Sebastian Colella
Hotel operators began 2016 with the understanding that the city’s group booking pace was off following a strong 2015 and that the market would experience its largest increase to rooms supply since 2003. When transient rates began to soften in the spring, it became clear that the market would not see a seventh year of revenue per available room (RevPAR) growth. Although off to a slow start, 2017 should provide owners and operators with some comfort as there are early signs that the market will experience growth in RevPAR.
Through the first quarter, occupancy in the Boston and Cambridge market increased 0.7 percent with increases in the Back Bay, Fenway and Downtown submarkets. According to the Pinnacle Perspective, the three highest tiered hotel segments (with average daily rates (ADR) above $230 in 2016) have experienced declines in occupancies year-to-date, while the lower tiered set of hotels have posted increases. Although the market’s ADR has declined 0.9 percent compared to the same time last year, there has been almost no change in RevPAR through March.
The local market welcomed five new hotels in 2016: the 180-room Element and 330-room Aloft hotels in the Seaport District; the 242-room Godfrey Hotel; a 150-room AC Hotel by Marriott in Cambridge and the 65-room independent Porter Square Hotel. Supply will continue to grow in 2017, albeit at a slower pace, adding two hotels combined for 526 rooms; the 326-room Yotel Seaport in July and the 200-room AC Hotel by Marriott at South End’s Ink Block by year-end.
Although demand did not keep pace with supply in 2016, causing occupancy to dip slightly, occupied room nights increased 3.8 percent, the largest increase since 2010. In looking at the area’s unemployment rates, commercial office dynamics and the growth at Logan International Airport, demand growth is expected to continue. A variety of other factors are projected to help this year’s performance, such as the 2017 calendar for holidays and the quantity and size of citywide events being held at the Boston Convention and Exhibition Center and the Hynes Convention Center.
One concerning trend which began last year is the inability to drive transient rates year over year. Group booking pace reports for 2017 had shown strong months of May and October, which historically have been the market’s peak transient months. While it has yet to be seen, the market should be able to drive rates with a fair amount of base demand on the books.
Occupancy in the Boston and Cambridge lodging market has been above 80 percent the last four years, averaging 81 percent. According to Smith Travel Research, the top 25 lodging markets in the country have averaged 70 percent during this period. When comparing the Boston MSA to other top 25 markets in the country, its 2016 RevPAR ranked as the fifth highest behind New York City, San Francisco, Oahu and Miami.
In conclusion, the local lodging market continues to experience demand growth year after year and is expected to continue to do so into the future. Annual performance metrics will improve as demand for lodging grows and operators take advantage of the market’s capacity constraints. In the event that supply outpaces demand as we saw in 2016 or operators drop rates to counter weakening or softening volume, the performance figures will be negatively impacted. There are other outside factors which will have an impact on the local and national lodging markets and must be monitored. Examples include alternative lodging such as AirBnB and HomeAway, the country’s new administration and its economic and foreign policies, and the economic and political changes taking place abroad.
Sebastian J. Colella is a vice president with Pinnacle Advisory Group in Boston.
