October 2007
Top Cities:The Rich Get Richer
Here's how hotel supply, occupancy, and room rates shape up for the next few years

By Patricia D. Sherman

 U .S. destinations with the greatest room supply — “the rich,” as Bobby Bowers, Smith Travel Research Senior Vice President for Operations, calls them —“are going to keep getting richer.”

Not surprisingly, these cities are also the ones with the most rooms under construction.

Demand will stay strong in the top-tier markets through 2008. “These cities continue to attract, and they are going to have the most demand in the foreseeable future,” says Bowers. “They have the ‘glamour factor’ — the infrastructure and entertainment — that
drives attendance.”

That may make it harder for show organizers to get answers to two simple questions: Will I find the room supply I need? And will I be able to find rates that fit the attendance profile of my show?

The historic causes of downturn in the lodging industry — economic recession, oversupply, and catastrophic event — are not on the horizon, says Robert Mandelbaum, Director of Research Information Services, PKF Hospitality Research (www.pkfc.com), though he admits the last is unknowable. And while full-service and convention hotels handle almost 60 percent of the convention business, that’s not where the growth will be.

“Most new development is in moderate-priced properties with little or no meeting space and limited food and beverage,” says Mandelbaum. “They’re not as expensive to build, and both leisure and business travelers like them. Large hotels are expensive to build, and even major hotels coming on-line don’t contain much meeting space.”

Rate increase slows
Mandelbaum forecasts some potential good news for buyers. Slight declines in occupancy rates are expected for select destinations, while overall occupancy rates through 2008 are expected to remain flat, and the supply of rooms will increase 100,000 per year from 2008 to 2011, PKF reports.

Room rates are another story. Data for U.S. cities and states gathered by Smith Travel Research (STR) (www.smithtravelresearch.com), show that even as occupancy rates have declined slightly from 2006, hotels were able to command higher room rates. Increases in 2007 averaged about five percent and even exceeded 10 percent in some top meeting cities.

However, PKF predicts smaller hikes in room rates through 2011. For 2008, the firm forecasts a 4.2 percent gain in both average daily rate (ADR) and revenue per available room (RevPAR) for U.S. hotels nationally. Over the last three years, RevPAR grew at an average annual rate of 8 percent. PKF says that by year-end 2007, the RevPAR increase will be only 5.5 percent over 2006 and that from 2007 to 2011, room rates will average 3.8 percent annual growth.

Meanwhile, San Antonio and Dallas are cities likely to benefit from price pressures in other top cities, notes Bowers. “Dallas has the rooms — including luxury hotels — and rates are near the bottom. Organizers will see it as a bigger bargain than New York or Los Angeles.”

One big advantage top expo cities have is not going to change. “The demand for luxury hotels is small in terms of total supply,” says Bowers, although many shows require a block of VIP rooms. “Only the top 15 markets have any significant supply, since luxury hotels demand people with money who can fill them. It’s hard for these hotels to get the rate and volume necessary in second-tier cities. Las Vegas, for instance, has plenty of luxury rooms along with a cross-section of rates. That’s one of the reasons it’s so attractive to organizers and meeting planners — and will stay that way.”

Where to look
Mandelbaum predicts that organizers who don’t want to absorb rate increases in the top cities will look to suburbs and to secondary and tertiary cities. “Groups will look more seriously at other options,” he says.

Second-tier cities that market aggressively may also benefit. “Cities like Memphis and Louisville have become attractive rotation options compared with Chicago,” says Mandelbaum. Others, like Nashville and Indianapolis, which have expanded their convention centers and added hotel rooms, “can step up and steal shows here and there and get into the rotation for major shows,” adds Bowers. They also can pick off smaller groups having trouble getting into heavily in-demand Las Vegas and Orlando.

But he doesn’t see a significant shift to second-tier cities. “They’re still fighting the glamour factor,” Bowers says.

Inside the Numbers
Much of the basic data used to produce analyses and forecasts in the hotel industry come from Smith Travel Research (STR). Management consulting firms, such as PKF Hospitality Research, use STR historical data to produce financial analyses, reports and forecasts of lodging industry performance. 

“There are about 4.4 million hotel rooms in the U.S. Three million, or about 67 percent, report data to Smith Travel Research,” says Bobby Bowers, Senior Vice President of Operations. “We cover about 80 percent of most markets. Most nationwide chains, the biggest financial drivers in the industry, and many independent properties send their data to us.”

 There are two exceptions. STR covers about 65 percent of the Orlando market, because Disney properties in Orlando do not report (although Disney properties in Anaheim do). “Disney is big, but in the total size of the Orlando market, they would affect the numbers by only a few percentage points,” claims Bowers. The other exception is Las Vegas, where STR covers about 14 percent of the market. “The large casinos, such as MGM and Bellagio, don’t use our data and don’t report.”









Sources: Tables represent the 25 cities with the most number of events per year based on the Center for Exhibition Industry Research 2005 Census. Tables are in descending order of total room supply. Total room supply: Smith Travel Research, August, 2007; Rooms under construction: Smith Travel Research, August, 2007; Total occupancy, ADR and RevPAR: Smith Travel Research, PKF Hospitality Research, January – June 2007; Forecast occupancy and ADR: PKF Hospitality Research – Hotel Horizons Report; Rooms within walking distance of convention center: as reported by each city’s CVB; Events per year and event sizes: Center for Exhibition Industry Research, 2005 Census.