An even mix of business and diverse demand drivers can help prop Philadelphia up in a downturn, according to sources.
PHILADELPHIA—While Philadelphia has been no stranger to feeling the global effects of the COVID-19 pandemic, there is optimism that the city will recover quickly once the dust settles and people start traveling again, according to sources.
One reason? Philadelphia offers a diverse set of demand drivers, with many able to withstand a downturn, according to Joe Del Guidice, VP of operations at PM Hotel Group, which operates two hotels in the market.
“I really believe that Philadelphia will be quick to recover after the current crisis. We have biotech, universities and health care systems, all of which are more immune to economic downturns,” he said. “Easy accessibility by air and Amtrak to major cities, such as D.C., New York City and Boston, will also be a factor. And, the city’s position as a historical gem will all help contribute to its recovery and growth.”
Ed Grose, executive director for the Greater Philadelphia Hotel Association, agreed that Philadelphia is poised for recovery.
“I think we’ll recover faster than most cities. After 9/11, the city recovered faster,” he said. “I think we’re in for a tough couple of months, but I don’t see that lasting once we’re out of this.”
Grose agreed that the city is drivable from other markets such as Boston, Pittsburgh and Washington, D.C.
“For people who are still going to be nervous about traveling abroad, a lot of domestic cities will do well,” he added.
Kavin Schieferdecker, SVP of the convention division at the Philadelphia Convention and Visitors Bureau, echoed those sentiments.
“Philadelphia has shown time and again that we are a resilient destination that digs deep and exhibits unstoppable ingenuity and grit when times get tough. We already have the wheels in motion to produce a strong recovery effort based off lessons learned and best practices,” he said. “We remain very optimistic that the tourism industry will come back to pre-coronavirus levels and continue the momentum and growth we had experienced as a destination over the last five to 10 years.”
As of March, Philadelphia’s occupancy was down 45.2% year over year to 37.5%, according to STR, the parent company of Hotel News Now. Its average daily rate was down 16.8% to $108.28 and revenue per available room decreased 54.4% to $40.64.
Historically Philadelphia has enjoyed robust demand from conventions, but now it is certainly being dealt a large blow as meetings business has come to a halt. Jerod Byrd, managing director and senior partner in the Philadelphia office of HVS, said that’s a reason he believes Philadelphia will be slower to recover.
“I think it will be a slower recovery for Philadelphia versus other secondary or tertiary markets that aren’t as impacted by convention-oriented business. There will be so many unknowns when travel restrictions are lifted,” he said. “It’s going to take about three to four years for RevPAR to reach where it was in the market in 2019. The biggest hit is obviously this year, and in 2021 we’ll see a significant recovery in RevPAR but not quite to the 2019 level. So, 2022 or 2023 will be more in line with the timing Philadelphia will start to recover from a RevPAR perspective.”
Del Guidice said that Philadelphia does rely heavily on citywide conventions, as it operates one of the 10 largest convention centers in the country. The convention center also underwent a $787-million expansion in 2011, increasing its size by 62%. But Del Guidice said the journey hasn’t been without its issues, even before the coronavirus.
“One of our biggest challenges is encouraging companies to return to Philadelphia after some of them experienced poor service when dealing with the Philadelphia convention center,” he said. But still, he’s optimistic: “Great improvements have been made in recent years, and the city delivers so much from history and culture to culinary excellence that we know it’s poised for resurgence.”
So as sources said big conventions are a target moving forward, does the city have enough hotel rooms to house the demand? Some said there’s no fear there.
“Philadelphia’s hotel inventory has been growing steadily in recent years due to surging demand and consistently high annual occupancy levels—hovering close to 80% for most of the year,” Schieferdecker said.
He added that in 2019, hotel’s in the city center set a record for annual hotel room revenue at $706 million. Meanwhile, the convention and group segment generated more than 1.1 million hotel roomnights in Philadelphia, leading to $234 million in hotel room revenue.
“In 2019, we had two new hotels open (Four Seasons Philadelphia and Pod Philly). Prior to the COVID-19 outbreak, there were six hotels under construction that were expected to open in (the city center) by the end of 2021,” Schieferdecker said. “As our hotel package continues to grow and diversify, it will be an important component to our destination’s overall recovery.”
Through March, STR’s pipeline report showed that the Philadelphia market had 13 hotels with 2,259 rooms under construction.
However, Byrd said that once travel resumes to normal levels, Philadelphia will need more hotel rooms.
“Over the years, the market has lost convention business because of a lack of larger box hotels,” he said. “There’s been some compression in the airport market and other markets, but those markets won’t see as much spillover once new hotels come into downtown. Of course, we do expect some delays with the hotels underway because of material delays and delayed openings because of current conditions or financing challenges.”
An even mix
But convention business is not the only thing Philadelphia relies on. Schieferdecker and Grose said there’s a pretty even mix between leisure, business and group demand, each capturing about one-third of total roomnights sold. And that combination can certainly lead to some optimism for the market looking forward.
“It’s helped the city grow in ‘boom’ times and will allow us to sustain during economic downturns, knowing we are not overleveraged in one segment,” Schieferdecker said.
Byrd and Del Guidice said that health care (Children’s Hospital of Philadelphia, University of Pennsylvania and Jefferson Health Care Systems), education (University of Pennsylvania, Temple University and Drexel University), and increasing legal and technology companies will continue to be huge drivers in the market. Del Guidice said leisure will still play a big factor in the future due to the city’s many historical sites. Additionally, he said Philadelphia has also emerged as a top restaurant destination, which helps bring in demand.
All those drivers lead Del Guidice to remain bullish about the market, and he said PM Hotel Group anticipates it will add more properties to its Philadelphia portfolio.
“As the city of Philadelphia has been a growth city for the past few years and looks to have strong growth potential in the coming years, we do anticipate growing our footprint in the area,” he said.