The above chart shows occupancy, average daily room rate and revenue per available room in Boston’s hotels from 2001-2006.
Shuteye shutout.
It’s getting more expensive to spend the night in Boston and rooms are getting harder to find.
Boston’s hotels are reaping the benefits of a nationwide increase in convention activity, corporate travel and a surprisingly strong showing from high-end accommodations, according to a study of the nation’s hospitality market.
The 2007 U.S. Lodging Report by Ernst & Young found that Boston and other major U.S. cities continued to see positive growth last year and are expected to repeat that performance in 2007.
“The hospitality market in the [United States] continues to move forward, overcoming the challenges posed by numerous natural disasters and human conflicts over the last seven years,” said Michael Fishbin, hospitality and leisure practice director at Ernst & Young. “Business travel has strengthened significantly in the last year thanks to lower domestic airfares and corporate travel departments lowering costs through advance ticket purchases.”
That trend, in turn, has led to strong demand for hotel rooms, pushing up prices, in traditional corporate destinations including Boston, Chicago, San Francisco, Los Angeles and Manhattan, N.Y., the survey said.
“The bad news is that travelers will have to get used to the sticker shock in 2007,” Fishbin said. “With only moderate growth in the supply of new hotels being built in the [United States], occupancy rates for existing hotels are expected to remain stable this year and into 2008, giving hoteliers the opportunity to keep rates high or even raise them further during periods of high demand.”
Revenue per available room – a major indicator of hotel sector performance – peaked across all segments of the hotel market in 2000. But the 9/11 terrorist attacks in 2001 brought the hospitality industry to a halt. Since then, there has been steady rise in hotel bookings. Last year, the market saw more than a 7 percent gain over the prior year in the average daily room rate (ADR), the Ernst & Young study said.
“We’re expecting increases in the 6 percent range for ADR this year,” Fishbin noted. “Manhattan, Chicago, San Francisco, Boston, Dallas, Los Angeles and Phoenix are likely to benefit from the strong projected performance of the luxury segments of the hotel market.”
Living in Luxury
At 8.7 percent, upscale hotels enjoyed the highest growth in ADR in 2006. The luxury sector is expected to be the only area to outperform the overall U.S. hotel market this year with an 8.1 percent growth in ADR versus 6 percent for the market as a whole, according to data supplied by Smith Travel Research.
While Boston boasts a number of luxury hotels, rapidly rising room rates have attracted luxury hotels in the Back Bay, Financial District and South Boston’s Seaport District, the study found. The average room rate at a 4-star hotel in Boston last summer increased 35 percent over the previous summer to $253, the highest in the country, according to Priceline.com.
One of Boston’s newest hotels, the 424-room InterContinental, features a $6,000-a-night presidential suite. The Westin Boston Waterfront at the Boston Convention & Exhibition Center was awarded 4-diamond status last fall. City officials are worried about the lack of mid-priced hotels that cost the BCEC two convention bids in the past year. But Boston’s high land costs have driven developers to build luxury hotels.
Hotels from economy through the upscale segment along East Coast cities such as Boston, New York, Miami and Washington, D.C., also might see benefits from a projected increase in leisure travel from across the Atlantic through 2008 with the open skies agreement, the study noted. The treaty, signed in April between the United States and the European Union, allows airlines to fly routes between any U.S. or European Union city. Before the agreement, restrictions prohibited, for example, the Spanish airline Iberia from operating flights to the United States from Brussels, Belgium, or Manchester, England.
Boston continues to be an attractive market to investors, as evidenced by a number of high-profile sales that took place last year, the report said. In November, Taj Hotels bought the 273-room Ritz Carlton for $170 million from Millennium Partners. The Ritz, which had been restored in 2002 for $50 million, is being converted to the Taj Boston. In March 2006, the Kimpton Hotel Group purchased the 189-room Nine Zero from InterContinental Real Estate Corp. for $71 million.
While there is a strong appetite to buy hotels in Greater Boston, the report said investors might be concerned about the city’s labor unions. In the past year, Starwood negotiated with Unite Here Local 26, a union with 5,000 workers in 19 hotels. Among the demands included higher wages, health care contributions and pension benefits.
In the fall of 2004, there was a sit-in at the Boston Hyatt Regency in Downtown Crossing by 85 union members in support of 4,000 workers who were locked out of jobs in San Francisco after a strike. The protesters walked into the lobby of the Hyatt holding signs that said “No justice in San Francisco, no peace in Boston.” They remained seated until police officers arrived and arrested six protesters on trespassing charges.
In June 2005, the union boycotted the InterContinental while it was under construction because of a disagreement over whether union employees would operate the hotel.
Despite strong unions and safety problems surrounding the Big Dig project, Boston remains an attractive investment opportunity, the survey said.
The 2007 U.S. Lodging Report offers Ernst & Young’s assessment of the direction of the U.S. lodging industry, thoughts on key global industry trends, and analysis of the industry’s major segments for 16 major U.S. metropolitan markets.
