HENDERSONVILLE, Tennessee—As many cities have consider convention center expansions or replacements in the U.S., there has been much debate over the viability of those convention centers and the proposed on-site hotels. Many believe that “if you build a big hotel, guests will come,” while others take a more risk-adverse approach and fear it takes many years for new “big box” hotels to be absorbed in a market. This article explores the past impact of large hotels (more than 800 rooms) entering the marketplace.
Sample summary:
- eight hotels, in different markets, each with at least 800 guestrooms (two properties were adjacent to convention centers);
- majority of meeting space for hotels ranging from 60,000 to 400,000 square feet (one property has 20,000 square feet of meeting space);
- hotels opened any time after 2000; and
- each hotel has been operating for at least four years.
When reviewing our sample properties’ data, we evaluated each hotel’s market performance within the first four years after the properties opened to see if the market occupancy and overall hotel demand increased or decreased. We also compared those market percent increases or decreases in occupancy and demand to the overall U.S. percentage increases and decreases to see if the market behavior was stronger or weaker than the U.S. average.
Of the eight hotels, this was the effect of the markets’ occupancy and demand:
| Number of Markets |
Years Market Occupancy Declined |
Years Market Occupancy Increased |
Years Market Demand Decreased |
Years Market Demand Increased |
| 1 |
0 |
4 |
0 |
4 |
| 4 |
1 |
3 |
1 |
3 |
| 1 |
1 |
3 |
2 |
2 |
| 1 |
2 |
2 |
1 |
3 |
| 1 |
2 |
2 |
2 |
2 |
As noted above, six of the markets’ annual occupancy remained flat or only declined in one year during the four-year span following the opening of the 800-plus room hotel. Two of the eight markets only had two years of occupancy decline within the first four years of the large hotels’ operations. The degree of decline was as follows:
Markets with two of four years of declining occupancy:
One market had occupancy increases within the first two years of the opening of the large hotel. However in its third and fourth year of operation, it reported annual occupancy declines of 4 percent to 8 percent. The current economic recession likely had much to do with these declines because within the first two years of the large hotels’ opening, market demand increased 3 percent to 5 percent. However, it declined 2 percent to 6 percent in the last two years. - One market had occupancy declines during the first two years the 800-plus room hotel opened. These declines ranged from 3 percent to 6 percent. However, after those declines, market occupancy increased more than 3 percent annually. Market demand during the first year of operation of the large hotel declined less than 1 percent, while the subsequent three years ranged in annual demand increases of 1 percent to 7 percent.
Markets with one year of declining occupancy:
- One of the six markets had no declines in occupancy (and demand growth for the first four years of operation of the 800-plus room hotel).
- Four of the six markets had one year of occupancy declines ranging from 1 percent to 3 percent.
- One of the six markets reported six percent occupancy decline during the first year of operation of the 800-plus room hotel.
- One of the six markets reported a 3-percent demand decline in one year. Four of the six had one or two years of demand declines ranging from zero to 1 percent.
… and just in case you were wondering—five of the eight hotels have stabilized at a low- to mid-70s occupancy, two of the eight hotels have stabilized at occupancy levels below 65 percent, and one has stabilized at more than 80 percent occupancy.
So what does this all imply? Markets can (and do) take a hit when large hotels open, but during reasonably “normal” or growing economic conditions, adding an 800-plus room hotel to a major metropolitan market will help generate demand in the overall market. Adequate hotel meeting space (both in terms of total square footage and usability of the space) for the “big box” hotel is key to a market’s continued successful performance.
Disclaimer: This analysis of eight individual properties did not factor in more than usual increases or declines in market performance as it relates to economic downturns or booms. No pricing strategies were analyzed to determine if that played in to increases in demand levels. The quality of the location was not used as a factor.
