Article

Why timing is everything for convention center hotels

Visit any major convention center in the U.S. and chances are there's a sizeable hotel development either on site or just around the corner.

July 21, 2016

These convention center headquarters (HQ) hotels have sprung up over the last two decades in major cities including Los Angeles, Washington D.C., Chicago, Boston, Austin and Nashville, to name a few.

They’re continuing to grow in number – Cleveland opened a new HQ hotel in June 2016, Houston welcomed its second one with 1,000 rooms later in 2016, and Chicago opens its second HQ hotel in 2017. Furthermore, there are large HQ hotels in the planning stage in Kansas City, Miami Beach, downtown Miami, Los Angeles, Ft. Lauderdale, Salt Lake City and New Orleans. Boston was also working on a second HQ hotel until the $1 billion convention center expansion was put on hold.

“The presence of an attached or adjacent HQ hotel has become a base-line selection criteria for citywide meeting planners,” says Jeff Sachs, Managing Director with JLL’s Hotels & Hospitality Group. “A convention center’s hotel offering will make or break a center’s success, especially in cities that are prone to inclement weather.”

Exploring supply and demand concerns

Although these new properties mean more business for convention centers, local hoteliers can be weary of new HQ hotels, concerned that demand won’t rise enough to match the increased supply.

Despite hoteliers’ concerns, STR research shows that HQ hotels don’t have a long-term negative impact on the hotels located nearby. It’s the state of the economy when a HQ hotel opens that affects a city’s lodging market more than any other factor.

“For headquarters hotels, timing is everything,” says Sachs. “When HQ hotels open in positive economic times, competitive set demand increases exceed supply increases in one or two years. But for hotels that opened in 2008, demand took three to five years to surpass supply growth in the competitive set. Regardless of timing, demand always exceeded supply eventually.”

Data from STR shows that after the 800-room Hilton in Austin opened in 2003, the city’s lodging market returned to its previous occupancy levels in just two years. When the 1,203-room Hilton opened in Houston in 2004, occupancy rates bounced back in just one year, as it did in Denver after the 1,100-room Hyatt opened in 2005.

Jump ahead three years to 2008 to the beginning of the global financial crisis and HQ hotels took longer to be absorbed. When HQ hotels opened in San Diego, Baltimore and San Antonio, it took three to five years for occupancy levels in each of the markets to recover.

But conditions improved once again. In 2011 when the 1,005-room JW Marriott opened in Indianapolis, the local lodging supply outpaced demand by 5 percent in just two years.

The future of headquarters hotels and convention centers

Convention centers continue to play a key role in bringing trade to local economies, and U.S. city leaders are keen to financially support the development of HQ hotels. According to the Convention Industry Council, the U.S. has 1.87 million conventions a year, generating $280 billion in direct spending. Some 85 percent of these meetings take place at venues with lodging and are responsible for 275 million room nights a year.

Despite the large number of conventions that are held each year, competition among centers is fierce. Expectations are rising around what convention centers can offer delegates – the provision of state of the art technology, upgraded public spaces to enable better networking, and more collaborative meeting spaces are just a few examples – and HQ hotels are acting on those expectations as well.

Indeed, the key, for all successful hotels, is providing the best guest experience on the block.

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