How Boston Hospitality Is Digging Out Of Weak 2016 Performance
While Boston has enjoyed a seemingly endless building boom, its hospitality industry stumbled last year, and you may not even have realized it.
“2016 was a down year for the city,” said Sebastian Colella, vice president at Boston-based hospitality consulting firm Pinnacle Advisory Group. “After six years of RevPAR growth, we actually saw a decline.”
While Logan Airport continues to break passenger records and Boston's streets do not seem any less crowded with tourists, the city saw a 0.5% drop last year in revenue per available room, or RevPAR, a metric used to measure a hotel's financial performance. Between 2010 and 2015, Boston’s RevPAR growth exceeded the national average each year except for 2011 and 2013, according to hotel data provider STR.
A weak 2016 drew scrutiny from some in the hospitality industry, including Thayer Lodging Group President Bruce Wiles, who told Bisnow last month the city had a surprisingly disappointing year due to its slow convention calendar. Colella found similar factors in his analysis.
“2016 was a weak convention calendar, and, in Boston, I think the convention schedule is extremely important to the hospitality industry,” he said.
Even though Boston's average daily rate increased last year, the decline in RevPAR can be attributed to supply outpacing demand. The city had not seen so many new hotel rooms since 2003, Colella said.
Boston welcomed the arrival of the 180-room Element Hotel and adjacent 330-room Aloft Hotel in the Seaport as well as the 242-room Godfrey Hotel in Downtown Crossing in early 2016. Overall hotel supply in the city increased 4.7% last year, which Colella said is significant for a city of Boston’s size. But he is not concerned with the lapse in RevPAR growth, as demand for hotel rooms still increased 3.5%.
The demand is reflected in another segment of the industry. Airbnb guest arrivals in Boston went from 115,000 in 2015 to 197,000 in 2016. As of Aug. 1, the company already had 197,000 guest arrivals for 2017, according to Airbnb spokeswoman Crystal Davis.
The demand for rooms, whether in a hotel or at an Airbnb, remains high in Boston, and that keeps the city’s optimism up when looking ahead.
“In May, the citywide occupancy rate was almost 90%,” Massachusetts Convention Center Authority spokesman Nate Little said. “For the 2017 fiscal year, we’re delivering more customer hotel nights than in any other time in our history.”
Pinnacle Advisory’s projections match Little’s enthusiasm, as Colella said the market forecast calls for RevPAR to increase by over 3% and the ADR to see a similar boost for 2017. STR marked Boston's 11.2% RevPAR increase in May as one of the top-performing markets it tracked, along with Orlando and Seattle.
While the city’s convention schedule was light at the beginning of 2017, the second quarter saw 50% more room nights in comparison to the slower 2016 schedule. There is only a 1.7% increase in hotel room supply in 2017 and an expected 3.7% in 2018, which is fostering stronger hotel performance than when there was the surge in new rooms in 2016. While conventions heavily drive hospitality, Colella said other influencers also play a role.
“There are other factors like seasonality, major events like the Marathon and new supply hitting the market that also impact business,” he said.
Considering the 33 hotel projects in Boston’s development pipeline and a 1,054-room Omni Hotel by the Boston Convention & Exhibition Center on track to hit the market in 2021, should one expect another hospitality downturn? Maybe not.
“The positive way to look at it is [the Omni] is going to take a while to build,” Colella said. “By the time it opens, there’s enough of a window where the MCCA will be able to book large enough events to fill a lot of those rooms before it opens.”
CORRECTION, SEPT. 6, 9:55 A.M. ET: The correct acronym for the Massachusetts Convention Center Association is MCCA. A previous version of this story used an incorrect acronym. This story has been updated.