Still Struggling Despite Tourism Bump, D.C. Hotels Call For More Relief
A Saturday afternoon stroll across the National Mall this weekend revealed a starkly different scene than it would have at this time last year. The ceremonial sidewalks that for months were eerily quiet are now teeming with tourists.
With a majority of Americans now vaccinated and the summer weather upon us, leisure travelers have returned to the nation's capital. This activity has brought new demand for D.C. hotels that have survived a nightmare year, but hotel owners say it isn't enough.
Many D.C. hotels rely on business travel and conventions, demand segments that have yet to recover. And experts say that tourism demand, the segment that has started to recover, has been hurt by D.C. waiting until May to announce its reopening timeline and not fully reopening its free museums.
Most hotels still aren't profitable, owners say, and the uneven demand makes it difficult to bring back staff. Hotel owners and local tourism officials say the industry still needs more government relief to help it recover from the coronavirus pandemic.
"Looking at the momentum and the number of people that are on the streets on the weekend can be very deceiving, especially to those that don’t understand the dynamics of the hospitality industry," Destination D.C. CEO Elliott Ferguson told Bisnow. "The damage is far greater than what’s happening now."
Hotel occupancy in the District averaged 35.7% for the week ending May 16, according to STR data shared with Bisnow by Destination D.C. The District's total hotel revenue that week was down 75% from the same period in 2019, according to the STR data.
Carr Hospitality CEO Austin Flajser said his firm's portfolio, which includes the Willard InterContinental on Pennsylvania Avenue, the Wharf InterContinental and four hotels in Alexandria, is currently averaging in the low-30% range for occupancy. He said that is up from the 20% range earlier in the year, but still far below normal levels.
"Until the business travelers are back and group meetings are happening, there's structural vacancy that the leisure traveler just can't fill," Flajser said. "There's not enough leisure travel out there to fill that vacancy."
CityPartners founder Geoffrey Griffis, whose firm owns the Hyatt Place National Mall and developed the CitizenM hotel on E Street SW, said his hotels this month are in the 40% to 50% occupancy range, compared to typical levels around 90% this time of year. Room rates are down at least 30% from pre-pandemic years, he added.
He said leisure trips can make hotels busy on the weekends, but the weeknights, when business travel typically occurs, are still slow. This uneven demand makes it difficult to bring staffing back to normal levels.
"It's somewhat unpredictable, which makes it even more difficult to plan around," Griffis said. "The revenues aren't up to a consistent and high enough level to really accelerate rehiring."
Occupancy at the W Hotel a block from the White House was about 35% the week after Memorial Day, General Manager Meade Atkeson said. He said weekend occupancy hovers around 50%, but weeknight occupancy is around 25%. In a normal June, he said it would be around 95% on weeknights and 85% on weekends.
He said he has managed the uneven demand by having employees work two to four days a week rather than a typical five, but it is still difficult for hotels to turn a profit.
"Very few hotels are making money right now," Atkeson said. "So many larger hotels depended on group [business], and there's still very little group in the city."
Hotels in the suburbs are doing better than those downtown. Frontier Development & Hospitality founder Evens Charles said his hotels in suburban Maryland are between 45% and 65% occupancy today. But they are typically at least 70% at this time of the year, he said, and the competition for guests has kept room rates down.
"Rate is going to be a little slower to come back because when everybody has been struggling with occupancy and rate over the last year, the competition is going to be a little slower to raise rates and you’re still going to have a lot of price-conscious shoppers for hotels," Charles said.
Downtown hotels have not only been hurt by a lack of business travel, but experts say they have also lost potential tourism because of the way D.C. reopened. Mayor Muriel Bowser announced on May 10 that the District would lift most restrictions on businesses by May 21 and all restrictions by June 11.
Ferguson said he was glad to see the mayor lift the restrictions, and he understands she has had to weigh public health concerns, but he said the announcement was too late for many people planning summer trips. He said he has heard from tourism officials in other cities that received bookings earlier this year for summer group business that would have otherwise come to D.C., but it wasn't clear at the time whether the city's restrictions would be lifted.
"With the mayor’s decision to open, which we all appreciate, there were opportunities perhaps three to five months ago to book some smaller meetings that went to other destinations when we could not commit to where we are now," Ferguson said.
Additionally, experts say the phased reopening of the Smithsonian Institution museums has left many tourists uncertain about whether D.C. is worth visiting.
Several Smithsonian museums reopened last month, and at least eight still-closed museums are planned to reopen between June 18 and Aug. 27, DCist reported. Those that have opened require timed entry passes that guests must secure in advance, making it more difficult to walk through multiple museums on a summer day.
HVS Senior Vice President Chelsey Leffet, a hotel consultant and researcher, said these timed entry passes are booked for months, and tourists are hesitant to come to the National Mall without knowing that they can enter a museum.
"You can't do a quick weekend trip to see the museums, you have to have that planned out," she said. "You’re not going to want to walk around the mall for eight hours a day when it's 95 degrees and 100% humidity. You're going to want to have the solace of an indoor museum or event."
Flajser also said leisure demand will be stronger when the Smithsonian museums are fully open.
"The reopening of museums helps. It's our main leisure draw, and it will help when they're at full capacity and families can go visit and just walk to the National Mall, stop in and do all the things that make D.C. a great family travel destination," Flajser said.
Leffet said D.C. has likely lost some summer tourist demand to markets with more natural outdoor activities like beaches. She also said D.C. lost a host of business this spring from schools canceling their annual class field trips to the nation's capital. She said museum visits are a big part of these class trips, so the Smithsonian not being fully open likely reduced the demand from these trips.
"A lot of those [school] groups stay out in the suburbs, too. They're not staying necessarily in Downtown D.C.," Leffet said. "I think the general occupancy numbers have been affected by the fact that sort of demand is not here."
The slow return of D.C.'s hotel demand has owners and managers calling for more government relief for the industry.
"Hotels have drained all of their resources. PPP is burned off, and the D.C. bridge fund was great but that’s burned off," Griffis said. "The District government has an opportunity to assist in us getting up and running faster than we can do on our own. I’m hoping they see that and we’ll create a second round of bridge funds for the hotels and that would assist in the rehiring process."
Federal stimulus and surprisingly strong tax revenue gave D.C. an unexpected budget surplus of over $500M last year, and the D.C. Council is currently debating the $17.5B budget proposal for Fiscal Year 2022 that Bowser introduced last month.
Deputy Mayor for Planning and Economic Development John Falcicchio, in an emailed statement to Bisnow, said the District has distributed $21M of the previously announced grant money to 93 hotels, with grants ranging from $12,660 to $379,800.
"These robust hotel grants make D.C. one of the most supportive jurisdictions in the nation," Falcicchio said in the statement.
Falcicchio also said that the mayor added $5M to Destination D.C.'s budget in her proposal to support its marketing efforts for the District's hospitality industry. And he called on the federal government and private sector employers to implement their return-to-office plans to help accelerate downtown activity.
Atkeson, who serves as the chair of the Hotel Association of Washington D.C., said the organization has been advocating for more relief for the industry.
"On the one hand, I appreciate the mayor and the council’s support for hospitality and our industry, and also I think in the case of hotels, they need to look at more support," he said.
Ferguson said more government funding would not only help the hotel industry recover and bring back thousands of workers, but it would benefit the restaurants and other businesses that rely on hotel traffic.
"If we want to see our hotels operational, see the quality that’s there for those when we’re able to book the large conferences and to have hotels remain open and other facets of the industry, there’s going to have to be some type of financial assistance," Ferguson said.
Beyond the hotel operations, he said relief money would also benefit marketing efforts that help D.C. compete with other cities for tourist and convention demand. Hotels haven't had the money to market themselves, and he said Destination D.C. has been limited because 80% of its revenue comes from the city's hotel occupancy tax.
"At some point, international travel is going to reopen, and let’s face it, every city in the U.S., especially first-tier cities, are going to be going after the same travelers, the exact same business," Ferguson said. "So we have to have those resources so we can be aggressive in getting that business to Washington."
Looking ahead, Ferguson said he doesn't expect international travel to fully return to pre-Covid levels until 2024, but it could start picking up later this year. He also expects domestic travel to continue increasing throughout the rest of this year, with a rise in business travel after Labor Day.
Tourism Economics projected that domestic visitation to D.C. this year will total between 14 million and 15 million people, up about 50% from last year. And it projects domestic visitation in 2022 will rise to between 18 million and 19 million, up 90% from 2020, according to projections shared with Bisnow by Destination D.C.
"I think it will start picking up later this year, once meetings can take place again on Capitol Hill, and once corporate America decides they want to start traveling again," Ferguson said.
HVS projects that D.C. hotel occupancy for this full year will average 48%, up from 37% last year but well below 2019's occupancy of 71%. It then projects continued increases to 59% in 2022, 64% in 2023 and 69% in 2024.
"I do think it will be like a stone down the hill that will gain speed," Leffet said. "Restaurants opening was a great first step. I think it will continue that momentum. We'll get there."