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Hotel Dc & Baltimore

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HOTEL

While participants are concerned about the anticipated economic downturn and potential decrease of GDP, participants are optimistic about our region and anticipate modest growth in performance and values. Hotels in the region have fared relatively well the past couple of years and Trend Watchers believe this trend will continue in the next two years. Although occupancy rates in both metro Washington and Baltimore have not grown as some expected, for the most part average daily rates (ADR) and revenue per available room (RevPAR) have consistently grown the past three years. Generally speaking, most respondents believe that this trend of growing ADR and RevPAR will continue over the short term. For metro Washington, most respondents do not think that occupancy rates will increase. For the Baltimore area, however, respondents were more optimistic about occupancy rates thinking that they will not drop over the next one to two years.

In both downtown Washington D.C. and Baltimore markets respondents cite lack of additional convention business due to inadequate hotel supply. This is quickly changing as both markets have a pipeline of planned hotels and hotels under construction. Catching everyone’s attention is the National Harbor project along with planned convention hotels in DC and downtown Baltimore.

Trend Watchers in both markets believe there will be an increase of limited service hotels as well as an increase in boutique type hotels. The most successful limited service hotels will be in locations where guests have pedestrian access to amenities such as restaurants, bars, shops and entertainment venues. The limited service hotel format allows the guest a more affordable stay as compared to a full service hotel and can result in higher returns for hotel operators that have difficulty controlling operating costs associated with full service amenities. As well, there is less overhead to overcome with a limited service format when hotel occupancy is not as strong as anticipated.

One of the biggest challenges facing operators in this region is the lack of labor, according to participants. Immigration issues and affordable housing will need to be addressed in order to employ the necessary labor for existing and anticipated hotel growth. Some participants also believe that hotel owners and operators will have to contend with unionization of labor in the hotel industry within the next two years. {G: Graphics<Photographs<Hotel&Lodging Westin, Marriott Baltimore, Marriott Baltimore 2, Hilton Garden Inn DC, Balt Hilton Conv Center Hotel Construction, Balt Hilton Convention Center Rendering, Willard DC, Omni DC}

METRO WASHINGTON

Only 20% of respondents think that occupancy rates in metro Washington will increase over the next one to two years. In 2007, however, occupancies increased about 3% in Washington D.C. from the year earlier, according to Smith Travel Research. With occupancy rates in DC at close to 76%, the demand is evident. For Washington suburban hotels, occupancy rates dipped slightly in 2007 for the second consecutive year to approximately 67%. However, both markets still compare favorably with the rest of the United States that have average occupancies of 63% in 2007, according to Marcus & Millichap.

With both average annual ADR and RevPAR rates increasing every year in Washington suburban hotels since 2002 and Washington D.C. since 2003, almost all respondents believe that the trend will continue. 83% of respondents believe that ADRs will increase in the short term in Metro Washington. All respondents believe that RevPAR will increase as well for greater Washington hotels.

[G: Smith Travel Research Data, ADRs, RevPAR, Washington D.C. 2004-2007]

[G: Smith Travel Research Data, ADRs, RevPAR, Suburban Washington 2004-2007][G: Smith Travel Research Data, Occupancy Rates, Washington D.C. 2004-2007][G: Smith Travel Research Data, Occupancy Rates, Suburban Washington 2004-2007]

From a valuation standpoint, things appear to be strong. This is evidenced recently by some blockbuster sales such as the sale of a 90% stake in September of 2007 in the 190 room St. Regis Hotel for a reported $170 million. SHOULD BE PER ROOM COST As a matter of fact, HVS Hospitality Services estimates a 12% jump in per room value in 2007 and an estimated 7% in 2008. Although this is lower than the overall U.S. average increase expected during that timeframe, it is nonetheless stronger than the 6% decline that the region experienced in 2006. ???

Most respondents do not believe that the suburban hotels in Washington D.C. have yet had an adverse effect on the hotels in the District itself. However, that may change with the opening of National Harbor and its various hotels. Many think that the Gaylord National will have the greatest impact. This is due to the strong brand allegiance that it carries and the sheer amount of rooms. The 2,000 rooms at the Gaylord will increase the existing supply of suburban hotel rooms by approximately 3% according to Lodging Econometrics. Given these factors along with the other hotels and attractions that will be developed there, the National Harbor Place is expected to be a draw in and of itself.

The question that begs itself is if there will be sufficient demand for both National Harbor and the Marriott Convention Center Hotel. “Absolutely,” states one respondent. Most respondents agreed, suggesting that opportunity in Washington D.C. has been lost because the supply has not met the demand. Furthermore, many suggest that the two locations will have different target audiences. Those that want to be “in” Washington D.C. for conventions but cannot afford it will be at the National Harbor Place. For the groups that have the money, they will spend significant dollars to be located in the heart of Washington DC. Conventions inside Washington D.C. will provide an urban city experience while leveraging the best entertainment venues and sites the city has to offer in close proximity.

One respondent suggests that the emergence of National Harbor Place does not pose a great threat to the Convention Center or Marriott Convention Center Hotel, but rather the other existing “convention center” hotels that typically house a lot of convention traffic in Washington D.C.

Even if the Marriott Convention Center Hotel does not actually secure more convention business, it will significantly add to a supply that most think is lacking. The 1,434 rooms that are planned there will add another approximately 5% to the total supply of rooms in Washington D.C., according to Lodging Econometrics. Furthermore, most see the higher end hotels

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