Boston's Lab Pipeline Won't Solve Its Hospitality Woes
Boston hoteliers enjoyed one of the strongest markets in the country before the coronavirus pandemic struck. But the city recorded a 71.3% decline in revenue per available room in 2020, the worst of the 25 largest U.S. markets, according to STR.
The area is littered with life sciences development, and hoteliers say they are bullish that those projects will bolster hotel room demand. But most of those projects have far-off delivery dates, and there is little evidence of a correlation between lab development and hotel demand, industry experts told Bisnow.
Prior to the pandemic, the Boston-Cambridge lodging market was expected to see a 6.6% supply increase by 2021, a 20-year high, according to Pinnacle Advisory Group research. The market today includes 24,429 total rooms, 14% of which is that lab epicenter in Cambridge.
The Boston-Cambridge hotel market grew by more than 3,200 rooms between 2015 and 2019 and is expected to add 1,000 new rooms this year, according to Pinnacle.
Boston’s life sciences market has grown even faster, with 4M SF of construction and up to 20M SF of development already planned or proposed, according to Avison Young research. Developers like Alexandria Real Estate Equities and BioMed Realty Trust are spending big on conversion plays in the Fenway and Seaport neighborhoods. Lab and research and development tenants have scooped up nearly all of the existing supply in East Cambridge.
But life sciences is a small slice of corporate travel, and much less impactful on the city than international travel and groups arriving for Boston’s conventions and events, experts said.
RevPAR at hotels within Kendall Square is still down 83.3% in the past year, and CoStar hasn’t recorded any upticks in occupancy or performance, CoStar Northeast Director of Hospitality Market Analytics Anne Purcell said.
“Despite all of the activity that’s going on in that space, with Covid, it’s not like that activity has driven everybody to come to those markets,” Purcell said.
The mature life sciences market in Cambridge hasn't powered local lodging numbers past Boston’s overall numbers, according to Pinnacle research. In 2019, the city’s hotels recorded occupancy of 60% and RevPAR of $105, both a few ticks below the overall Boston market.
“There’s no direct correlation between this many square feet of research and development that is going to generate this many lodging room nights,” JLL Managing Director of Capital Markets Alan Suzuki said. “I think it’s reasonable to assume if there’s more startups or more life sciences companies that are occupying those spaces, there’s going to be overnight hotel rooms associated with that.”
Cain International and Madison Realty Capital are developing the 147-room Raffles Boston Back Bay Hotel & Residences, and Cain International Senior Managing Director Eric Poretsky said he believes in life sciences as a demand driver, citing its necessity for in-person work. The hotel will sit across the Charles River from Cambridge and a 10-minute drive from the Fenway area.
“All the supply that’s coming in, whenever you see that much supply coming in, you have to assess: Is there going to be a supply overhang?” Poretsky said of the lab pipeline. “So many of these users have such opportunistic growth prospects, we can take it.”
Cambridge's hotel pipeline is limited, and the few hotels that have opened this year are extremely small, Pinnacle Vice President Sebastian Colella said. Just one new hotel with more than 50 rooms has opened in East Cambridge since 2016, according to Pinnacle.
“It’s not the easiest community to develop in,” he said. "There's timing, it's costly, and there's just a lack of available space to build hotels."
Marriott operates adjacent hotels in the center of Kendall Square on Broadway, with a combined count of 658 rooms. Its portfolio accounts for 64% of the East Cambridge hotel footprint. The chain's Residence Inn is expanding from 221 suites to 250, according to a spokeswoman. The company did not disclose its occupancy and RevPAR numbers for the two locations.
“The future of Kendall Square is bright, as the leading tech and life science organizations have significant development plans and we are very excited about the growth that exists in Kendall Square,” Residence Inn General Manager John Wilmoth said in a statement.
Boston’s hotels feed off tourists, with 65% of travelers coming for leisure and conventions, Purcell said. Corporate travel covers the remaining demand, and hoteliers expect corporate travel levels to coincide with the uncertain return of office traffic.
The Hyatt Place Boston Seaport opened last September and is a short walk from the Boston Convention and Exhibition Center. It’s also around the corner from the former John Hancock headquarters, slated for a life sciences conversion by BioMed. Nearby and behind the BCEC, Alexandria has pitched a 1M SF lab development replacing parking lots and a storage facility.
Hyatt Place General Manager Marcos Piteira said the supply will be good for demand at his 297-room hotel at 297 Northern Ave., at the end of Seaport Boulevard.
“I assume that, if all these life sciences buildings are developing,” Piteira said. “But until that crystalizes and business starts, it’s going to be 2024, 2025."
Some hotel room demand is generated by rising life sciences developments as companies and contractors travel to the construction sites, Purcell said. The D.C.-based researcher said the Rockville corridor records a pickup in business travel when life sciences developments are being set up. In Boston, Piteira said he’s seen very little demand from business travelers stemming from the Seaport’s active development scene.
“You’re talking about one room here or there,” Piteira said. “The Omni Hotel is being built behind us. We have some people staying here for that, but that’s a massive project with 1,000 rooms. We have a couple of rooms from [that project].”
Hotel industry experts are predicting Boston’s occupancy and RevPAR numbers to rebound as late as 2024, forecasting a slow rebound of international travel given pandemic restrictions and massive gatherings like graduations and conventions still off the calendar.
The Omni will bring 1,054 new hotel rooms to the Seaport, and along with the Hyatt, will push the neighborhood to the second-most-supplied hotel area in Boston, behind the Back Bay, according to a December Pinnacle report. Purcell cited the influx of supply as an additional challenge to Boston’s hospitality recovery in occupancy and RevPAR metrics.
“There’s quite a few hotels that have opened in the Seaport,” she said. “There's a real supply, a lot of new hotels to absorb on top of this new recovery process.”