The Red Sox went from cursed to first in 2004 and the Boston lodging market also emerged from its own mini-curse and began the process of reversing three years of painful RevPAR losses. Table 1 summarizes historical trends between 1999 and 2004. The information was provided by Smith Travel Research, and includes hotels in Boston (including the airport sub-market) and Cambridge.

Table 1 : Historical Supply and Demand Trends - Aggregate Results for Boston's Top 20 Hotels - Smith Travel Research

Supply Demand Occupancy ADR RevPAR
Year Avg. Annual Room Night Supply % Change Room Night Demand % Change Occupancy Rate % Change Average Daily Rate % Change RevPAR %
Change
1999 4,981,348 ---  3,742,814 ---  75.1% ---  $189.15 ---  $142.12 --- 
2000 5,246,241 5.3% 4,150,828 10.9% 79.1% 5.3% $200.53 6.0% $158.66 11.6%
2001 5,414,011 3.2% 3,773,103 (9.1)% 69.7% (11.9)% $181.79 (9.3)% $126.69 (20.2)%
2002 5,481,373 1.2% 3,901,552 3.4% 71.2% 2.1% $166.29 (8.5)% $118.36 (6.6)%
2003 5,894,173 7.5% 4,097,367 5.0% 69.5% (2.3)% $153.47 (7.7)% $106.68 (9.9)%
2004 6,079,855 3.2% 4,458,389 8.8% 73.3% 5.5% $167.02 8.8% $122.48 14.8%
Avg. Annual % Change
1999 - 2004 4.1% 3.6% (0.5)% (2.5)% (2.9)%

Source: Smith Travel Research

Our key observations are as follows:

  • By 2003, the market's RevPAR had dropped all the way to 67% of its 2000 peak level, but improved to 77% of this peak level in 2004. Demand levels and average rate increased at identical 8.8% rates of growth.
  • The new Boston Convention & Exhibition Center (BCEC) was completed in the Seaport District in June 2004 and Boston hosted the Democratic National Convention at the Fleet Center in late July.
  • Strong demand from international sources also bolstered the market. Always an important source of demand in Boston, international travel primarily improved due to the weak dollar.
  • Commercial demand improved, but remains well below the levels noted in peak years. The region's high technology sector is rebounding only very gradually.

In 2004, five new hotels with 673 rooms opened in the city, pacing the 3.2% gain in supply. The following table identifies the new hotels opened last year, as well as those hotels that are expected to open over the next three years.

Table 2 : Changes in Hotel Inventory - Boston

Project Name Location Number of Rooms Comments Developer
Hotels Opened in 2004
Courtyard by Marriott Back Bay 81 Opened 5/04 Boston Exeter Corp.
Hotel Onyx Bullfinch Triangle 112 Opened 5/04 Kimpton Hotel Group
Hampton Inn & Suites South End (Crosstown) 175 Opened 6/04 Corcoran Jennison/BU
Jurys Hotel Back Bay 225 Opened 7/04 Saunders/Jurys Doyle
Clarion Hotel Bullfinch Triangle 80 Opened 9/04 Farrar Equities
Hotels Opening in 2005
Courtyard by Marriott South Bay 164 Under Construction Jiten Hotel Management
Hotels Opening in 2006
O'Callaghan Hotel Financial District 130 Under Construction O'Callaghan Hotels
Westin Hotel Seaport 790 Under Construction Fallon/NED/Starwood
Inter-Continental Hotel Seaport 424 Under Construction Intell Mgmt & Investment
Hotels Opening in 2007
Mandarin Oriental Back Bay 149 Financed CWB Boylston
Regent Battery Wharf North End 149 Financed Development Mgmt.
Renaissance Hotel Seaport 477 Final Planning Fallon/Marriott

The three largest of the new hotels planned for 2006 and 2007 are concentrated in the Seaport District and are designed to accommodate demand generated by the new BCEC. Remarkably, the BCEC is generating decent visitation levels even though it is currently supported by only one hotel within walking distance. Most BCEC delegates requiring hotels are currently shuttled to the Back Bay, where the large group-oriented hotels that have traditionally supported the Hynes Center continue to function as the city's convention headquarters hotels. The transportation situation is not ideal or even convenient, but the Back Bay is Boston's favored commercial neighborhood and is likely to remain the first choice for many convention delegates, no matter how many new rooms are built in the Seaport.

Meanwhile, the Hynes Center continues to function and has actually experienced increased volume despite the advent of the BCEC. The original concept of the BCEC called for the city to operate with two convention centers, and this outcome may still be viable depending upon your point of view. The Hynes has long generated operating losses, and Governor Romney favors a suspension of the operation. Mayor Menino and the local businesses sustained by the convention center's activities are allergic to that idea. It is hard to imagine an alternate use for the facility, and the losses may not be prohibitive for a consortium of buyers with a vested interest in its survival as a convention center. A state panel has been formed to study the question and make a recommendation by the end of the year. Stay tuned.

Overall, Boston appears to be rebounding, and the hope is that 2004 was only the first step. There is cause for optimism, no matter how hard that can be for a New Englander to muster. The ongoing difficulties associated with the Big Dig are embarrassing, but the improvement in the infrastructure is undeniable. Benefiting from a major infusion of capital, the airport is no longer as mystifying to use or as horrible to behold, and passenger counts surged in 2004. And even though the all-too-important high technology sector needs to improve in order to rescue the suburbs, the overall sense in the city is positive. Boston is headed in the right direction, and the 2004 RevPAR results are proof positive.

Erich Baum has 15 years of experience as a hotel consultant and appraiser. A graduate of Cornell's School of Hotel Administration, Baum also has a masters of arts in writing from the University of San Francisco. Mr. Baum is a state-certified appraiser in the State of California, and has served as an expert witness in a number of courts of law. Along with being a contributing editor in the Hotel Investments Handbook, published in 1997, Baum worked as co-author with Steve Rushmore on Hotels and Motels: Valuations and Market Studies, published in 2001. This text is published by the Appraisal Institute and serves as its standard text for the teaching of hotel valuation and analysis.

HVS International is a hospitality services firm providing industry skill and knowledge worldwide. The organization and its specialists possess a wide range of expertise and offer market feasibility studies, valuations, strategic analyses, development planning, and litigation support. Additionally, HVS International supplies unique knowledge in the areas of executive search, investment banking, environmental sustainability, timeshare consulting, food and beverage operations, interior design, gaming, technology strategies, organizational assessments, operational management, strategy development, convention facilities consulting, marketing communications, property tax appeals and investment consulting. Since 1980, HVS International has provided hospitality services to more than 10,000 hotels throughout the world. Principals and associates of the firm have authored textbooks and thousands of articles regarding all aspects of the hospitality industry. Click here for more...

Leora Lanz
HVS Sales & Marketing Services
516-248-8828 Ext 278
HVS