How the return of convention hotels will affect demand
 
How the return of convention hotels will affect demand
19 SEPTEMBER 2017 8:13 AM

The new influx of large meeting hotels are aiming to boost demand rather than steal it.

REPORT FROM THE U.S.—After nearly a decade of modest growth, the development pipeline for massive, meetings-oriented full-service hotels is finally back, and in a big way. Several new hotels in this category are set to open in 2018, after three years in which the number was significantly lower. 

Experts said a host of factors are driving the sudden surge in growth, particularly localized market conditions, as well as the new properties themselves, which are expected to stimulate new demand. Some hoteliers are also seeing an uptick in overall group business, spurred by favorable macroeconomic trends that are currently boosting budgets for corporate events.

“When business is healthy like it is now, companies have a tendency to have more meetings and events and celebrate success and bring people together to set new direction,” said Mike McMahon, director of sales and marketing for the 1,048-room Fairmont Austin, which opens this fall and includes 107,000 square feet of meeting space.

“We’re seeing a lot of that right now in the market. I think it’s as healthy as it’s been in a number of years. We went through a significant downturn in 2009 through 2012, and then we started coming out of that, so we’ve been in a fairly healthy recovery since then.”

The Fairmont Austin is aiming to boost the city’s convention business. (Photo: Fairmont)

The hotel industry has seen minimal growth in full-service properties with large meeting space since 2008 and 2009. During those years, a total of 17 hotels opened in the U.S. that each had 50,000 square feet of meeting space or more, specifically nine properties in 2008 and eight hotels in 2009. From 2011 to 2017, however, there were only two or three such openings each year. During that same period, many developers and lending institutions focused instead on building select-service hotels in the midscale and upper-midscale segments, which occupy approximately 65% of rooms currently under construction.

But not every developer is following the trend. Seven hotels scheduled to open in the U.S. in 2018 have at least 50,000 square feet of meeting space. The top three new hotels by meeting room square footage are the Gaylord Rockies Hotel & Conference Center (400,000 square feet of meeting space) in Aurora, Colorado; the Hyatt Regency Seattle (103,000); and the Convention Center at Watters Creek, including a 300-room Marriott Delta and 90,000 square feet of meeting space, in Allen, Texas. According to experts, these kinds of projects are potentially a smart play in the right markets, which could be hungry for an updated convention hotel.

“It’s the contrarian play,” said Jan Freitag, SVP of lodging insights for STR, parent company of Hotel News Now. “Limited-service is where the action is; that’s where everybody’s going, so an astute developer would look at the white space in the development pipeline, and see that it means large, full-service hotels with large meeting square footage are really underserved. It’s an opportunity to be the new kid on the block and take demand from other existing full-service properties, just because they’re already five or 10 years old at this point.”

And in many cases, developers are seizing the opportunity to not just create a new product, but an enhanced one, as well. Today’s large meetings hotels are pushing the envelope, with designs and offerings intended to provide an atmosphere so memorable and unique, as well as convenient, the hotels actually induce demand, bringing new group and meeting business that may have previously chosen another city.

In addition to the Fairmont Austin, another example is the towering 40-story Marriott Marquis Chicago, which opened in early September on the McCormick Place campus and features 1,205 guestrooms and 93,000 square feet of meeting space. It joins the pre-existing 1,258-room Hyatt Regency McCormick Place hotel on the campus.

The Marriott Marquis’ sleek new design—as well as the web of interconnected, climate-controlled walkways between the convention center and two hotels—is expected to result in a greatly expanded proposition for meeting planners considering the Windy City.

“It offers a new opportunity that the other hotels don’t necessarily have in Chicago,” said Cindy Ruchman, director of sales and marketing for the Marriott Marquis Chicago. “Having the event space, and guests just walk across the street through the pedestrian walkway, it offers a unique opportunity on the campus that didn’t exist before. It really speaks to ease of flow for meetings, and utilizing the space so it makes it easy for someone to plan something all in-house, as opposed to using packages where you have different hotels that you’re trying to leverage to make a group fit at a certain destination.”

In cases like Chicago and Austin, sources believe the new hotels will have an overall positive impact on the market by virtue of helping these cities accommodate larger groups, rather than just diluting demand with a flood of new rooms. Although competing hotels may naturally experience some initial softening in occupancy, boosting overall convention activity might pay off in the long run.

“Will there, out of the gate, be an impact? I think the answer is yes, there has to be,” Freitag said. “But the idea for a lot of these large super-tanker hotels is that they create some of their own demand. Companies like Gaylord, Wynn, Fairmont and Hyatt have large sales organizations which do nothing but sell to large groups and associations. You would assume that they’re selling this fast and furiously today, so the hotel can open with a large number of groups on the books.”

In Austin, McMahon said expansion of the city’s room count is a crucial upward trend as tourism officials push for expansion of the Austin Convention Center, which in terms of square footage presently ranks at the bottom among the top 20 competing Midwest and Southwest cities.

The new Fairmont will be connected to the convention center via the 170-foot Red River Canopy Walk. The plan is for the hotel—and a larger future convention center—to enable Austin to attract a volume of guests that it simply couldn’t manage before, which in turn justifies a larger convention center.

“In addition to our own space, we have the ability to help activate larger programs that may need upward of 2,000 to 3,000 rooms in the CBD,” McMahon said. “We’re able to help attract a higher level of citywide activity. We’re seeing groups that have never been here that are intrigued by all the things that are cool about Austin. You combine that with the ability to have a meeting in a Fairmont, and that’s creating new demand. We’re not necessarily taking business from our competitors; we’re bringing new business to the market, because of the destination and the brand.”

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