Monday, March 19, 2007

Downtown hospitality business gains on marketing efforts and weak dollar.

The hotel business in downtown Los Angeles has staged a strong comeback from the alarmingly low occupancy levels following the terrorist attacks of three years ago, far outpacing the region-wide rebound.

The occupancy rate at downtown hotels through the first nine months of the year averaged 59.9 percent, an 11-point increase from the year-earlier period. That 49.1 percent level for January-September 2003 was the lowest for the period on record, according to data from PKF Consulting, though it was still higher than the low-water mark: December 2002, which saw occupancy at 35.4 percent.

Countywide, occupancy during the first nine months of this year was 75.8 percent, 6.4 points higher than the year earlier.

A general rebound in the travel business, fed by a weakening dollar and a falloff in fears over terrorism and SARS, has had a positive effect

in all markets. But downtown hoteliers have built on those gains to outpace the rest of the region.

Their efforts range from taking advantage of the area's burgeoning cultural and residential renaissance to making more effective use of third-party reservation systems such as that reach more potential customers. This year's increase in convention activity, though expected to be short-lived, also played a role.

"Group convention business this year was 35 percent better than the previous year," said John Stoddard, general manager of the 900room Wilshire Grand Hotel. "That's not bookings for conventions at the Convention Center, but small conferences that just use our facility. This year through October, we had 34,000 room-nights, versus last year when we had 26,000. Until downtown gets a big convention center hotel, that's the business we're going to be going after next year."
Another positive sign: the gains have not come at the expense of room rates. Across the county, average rates in the first three quarters were $119.98, 5 percent higher than the like period a year earlier. Downtown's rate increased a more modest 3.6 percent, to $121.33 per night.

"Downtown hotel management has figured out how to better market to leisure and business travelers," said Wayne Williams, president of hotel asset management firm Williams & Associates. "There are shifting distribution channels. It's a combination of desperation and learning to use those tools. The Westside markets really don't rely as heavily on third-party Internet providers such as"

Downtown has the largest number of rooms in the region, and despite the gains it remains the sub-market with the most vacancies. That is unlikely to change for some time.
Inching back

More than any other submarket in the region, the fortunes of downtown hotels are tied to the success of the Convention Center, which in 2005 will host fewer conventions than it had this year.

There were actually fewer conventions held in L.A. this year, but the recovering economy boosted discretionary travel spend-lug, meaning more delegates were able to attend. The 15 conventions this year yielded 226,000 room nights, while the 16 last year generated 135,000 room nights.

"Next year, we're looking at 13 conventions. It's only two less, it doesn't sound bad. But the current room blocks reserved for next year are only 84,000. It's very discouraging," Stoddard said.
Supporters of a new convention center hotel point to the declining numbers as another reason to speed development, arguing the presence of another 1,000 beds next to the center would attract large conventions.

"We've done well to get to this point," said Bruce Baltin, a senior vice president at PKF Consulting. "But we still need a convention headquarters hotel to get over the hump, to get back to the approximately 70 percent occupancy level."

The "hump" is the 69.5 percent average occupancy downtown in 2000, a high-water mark reached with the help of the Democratic National Convention.

That year, revenue per available room reached a high of $85.77, about 9.8 percent higher than in 1999. Revenue per available room, calculated by dividing revenue from occupied rooms by a hotel's total stock, hit $59.43 downtown last year, a record low. This year
it is expected to rise to $74.19.

Absent the new convention center hotel, which optimistically won't be delivered until late 2007, the downtown market will have to rely on homegrown attractions and a wider economic recovery to maintain growth.

"Downtown has historically lost hotel business to other parts of L.A. because there was nothing to do at night," Baltin said. "Business travelers go to downtown because that's where the business was. In the past, they'd come to do business downtown but stay in hotels on the Westside or Pasadena."

Alan Reay, president of Atlas Hospitality Group, a hotel brokerage and consulting firm, said various factors are lessening the importance of conventions. "You now have a changing, younger demographic downtown. If L.A. can capitalize on that and make it more of a destination, and if the Grand Avenue (revitalization) project and the Staples Center development all happen, then it looks very good for downtown hotels," he said.
The biggest factor in increasing occupancy and room rates may be the falling dollar, which has pumped up tourism by making international travel to the U.S. cheaper for Europeans and Japanese business travelers and tourists. Last week, the exchange rate fell to record lows against the Euro and the British pound.

"Especially with the absence of SARS, and other international crises, travel is coming back, the exchange rate has boosted travel and hotel occupancy," said Michael Collins, executive vice president of LA Inc., the convention and visitors bureau. "If you're British, it's fiscally irresponsible for you not to round up your family and go on a trip to the U.S. immediately."