Hotel Owners Say D.C. Is Hardest-Hit Market As Groups Cancel Bookings

Hotels across the country are experiencing a slowdown as fewer international travelers book trips to the U.S. and economic uncertainty leads domestic tourists and businesses to cut back on spending.

But in the D.C. metro area, hotels face additional hurdles that have owners staring down a more dire road ahead.

“It's definitely having a heavier impact in D.C.,” Arlo Hotels President Jimmy Suh said at Bisnow’s Mid-Atlantic Hospitality Event last week. 

Arlo has seven hotels nationwide and one in D.C.: a 445-room hotel near Judiciary Square that opened in November. Suh said the hotel has seen “lots of” associations cancel plans last minute, some related to losing federal funding and others due to the economy.

Suh and a dozen other hotel executives spoke at the event, held at Union Market’s AutoShop venue, about the region's hotel market at a moment when it is facing big changes to its demand drivers.

D.C. is a major convention town, and as businesses are faced with the uncertain macroeconomic environment, some are pulling back on nonessential costs like travel. 

The city is also a draw for groups that get funding from the federal government. But with the recent slashes to federal spending, which have included budget cuts to associations, nonprofits and contractors, those groups are watching their wallets even more.

D.C. has been the hardest hit from softening federal hotel spending, suffering a 20% drop in government per-diem bookings this year through April 4, according to a Kalibri Labs report. 

Chirag Shah, vice president of federal and political affairs for the American Hotel and Lodging Association, said there has been a “significant change” in D.C. over the past month. Compared to the country as a whole, where average daily rates are up a few percentage points and revenue is flat, in D.C., he said, revenue per available room is down 10 points and rates are down. 

Two of STR’s weekly reports over the last few months highlighted D.C. as the city seeing the country’s steepest revenue declines. For the week ending March 22, RevPAR was down 17.8% in D.C., while for the week ending April 19, the metric was down 36.8%. 

Hotel owners said they are seeing these impacts on the ground. 

“There's trepidation. There are concerns. There's some anxiety,” Suh said. “And we're going to go back and forth in the coming weeks and saying, ‘What are we going to wake up to today or tomorrow?’” 

B. F. Saul Co. Hospitality Group President Mark Carrier said the company's hotels in the Maryland suburbs have been more affected by the federally provoked changes to travel patterns.

“We’re seeing Maryland get hit a lot harder,” he said. “That’s our experience based on the type of government demand that exists there.”

Montgomery County is home to some of the country’s largest science agencies like the Food and Drug Administration, the National Institutes of Health and the National Oceanic and Atmospheric Administration. 

Those agencies draw scientists and companies from all across the country, and they are some of the agencies the Trump administration is targeting the most with its cuts. 

In addition to Montgomery County, B.F. Saul also has hotels in Loudoun, Arlington, Fairfax and D.C. Northern Virginia also has a large amount of federal exposure, but the area is dominated by the government’s tech and defense sectors, which have been more insulated from the cuts so far.

“Across the market, the demand drivers are what is truly making a difference,” he said. “And if they're more stable — and in this environment that we have right now, let's call it more favored in terms of what they actually do — it's a giant difference.”

Frontier Development and Hospitality Group CEO Evens Charles said his hotels in suburban markets are feeling the most impact from federal and travel cutbacks. 

“It’s hurting all of us, but it’s probably hurting the suburban properties a little bit more that rely on that compression, whereas some of it that still is here, we're getting it in the downtown core,” he said.

On earnings calls in recent weeks, some of the country’s largest hotel REITs said they were seeing a federally driven downturn in D.C.

Overall D.C.-area demand during the first quarter was boosted by the presidential inauguration. Host Hotels & Resorts said its five D.C. hotels recorded RevPAR that weekend 660% higher than the same days last year. 

However, some highlighted declining performance in the D.C. market in the months after President Donald Trump took office. 

Ashford Hospitality Trust Executive Vice President Chris Nixon said on an earnings call the company is seeing a government-related pullback in its D.C. portfolio, with fewer bookings and more cancellations. 

Nixon said the REIT is looking to backfill that lost business with new business transient accounts, including those it had previously passed on. 

Chatham Lodging Trust CEO Jeff Fisher said on an earnings call last week that after seeing a drop in demand at its three D.C.-area hotels in March, it shifted its strategy to focus on securing leisure and corporate business travelers to the area. 

Across the three hotels, Chatham saw its revenue per available room drop 8% in March and 4% in April, and it projects a 2% decline in May. 

It’s not all doom and gloom for D.C., though. Hotel executives at last week’s event said the market should be able to withstand the headwinds.

Charles, whose firm is underway on a $10M renovation at a Shaw hotel it purchased last summer, said he is seeing strong convention calendars.

“D.C. is a resilient city,” he said. “We have the federal government, even though there's cuts and a lot of noise happening there. But there's tech, there's education, there's embassies, there's tourism.”

The beginning of the second Trump administration has seen several large protests, including the Hands Off rally in early April that drew an estimated 100,000 people to the National Mall.

Pebblebrook CEO Jon Bortz said on the REIT’s first-quarter earnings call he expects there will be more protests that will be “good” for the market's hotel demand.

And he said D.C. is drawing groups that want to lobby the new administration. 

“There's a lot of people here coming to meet with the president and the new administration from around the world,” Pebblebrook CEO Jon Bortz said on the REIT’s Q1 earnings call.

“And so, there is a whole bunch of positive crosscurrents in addition to the negative impact from freezing government travel, eliminating nonessential travel or government — a lot of government-related cancellations,” he added.