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Nashville leads the nation in hotel growth. But how many more hotels can the economy support?

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Nashville's hotel market is still one of the nation's fastest growing, even as room rates downtown appear to have peaked amid a deluge of new supply. 

The city leads the nation's 25 largest metros in hotel industry growth this year, according to global hospitality data analytics firm STR.

It continues to ride a tourism boom that began about six years ago — after ABC's "Nashville" TV show debuted — and has outlived early expectations. 

All signs point to continued growth, but hotels face deepening staffing shortages with no sign of relief: Affordable housing is increasingly scarce, the unemployment rate remains at record lows, and many hotels are under construction.

Some employers have stopped testing for marijuana use, are working with the Rescue Mission and parolee job placement programs, and are relying on employment-based visas for temporary international workers to find housekeeping, food and beverage service, and other staff. 

About 3,000 new hotel rooms this year

Year after year, an increasing number of new hotels have risen across the Nashville metro area and surrounding counties. 

Investors eager to capitalize on the tourism boom flooded Davidson County with nearly 1,800 new rooms in the first nine months of 2019. 

Most of those opened downtown at properties including Holiday Inn & Suites, Hilton's Tru and Home2 Suites brands, Moxy, Dream and Margaritaville hotels. About 1,000 more new rooms are scheduled to open by the end of the year, according to the Nashville Convention & Visitors Corp. 

And that is on top of thousands of new Airbnb and other short-term rental units. 

"Supply growth and demand growth are very, very, very strong," said Jan Freitag, senior vice president of lodging insights for STR. "I present this data around the country to investors, developers, owners and brands. Whenever I say, 'I'm from Nashville,' they say, 'I want to get into the market.' It's a very attractive market."

The 204-room TownePlace Suites downtown near the state Capitol is set to open next year. (Photo: Shelley Mays/The Tennessean)

Chicago-based Deep Cove Partners LLC and The Gettys Group are preparing to open a 204-room TownePlace Suites downtown near the state Capitol, at 306 Gay St. It is one of a few dozen hotels slated to open next year. 

"We've been landowners now for six years, and that's put us in a position to see Germantown continue to grow and to see all the activity on Broadway," said The Gettys Group CEO Roger Hill. "We're sort of sandwiched in the middle of these two things. What's great about Nashville is there's a lot of demand generators there for somebody coming to the city to do business or leisure, or the bleisure customer."

Hill and his team are betting on providing value to remain competitive, with a rooftop lounge and bar and a coffee shop, among other amenities. 

Downtown room rates flatten

New hotels increased room supply across the Greater Nashville region 7.7% from January to September, and demand exceeded that, increasing 8.6% compared with the same period last year, STR reports. 

That far outpaced the national average for both supply and demand growth, which is 2%.

That rate jumped to a $225.63 nightly average in the central business district, where 18% supply growth has exceeded 16.1% demand growth this year.  

The surge in new supply has started to dampen rising revenues per room, downtown hoteliers said. When accounting for occupancy levels, hoteliers pocketed about the same per night as they did during this time last year — $182.52.

Still, occupancy rates remain high and demand continues to soar, according to STR. 

Concerns mount over worker scarcity

The stabilization of downtown room prices is a welcome change for many consumers. Nashville hotels have commanded rates on par with New York City and London on weekends in recent years. Hotel industry leaders expect the cost to start to decline as new hotels open. 

Music City Center CEO Charles Starks said that rate flattening could draw a new stream of tourists. 

"The hotel rates are a little out of the price range for some of our customers," Starks said. "I actually think (lower room prices) helps us in the long run if we start losing business and we're sitting here empty because rates are too high."

Next year, new hotel openings will include the Grand Hyatt, The Joseph, Hyatt House, the W and Virgin. 

The new supply threatens to exacerbate longstanding hospitality industry staffing shortages.

"There's no doubt that we are borderline on a workforce crisis," Starks said. "Others would say we're already in a crisis mode. We're short facilities, engineering, housekeeping, food and beverage, and security staff. A lot of our workers have been priced out of housing close to downtown."

Hill said they chose Marriott to operate their TownePlace Suites opening in April partially because the company has such a large employee base worldwide. 

"They would be in the best position to draw upon a workforce locally and globally,"  Hill said. "That would put us in a very good position to deal with that challenge."

Hotel and tourism industry officials are working with local high schools and colleges to prepare students for the jobs, as well as seeking out temporary international workers and some parolees. 

"We're really trying to turn over every rock we can. But you've got to be prepared to work, show up and pass background checks," Starks said. "We hire felons, but it would depend on what the person was convicted of. And we've still got to be extremely competitive on pay."