Suburban Hotels Drawing More Travelers Than Downtown Counterparts
As major events dried up due to the coronavirus pandemic, so too has the business of Downtown Atlanta hotels.
At the same time, hotels in the suburbs have seen business return more quickly in a new age of social distancing, Legacy Ventures founder David Marvin said during Bisnow's State of Atlanta commercial real estate event last week.
“COVID has really hit no market category more impactfully than the city center,” Marvin said. “The fact of the matter is the suburban markets are doing materially better.”
Legacy Ventures owns or manages five hotels in Downtown Atlanta, including the Hotel Indigo, The American Hotel Atlanta Downtown and the Embassy Suites by Hilton Atlanta at Centennial Olympic Park. The firm also operates suburban hotels, including the Hyatt House Atlanta Perimeter Center and the DoubleTree by Hilton Hotel at Northlake.
Marvin said heading into the pandemic, Atlanta was enjoying a “balance of demand generators” from large corporate meetings and events at the Georgia World Congress Center and AmericasMart Atlanta. While the loss of events hit downtown hotels hard, leisure travel has helped keep many hotels renting rooms, especially with Metro Atlanta families taking staycations over the summer.
“Probably the demand group strongest is the drive-to leisure [market],” Marvin said.
Hotel room demand was down 36.8% in the third quarter compared to the same period in 2019, according to CBRE, with revenue per available room — the hotel industry's leading performance indicator — dropping by more than 50%.
But the dropoff hasn't been spread equally. Luxury hotels showed the biggest declines, while economy and mid-scale hotels experienced relative success, according to CBRE.
“Rural and interstate hotels have outperformed other location types this year. These hotels are often located in low-population-density areas that recorded modest gains in occupancy and ADR after the public’s fear of COVID-19 had peaked in April,” CBRE officials stated in the report. “Recovery to pre-COVID performance should occur sooner in these locations.”
North American Properties Atlanta Chairman Mark Toro noted that luxury also performed better if it was situated in the Atlanta suburbs. NAP's The Hotel at Avalon had RevPAR four times better than its local competitors, Toro said, and twice that of downtown luxury hotels.
“This is double what we were running during pre-COVID times,” Toro said.
Marvin said he expected the hotel industry to gradually recover through 2021 but said it could take until 2023 or later for downtown hotels to reach pre-pandemic performances.
“I think that some change that reduces hospitality demand, I think, is going to stick,” he said. “We've all learned how to have Zoom meetings. For a lot of people, that's an effective way to meet, and a lot of CFOs are thinking, 'Wow, that's an effective way to save money.'”
Not all panelists at Bisnow's live event, held following social distancing practices at Colony Square, expect a slow recovery for Metro Atlanta commercial real estate as a whole.
Hartsfield-Jackson Atlanta International Airport, Georgia's university system, the city's hub as a health care center, and the state's continued growth in film and television production could all drive a fast recovery in Atlanta, H.J. Russell & Co. President Jerome Russell said.
“I think the trillion-dollar companies, the tech companies, are going to double-down here,” Russell said, citing Microsoft's recent purchase of Quarry Yards in Westside Atlanta as an example. “I hear it's huge what they're going to do."
He didn't reveal any specifics but said Microsoft came to Atlanta because of the talent and diversity, two factors that he said will drive other tech companies to the metro area.
“The next 10 years, on a go-forward basis versus the previous 10, will be one-and-a-half to two times the economic velocity,” he said. “I think all of this is about to converge on us, and I think it's going to be metro-wide. I think we're in for an unbelievable run in the next 10 years.”