Hotel Developers Expect Demand Boost From Amazon HQ2 Could Help Revive D.C.-Area Market
The D.C.-area hospitality market has experienced a decline in key performance metrics this year, but hotel owners see a significant demand boost coming from Amazon establishing its second headquarters in Northern Virginia.
Hotel occupancy in the D.C. Metro area during the first seven months of this year was down 2.2% from the same period last year, according to STR. Revenue per available room, or RevPAR — the hotel industry's leading performance metric — was down 1.2%.
But hotel developers and brokers are optimistic the region's hospitality market will improve, beginning with the Northern Virginia area.
Arlington hotels are already benefiting from the spotlight Amazon HQ2 has put on the area, said Donohoe Hospitality President Thomas Penny, who will speak Oct. 30 at Bisnow's Hotel Leadership, Investment & Management Summit in D.C. Donohoe owns three Residence Inn by Marriott hotels in Arlington's Rosslyn, Courthouse and Ballston neighborhoods.
"Throughout the second quarter, Arlington outperformed D.C. in terms of year-over-year performance within our portfolio," Penny said. "Arlington has been able to command rates consistent with what you'd see downtown. We're optimistic we'll see that trend continue."
B.F. Saul Hospitality Group President Mark Carrier, whose firm owns the Crowne Plaza Crystal City and the Holiday Inn National Airport/Crystal City, said the area had struggled in recent years after the Base Realignment and Closure Act reduced the defense footprint and the Patent and Trade Office left for Alexandria. He expects Amazon will help revive the market.
"We've had a situation where the core of Crystal City has lost a significant amount of its employment base, and what Amazon in my mind represents is almost a resetting of Crystal City to be a true employment hub," Carrier said. "It's creating an opportunity there whether you're a hotelier, a retailer or a restaurateur to participate in that positive change."
Savills Executive Managing Director Marc Magazine, a leading hotel broker, said interest from developers and investors has increased in the Crystal City area since the Amazon HQ2 announcement.
"One major pocket everyone's looking at is what used to be called Crystal City, now National Landing," Magazine said. "There are a tremendous amount of business generators there with HQ2 and Virginia Tech and all of the new employees, that is absolutely a market worth looking at."
The hotel experts believe the demand growth from HQ2 will come from a combination of new Amazon employees and their families, companies visiting to do business with Amazon, and students and faculty at Virginia Tech's Innovation Campus in Potomac Yard. They also expect additional companies will follow Amazon's lead and relocate to Northern Virginia, generating future economic growth that could benefit the hospitality market throughout the region.
Exemplifying Donohoe's bullishness on the larger region outside of Arlington, Penny said the firm is under contract to buy a hotel in Old Town Alexandria. He also pointed to the continued growth of Maryland's National Harbor area directly across the bridge as a factor in the deal, which he expects to close by Nov. 1.
"I would say with Amazon HQ2, with National Harbor continuing to mature as a destination and with the strength of the association market in Old Town, all of those were contributing factors to this acquisition," Penny said. "We're really excited about Northern Virginia."
Magazine also thinks the HQ2 effect could spread beyond the National Landing area into Old Town Alexandria.
"I absolutely think it's a boon in National Landing, and it might spread to areas like Old Town, which gives you a little more of a quieter feel and is close to National Landing for those that want variety," Magazine said.
Penny said he does not think the HQ2 effect will be limited to Northern Virginia. Donohoe also owns nearly 800 existing hotel rooms in Southwest D.C., straight across the Potomac River from Amazon HQ2, and it broke ground Friday on a 154-room Cambria Hotel in Southwest's Buzzard Point neighborhood.
"We believe our hotels in Arlington will do well because of their proximity to Amazon, but we also believe millennials are going to want the D.C. experience," Penny said. "Many of them will stay in D.C., and Southwest in particular, when they conduct business in Arlington."
Carrier's firm also owns hotels in Rosslyn, Tysons, Dulles and Downtown D.C. He said he expects most of the direct demand from Amazon to come to the Crystal City area, as business travelers like to be as close to their meetings as possible.
But he thinks the future economic growth generated by Amazon HQ2, the Virginia Tech campus and other companies that choose to relocate to Northern Virginia will benefit the entire region. He credited the local governments for working with the private sector to create these new economic anchors that will help the hotel sector and other industries.
"The fact that a significant new employer and enterprise has decided to validate our region, that's a very good thing," Carrier said. "I would think that has benefits over time that affect the whole Northern Virginia area."