January 2007
Convention center trends

A recent convention center report provides facility benchmarks on occupancy, building rental, food-and-beverage revenue and attendance. Find out how these factors affect your rates and what’s negotiable now.

By Heather Kirkwood

What do convention center managers know that you don’t? How tough is it for them to fill their empty halls, and what are they charging for the space? In negotiation, it’s always a good idea to know as much as possible about the position of the other side, and the recently released 2005 Convention Center Report, published by PricewaterhouseCoopers (PWC, www.pwc.com) and sponsored by the International Association of Assembly Management (IAAM, www.iaam.org) sheds some light on the market from the convention center manager’s point of view.

Overall, occupancy rates are up at convention centers across the country, but at the same time the rental price per square foot has gone down almost across the board, according to the report. What does this mean for show organizers? Despite the lower price per square foot, for many it likely means tougher negotiations ahead. With no reason to expect demand for space to slow down, centers will be in a better negotiating position than they were in the early part of the decade. And, even if rental rates remain lower, centers are likely to make up the difference in other areas, like in-house exclusive services.

Occupancy rates
While you’re still likely to have more negotiating power at smaller and mid-size facilities than at the largest facilities, competition is increasing as total occupancy at exhibit halls in 2005 continued to rise in all categories compared with 2004. However, the mid- and smaller-sized convention centers made the biggest gains. The occupancy rate at centers with exhibit halls between 100,000 and 500,000 square feet rose from 34.8 percent to 45.4 percent. Likewise, occupancy at the smaller centers (those with exhibit halls less than 100,000 square feet) rose from 26 percent to 42.7 percent. The centers with the largest halls (more than 500,000 square feet) may not have generated huge gains, but occupancy rates remained stable (falling only slightly from 53.9 percent to 52.1 percent). PWC believes part of the reason the rates at the larger halls remained stable instead of going up is because of a significant increase in supply, resulting from the 1 million-square-foot expansion at the Orange County Convention Center in Orlando.

These rates are quite healthy if you consider that no exhibit hall can be booked 100 percent of the time because of move-in and move-out dates and time needed for hall maintenance. PWC considers a practical maximum occupancy rate to be 70 percent, but occupancies of between 50 and 60 percent are considered efficient. Ask facilities that you’re considering about their occupancy rates to get an idea about how much negotiating power you’ll have.

Rental rates
Rental rates in 2005 were surprisingly lower for most convention centers, regardless of their size or the type of destination they serve. The largest and mid-sized centers reported a decline in convention and trade show rental rates of 11 percent and 17 percent respectively. Smaller centers, however, reported rental rate gains of 7 percent.

There was also some variation in the degree of gain or decline based on the type of destination served. Gateway and national destination centers reported rental rate declines of 18 and 11 percent respectively, while regional centers reported an increase of 11 percent (see page 63 for a definition of terms).

The largest centers (with more than 500,000 square feet of space) offer the cheapest rates at $0.048 per square foot per day for trade shows and $0.047 for consumer events. Smaller facilities were considerably more expensive charging an average of $0.097 for trade shows and $0.077 for consumer shows. These rates may sound low compared with how most convention centers quote prices. Show managers more commonly hear such prices as 30 cents per net square foot, or a show rate of $1.60 per net square foot for five days (see Marketwatch: Facility rates, page 43). Since different convention centers quote rates in different ways, and for the purpose of comparison, the centers were asked to base these figures on gross rental revenues for leasable space to provide a way to fairly compare rates taking into account variables such as free or discounted rates. Although not all centers charge per square foot per day (for exhibit halls, ballrooms and meeting rooms), the report lists all figures this way to make comparisons easier.

Food and beverage
If convention centers have been giving show organizers a break on space rates, many are making up for it in revenues generated from food-and-beverage (F&B) sales.

F&B rates per capita were mostly up. Large, mid-size and smaller centers reported increases of 3 percent, 13 percent and 18 percent respectively. A large factor in the amount of increases is the type of market being served. Gateway and national centers reported increases of 18 and 53 percent respectively, yet regional centers reported a decrease of 7 percent over the past year. So expect to pay the highest F&B rates at the largest centers, as well as at national centers.

The authors of the report do, however, add a caveat about the reliability of this particular metric. They point out that the numbers, once again, are based on attendance figures that can be somewhat less than exact.

The report also shows that centers that allow multiple outside F&B contractors to operate in their facility are few and far between. The vast majority work with an exclusive contractor.

Attendance
Another exciting trend, both for convention center managers and show organizers alike, is the robust growth in attendance reported by centers for both trade and consumer events. For convention centers, it means the shows they currently serve are likely to continue to occupy their current levels of space or expand. For show organizers, it’s further evidence that attendance at shows remains healthy.

Convention centers of all sizes experienced attendance growth. Centers with more than 500,000 square feet of space reported an average attendance of 1.2 million attendees, an increase of 17 percent over 2004. Attendance at mid-sized centers grew 13 percent, and attendance at the smaller centers (those with exhibit halls smaller than 100,000 square feet) grew most dramatically at 38 percent.

While these attendance figures are encouraging (especially for smaller shows), the PWC report does acknowledge that attendance might not be the most accurate metric to measure. The report points to “inconsistencies” in how attendance is reported by the centers and shows themselves, and the authors report they’re investigating other ways to benchmark attendance for future reports.

Hotel room nights
Convention centers are charged with bringing business to their communities that helps to make an economic impact, and one key indicator of this is whether the center is attracting events that fill local hotel rooms. PWC asked centers to report the estimated hotel room nights generated by the business in their facility, and the averages from that data are reported. It should be noted that these reports are typically based on the convention and visitors bureau’s room pick-up reports. However, at larger, better-known destinations or destinations with large hotel markets attendees frequently book out of the block and are not always counted in these figures.

Figures from the ExPact Study, produced by the Destination Marketing Association International (DMAI, www.destinationmarketing.org), can help show organizers estimate the value of their events to cities and convention centers. While the study’s figures don’t reach far enough to calculate a show’s total potential economic impact, they do help to estimate an event’s direct spending in the local economy. The last ExPact study was conducted in 2003, however, DMAI has updated some of the numbers to reflect 2005 data based on the Consumer Price Index and the Travel Industry Association’s Travel Price Index. Some of the key points:

• Delegates spend an average of $1,036 per event or $290 per day. The average length of stay is 3.56 nights.
• 75% of all delegate spending is made up of lodging (47%) and F&B (28%).
• Per delegate spending by organizers averages $101 per event or $24 per day. F&B still accounts for the largest share of organizers’ expenditures.
• The average trade show or convention lasts approximately 3.8 days, with total exhibiting company expenditures averaging $375 per delegate, or $100 per day.
• More than 65% of exhibitor spending in the host city is attributed to staff lodging, meals and transportation.
• Consistent with previous studies, events held in larger destinations tend to produce more spending. Larger destinations also tend to host events that are broader in scope (for example, drawing a regional, national or international audience), which also translates into additional spending.
• For those delegates staying in a hotel, 81% stay in a designated hotel.
• For those delegates lodging at a designated hotel, 85% took advantage of the negotiated conference rate, while 15% did not.
• Delegates are more likely to secure alternate (outside the block) lodging arrangements for large market events (22%) vs. the average event (19%).