IRVING, Texas—Like most U.S. hotel markets in the post-recession economy, the Dallas-Fort Worth, Texas, market has experienced a confounding situation: strong demand but weak growth in average daily rates.
Carter Wilson, a director at STR Analytics, told attendees at last week’s Tour de Data stop at the Omni Mandalay Hotel in Irving to brace themselves for more challenges ahead, thanks to continued slowness in group business and supply pipeline that exceeds national averages.
“The forecast for Dallas is not so rosy,” Wilson said.
The Tour de Data Dallas was the latest of a series of complimentary informational networking events presented by STR Analytics and HotelNewsNow.com. The next stop on the Tour is scheduled for Atlanta in October; a date has yet to be determined. STR Analytics is the sister company of HotelNewsNow.com.
Data presented in the Omni Mandalay showed the metroplex’s two major markets are struggling when it comes to the industry’s major metrics. While growth in revenue per available room through June across the U.S. was 7.9%, it was 1.6% in Dallas and -0.3% in Fort Worth-Arlington. Nationwide occupancy growth was 3.4%; in Dallas it was 2.1% and in Fort Worth-Arlington it was 1.6%. ADR growth nationwide was 4.4%, yet in the two major Texas markets, there were ADR decreases: -0.4% in Dallas and -1.8% in Fort Worth-Arlington. Meanwhile, led by a 5% growth in transient business, demand growth in Dallas (4%) outpaced the national average (3.7%) while Fort Worth-Arlington posted a 2.9% gain.
“The lack of group business is causing the flat RevPAR in Fort Worth and Arlington,” Wilson said.
What should scare existing hoteliers, Wilson said, is what’s in the pipeline: 42 properties with 4,033 rooms in Dallas and 17 properties with 1,626 rooms in Fort Worth-Arlington, according to STR, parent company of HotelNewsNow.com.
“Occupancy is toward the bottom of the top 25 markets and trailing 12-month occupancy in Dallas is less than 60%,” Wilson said. “It makes you wonder how all the supply you are looking at is going to be absorbed.”
That’s not lost on local hoteliers participating on a panel during the event.
“When it’s a 60% (occupancy) market, it’s tough to grow rate in that kind of market,” said Sergio Ortiz, GM of the 429-room Crowne Plaza in suburban Addison.
GM of the Crowne Plaza in Addison, Texas
For Ortiz, his property is undergoing an $8-million renovation, which has improved occupancy by 25% over last year. The bad news? “It has come at a price—rates are still tough in the Addison area,” he said, though demand is still strong.
“We came into this year very optimistic in the industry thinking rates were going to be pushed pretty hard and so on, but they really haven’t,” he said. “I think it is going to be another year before we see real growth in ADR, especially during a renovation in the market area.”
Andrew Casperson, GM of the Omni Mandalay property and an area managing director for Omni Hotels & Resorts, said the four Omni-branded properties in the Dallas market are seeing a slight lift in ADR, but it takes a conscious effort to achieve that—especially after they collectively experienced an 18% gain in RevPAR last year.
“For us, it’s always looking forward: What can we do differently, how can we layer business differently and take a different approach,” he said.
Mark Van Amerongen, senior VP of operations for Dallas-based Prism Hotels & Resorts, said the three properties the company has in the market are each performing at different levels based on their sub-markets, but each property has improved in year-over-year measurements.
“So overall, other than impending pipeline growth coming in, we’re feeling pretty good about what’s going on here,” he said.
Government business falls off
One of the reasons for the loss in group business across the market is the pullback by the federal government, which has been particularly evident during the summer months, Casperson said.
He said government workers are now having meetings at military bases and other government facilities posing a challenge during the summer months.
GM of the Omni Mandalay Property in Dallas
“But we still see decent growth in some areas. Transient is still positive for us for the year. We have a decent outlook for the rest of the year. … Irving is very fortunate to have a lot of Fortune 500 companies in this area, and they’re still having regional meetings.”
Ortiz said “government was a very strong market for a lot of our hotels, but it’s very much quieted down.”
He said his property has been able to replace some of that with social, military, educational, religious and fraternal business.
“We’re booked every weekend between now and April with SMERF groups,” Ortiz said. “They’re tough on hotels, but it’s great business on weekends for the hotel. It comes at a price, but sometimes you have to give concessions.”
Van Amerongen said Prism’s three Dallas hotels have seen an increase of 17% to 20% in SMERF business. The company’s 50-plus hotels across the country have collectively grown that segment by about 8%.
When needed, the Dallas hoteliers turn to online travel agencies to help fill rooms. They each said it’s important to keep the OTAs’ role in perspective when trying to build business at a hotel.
“That has been a huge game changer for the industry,” Ortiz said. “It’s easy money, but you don’t really want a whole lot of it.”
“You have to play in all channels, and you have to ensure you are managing every one of those channels,” Van Amerongen said. “In a 60% (occupancy) market you’re not just going to be able to say, ‘Hey, I’m going to raise my rate 10 bucks.’ It’s has to be, ‘I’m going to raise my rate 10 bucks on a Friday afternoon for the weekend.’”
Mark Van Amerongen
Prism Hotels & Resorts
Casperson said it’s about forecasting and “ having faith in your strategy and holding back. And within 30 days, if it’s not happening, sure, maybe you can turn the faucets on then.”
Mixed outlook for next year
The hoteliers have a mixed outlook for the rest of this year and 2013.
“The remainder of this year looks pretty solid,” Casperson said. “Our pace for 2013 is ahead of this year. We’re very positive about ‘13; our group pace looks pretty good.”
“It’s going to continue growing gradually,” Ortiz said.
Van Amerongen said a lot hinges on the November elections, as well as the future of the Affordable Care Act and the increased costs that will come with that program. “However, on the demand side, we’re still optimistic that, as Sergio said, we’re going to continue on that slow, steady incline and see similar increase in ‘13 as we saw in ‘12.”
Wilson agreed with the slow-and-steady outlook. STR’s forecast for the overall Dallas market is:
- Occupancy: -0.2% in 2012, 0.9% in 2013;
- ADR: 1.4% in 2012, 4.8% in 2013; and
- RevPAR: 1.1% in 2012, 5.8% in 2013.
Other key data points
On the financial side, Steve Hennis, another STR Analytics director, said Dallas is the 15th most appealing market for investors who participated in the most recent Hotel Investors Gauge.
He pointed to a number of recent deals as a sign that the transactions market in Dallas could be gaining steam, including:
- The sale of the 224-room Hilton Park Cities in Dallas for $40 million ($178,571 per key);
- The sale of the 132-room Holiday Inn Express Fort Worth Downtown for $20 million ($151,515 per room);
- The sale of the 545-room Fairmont Dallas for $69 million ($126,606 per room); and
- The sale of Ortiz’s 429-room Crowne Plaza for $19.8 million ($46,037 per room).
Meanwhile, Caitlyn Milton, STR Analytics’ business intelligence manager, told attendees that an analysis of the hotel competitive sets revealed that 49% of hotels in the Dallas market were named back as a competitor by members of their competitive set. The number on Fort Worth-Arlington is 43%. The national average is 45%.
She said of the 660 hotels in the market, 73 are named at least 10 times in competitive sets, and the most named hotel in the overall Dallas market is the Hyatt Place Dallas/Arlington. The most named brands in the market (minimum of five hotels in the market) are Hampton Inn, Fairfield Inn & Suites and Wingate by Wyndham.