U.S. Conference Centers: The Recovery Gathers Speed

The U.S. lodging industry is well into its fourth year of recovery from the great recession of 2009. One of the pleasant surprises of the current recovery has been the very strong return of lodging demand. However, according to Smith Travel Research, this surge in lodging demand has been led by transient travelers. Through September of 2013, transient room nights are 23.3 percent of their peak levels prior to the recession. On the other hand, group demand is still short by 3.2 percent. Given their high dependence on group meetings, it is no surprise that the pace of recovery for conference centers has lagged transient oriented hotels until now.

PKF Consulting USA, LLC (PKFC), in conjunction with the International Association of

Conference Centers (IACC), conducts the annual Trends® in the Conference Center Industry survey of the operating performance of IACC certified conference centers. The 2013report aggregated the 2012 market and financial performance of 34 residential centers and 8 day centers.

According to the 2013 edition of Conference Center Trends^®, the

average net operating income (NOI) for the U.S. residential centers that participated in the survey increased by 14.5 percent in 2012. This is greater than the 10.2 percent NOI growth rate posted for all property types that participated in PKFC's 2013 Trends^® in the Hotel Industry survey, thus indicating that conference centers are finally starting to ascend quickly up the recovery curve of the business cycle.

The following paragraphs summarize the 2012 performance of the residential centers.

Revenue

Measured on a dollar-per-available room basis, total conference center revenue grew by

5.5 percent in 2012. However, since the majority of conference center guests stay as part of a package plan, total revenue is typically measured on a dollar-per-occupied- room basis (POR). In 2012, the centers in the Trends® survey sample reported a slight 1.3 percent increase in total revenue POR. This implies that the 4.3 percent increase in occupancy was main driver of the growth in revenue, as opposed to an increase in prices.

Resort centers enjoyed the greatest gain in total revenue POR (1.3 percent) among all

types of centers. On the other end of the spectrum, total revenue POR at corporate centers declined from 2011 to 2012.

While the group segment started to show signs of recovery, conference centers

continued to rely heavily on transient demand. In 2012, non-conference guests rented nearly 36 percent of all occupied rooms. This is down from 40 percent in 2011. It is interesting to note that executive centers (50.2%) were the more dependent on transient demand than resort centers (36.0%). Corporate centers accommodated the lowest percentage of transient demand (22.8%).

Conference centers continue to be most dependent on business generated by local

sources of demand. On average, 63.8 percent of the groups that met at the centers in our survey sample came from local businesses, associations, and other organizations. While the volume of local meetings remained flat, regional meetings increased by 0.3 percent. National and international groups both declined from 2011 to 2012.

Training and continuing education, followed by management planning, continue to be

the primary purposes for meetings held at conference centers.

Expenses and Profits

As noted before, the conference center industry recovery is being led by gains in

occupancy, as opposed to significant increases in average daily rates or complete meeting package (CMP) rates. Accordingly, it is difficult to control costs as each additional occupied room carries with it the incremental variable costs required to service the room. That being said, conference center managers did a commendable job limiting total expense growth to just 2.8 percent in 2012.

Fortunately for conference center owners and operators, the 4.5 percent gain in revenue

outpaced the rise in expenses, thus allowing for the very healthy 14.5 percent increase in NOI during the year. Leading the way in profit growth were executive and resort centers with NOI increases of 29.9 and 24.2 percent respectively. Lagging were corporate centers who suffered a 12.7 percent decrease on the bottom line.

Looking At 2013

Entering 2013, conference center managers expected occupancy levels to continue to

power ahead. On average, the managers in the survey budgeted for a 5.1 percent increase in occupancy during the year. Corporate center managers were most optimistic expecting an 8.8 percent rise in occupancy.

As for pricing, management's budget for CMP rate growth indicates an expectation of

increased pricing power in 2013. On average, the centers in the report sample are projecting an increase in CMP rates of 3.3 percent.

According to the September 2013 issue of Hotel Horizons®, PKFC is forecasting

a 1.6 percent increase in occupancy and a 4.2 percent gain in ADR for the overall hotel industry for the entire year. Given what we have seen so far in 2013, the occupancy expectations for conference centers may be ambitious, but the CMP growth projections are reasonable.

While group demand recovery continues to lag, the meetings that are taking place are

seeking more specific venues to meet their needs and are more receptive to lower profile properties, such as university centers. The properties catering to the government market are faced with more difficulty in the future. After surveying the negative perceptions of AIG and GSA, the IRS has now added to the problem. Conference centers need to clarify their purpose of being a choice for "responsible" meetings as yet another point of differentiation.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world's largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

Robert Mandelbaum
Director of Research Information Services
CBRE Hotels