demand — and experts are warning of challenges ahead, including cuts to federal employee travel.

That hot streak in construction is now cooling. After developers added 2,100 rooms in the past three years — including nearly 800 last year — just four hotels with 456 rooms are under construction or about to start construction during the next few months, not including a stalled hotel project in the Colorado Springs Airport’s Peak Innovation Park.

While the Colorado Springs tourism market — a key segment of the city’s economy — remains healthy, the supply of new hotel rooms grew at nearly twice the rate of demand for rooms during the 12 months ended in February, said Jan Freitag, national director of hospitality analytics for CoStar, a Washington, D.C., real estate data provider. Occupancy rates in local hotels declined for six consecutive months through February, according to data compiled by CoStar, while the average room rate fell for seven straight months — good news for visitors but not for the hotels’ bottom lines.

“The supply of rooms in Colorado Springs is growing much faster than the rest of the nation (about eight times faster) because Colorado Springs is an attractive market for (hotel) developers where they can still get financing,” Freitag said. “Colorado Springs is a market that has a lot of interest both from travelers and developers.”

As evidence of that, while hotel construction has slowed, plenty of new projects are still in the planning stages. Nearly 1,700 rooms in 14 proposed hotels remain on the drawing board — though some may not get beyond that as high interest rates and rising construction costs likely will make finding financing needed to break ground difficult, Freitag said.

“There is always attrition in development, where projects are either canceled or pushed out into later years,” Freitag said. “Construction costs are likely to continue to go up and immigration actions could reduce labor availability (for construction). The Fed (Federal Reserve) may do only two interest rate cuts this year and that probably means projects still in the planning stages will stay there.”

Apart from construction, investors continue to buy and renovate older hotels, hoping to profit from travelers who will pay higher rates to stay in freshly remodeled properties. The Mining Exchange, the Embassy Suites by Hilton and the Hilton Garden Inn and Homewood Suites were sold in recent years and have been or will soon be renovated by their new owners.

Memphis, Tenn.-based Kemmons Wilson Hospitality Partners paid $32.7 million for the 117-room Mining Exchange in 2022 and has spent more than two years on a multimillion-dollar renovation of the guest rooms, meeting space, lobby and restaurant. The project, which included converting meeting space into 11 additional guest rooms, will be completed later this year when the MX Spa is remodeled.

The downtown hotel renovated and remodeled its coffee shop as Blk Mgk, the lobby bar as Golden Hour, and the former Springs Orleans restaurant as Oro, which reopens Saturday  and will serve upscale Tuscan cuisine.

“It is a complete reimagination (of the hotel) from dated darker colors to a more updated, modern and inviting design that brings more light and life to the hotel,” said Michelle Apricio, the hotel’s director of sales and marketing. The boutique hotel, Apricio said, needed renovation to remain competitive as a major remodeling had not been completed since it opened in 2012; the building’s roots reach back to 1901, when it housed gold tycoon Winfield Scott Stratton’s stock exchange for mining companies. 

Columbus, Ohio-based Regal Hospitality bought the 154-room Hilton Garden Inn and 127-room Homewood Suites, dual-branded, connected hotels in the Briargate area, for $31.75 million in 2023 and began a $7 million renovation early last year — now completed — that included all guest rooms, meeting rooms, lobby, fitness center, restaurant, parking lots and pool and patio area.

“The hotels had been through four management companies in the past five years and ended up in receivership, and Hilton requires soft goods (furniture, beds and decor) to be replaced every seven years and a complete renovation every 12 years,” said Taves Maciel, general manager of both properties. “These hotels were both built in 1999. We bought them in May 2023 and started renovating eight months later.” 

Dallas-based TCOR Hotel Partners, meanwhile, bought the 205-room Embassy Suites near Interstate 25 and Woodmen Road last year for $17 million and will begin a major renovation of all guest rooms, meeting rooms, lobby and atrium late this year.

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Some hotels, meanwhile, have been transformed into something completely different — meaning that while hotel rooms have been added in recent years, they’ve also been subtracted in some cases. The 496-room Hotel Eleganté, for example, was converted to an apartment complex in late 2023. And a 96-room Sonesta ES (Extended Stay) Suites was acquired by New York-based Churchwick Partners and converted to an apartment complex called The Haven in January.

All this activity comes as the local hotel industry faces several challenges in the coming months, including a general freeze on “nonessential” federal government travel under the Trump administration, a decline announced last fall in the amount the government pays for its employees’ hotel stays, declining consumer confidence and the threat of a possible recession.

John Kelley, senior vice president of hospitality, gaming and leisure for commercial real estate consulting firm Newmark Valuation & Advisory in Denver, is most worried about federal budget cuts slashing the workforce and thus  reducing travel.

“I would be concerned if I owed a hotel in Colorado Springs with an administration that is looking to cut spending. Government demand is a bulwark for the Colorado Springs market,” Kelley said. “Colorado Springs is a tricky market already for hotels because the federal government reduced the per diem (daily lodging) rate it pays for hotels there (by 3.1% to $123 a night in the off-season — September to May — and by 5.6% to $169 a night in the peak season, June to August), forcing hotels to cut rates.”

Government employee stays have helped fuel the Colorado Springs hotel market in the past two years as leisure travel slowed after government stimulus payments ended and consumers cut back on spending, Kelley said. Business and group travel (conventions) rebounded after the COVID-19 pandemic ended but not enough to offset slowing leisure travel, he said.

Alexea Veneracion, a spokesperson for Visit Colorado Springs, the city’s convention and visitors bureau, said it’s “too soon to say what the reduction in federal employee and contractor travel might mean for our area hotels.”

Other travel indicators, though, also reflect a slowdown in recent months — collections of the tax Colorado Springs levies on hotel rooms and rental cars fell in five of the seven months ending in January before surging in February (which reflects spending in January) and the number of passengers boarding ongoing flights at the Colorado Springs Airport declined for six consecutive months ending in January.

Group bookings have been strong at the 375-room Hotel Polaris, which opened in November just outside of the Air Force Academy’s north gate, said Curtis Bova, the hotel’s general manager. However, business and leisure bookings have been lower than expected, especially government-related bookings, which are off 30%.

“We opened during the off-season and are a big chuck of the inventory added to the market (Hotel Polaris is the city’s second-largest hotel),” Bova said. “But bookings have accelerated in the past six weeks and are looking bright starting in mid-May. I believe the by the time we get to the peak of tourism season, the market will absorb us pretty well, especially since half of our business comes from the academy.”

Macial, the Hilton Garden Inn-Homewood Suites general manager, said the federal travel freeze has prompted hotels on Colorado Springs’ north side to cut rates by up to 20% to fill rooms. The two hotels have “definitely seen a steady decline in government employee stays” as a result of travel cuts by the Trump administration, just as the hotels completed their renovation project.

Tatiana Bailey, executive director of Data-Driven Economic Strategies, a Colorado Springs economic research firm, said consumer confidence has fallen sharply in recent months, prompting consumers to cut back on travel and other “extras.” She said consumers are warried less about losing their jobs and more about escalating prices, particularly from tariffs imposed by the Trump administration.

“It will take a while for the hotel market to reach equilibrium because there is still a lot of supply coming onto the market. I expect it will take at least 18 months for the hotel market to recover, and that assumes there won’t be a recession,” Bailey said. “But the economists surveyed by the (Colorado) Office of State Planning and Budgeting have increased the probability of a recession from 25% in December to 40% in March.

“It will take a while for the hotel market to reach equilibrium because there is still a lot of supply coming onto the market. I expect it will take at least 18 months for the hotel market to recover, and that assumes there won’t be a recession. But the economists surveyed by the (Colorado) Office of State Planning and Budgeting have increased the probability of a recession from 25% in December to 40% in March.”