U.S. Hotel Appraisals Hotel Market Snapshot: Boston
Diverse and non-reliant on any single sector, Boston’s economy has endured the recent recession with relative vigor, setting up the city’s hotel industry to make a strong comeback. The following article notes some recent developments and where Boston-area hotels stand going into 2012.
by Brian Bisema
Boston is one of the oldest, most diverse, and heavily visited cities in the United States, with millions of travelers arriving annually from the commercial, leisure, and meeting and group sectors. While the city’s hotel industry has been hard hit, we need to put the most recent recession into perspective. Boston lost 71,000 jobs (11% of total employment) over four years in the recession of the early 1990s and another 41,700 jobs (6.2% of total employment) during the 2001/02 recession. In the wake of the 2008/09 recession, Boston finds itself faring much better than the nation as a whole, particularly because the most vulnerable sectors nationwide, construction and manufacturing, count for only a fraction of the city’s economic structure. The strongest sectors—professional and business services, health care, and educational services—encompassed 43% of the city’s jobs before the onset of the recent economic downturn. 1
Following the recession, it looks as if two pillars of Boston’s economy, health care and higher education, will play an even greater role in supporting the city’s future growth.2 Regional forecasts suggest that Boston will recover all jobs lost to the recent recession in 2013.3
Market Indicators
The following points highlight some of the strengthening market conditions in Boston.
The Hotel Sector
Similar to trends seen across the U.S., the Greater Boston lodging industry responded to the recent recession by discounting room rates in 2009. Occupancy also fell to the lowest level since the 2001 recession, registering in the high-60% range. Nevertheless, interviews with hotel managers in the market reveal that the decline in average rate was short-lived, as a modest level of pricing power returned to Boston hotels in 2010. Full rate recovery is expected to lag the normalization of demand, a pattern that also occurred subsequent to the 2001/02 recession.
Unlike 2010, during which stronger demand drove hotel performance gains, it is expected that RevPAR growth in 2011/12 will be driven primarily by a rise in average rate, especially as the lack of proposed supply averts the competitive drain on pricing power. The Boston market is actually experiencing a hiatus from 13 years of hotel development that increased the area’s total room supply by 52%. Since 2009, roughly 380 rooms have been added to the market through the construction of new hotels such as the 30-room Hotel Veritas, the 113-room Ames Hotel, and the 235-room W Hotel.
Hotel Transactions
Although Boston wasn’t affected as severely as most other U.S. markets in terms of occupancy and average rate performance, the recent recession made its impact on the transaction side of the industry. The following table represents hotel transaction activity in Boston from 2002 through June of 2011.
The deep dent left by the recession is evidenced by the near absence of hotel transactions in the city for 2008 and 2009, though activity began to pick up in 2010 with the sale of three branded hotels.
Conclusion
Boston’s strengths as an internationally known destination city for tourists, commercial travelers, and conventioneers remain in place, positioning the city for future growth as the U.S. and world economies find their bearings. While transactions activity was nearly buried in the depths of the recent recession, four high-profile hotels have sold in the past 18 months, and hotel performance as a whole is trending upward. If supply stays in check, as looks likely, existing hotels in Boston stand to readily make up ground lost in the downturn.
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1 - Research Division, and Alvaro Lima. Boston Economy in 2010. Boston: Redevelopment Authority, Jan. 2011. Print.
2 - Research Division, and Alvaro Lima. Boston Continues to Give More Than it Gets. Rep. Boston: Boston Redevelopment Authority, Apr. 2010. Print.
3 - Research Division, and Alvaro Lima. Boston by the Numbers - Economy and Jobs. Rep. Boston: Boston Redevelopment Authority, Mar. 2011. Print.
4 - http://bostonrealestate.citybizlist.com/7/2011/7/25/Grubb--Ellis-Q2-2011-Boston-Office-Market-Snapshot.aspx
5 - Massachusetts Convention Center Authority press announcement on July 12, 2012
Diverse and non-reliant on any single sector, Boston’s economy has endured the recent recession with relative vigor, setting up the city’s hotel industry to make a strong comeback. The following article notes some recent developments and where Boston-area hotels stand going into 2012.
by Brian Bisema
Boston is one of the oldest, most diverse, and heavily visited cities in the United States, with millions of travelers arriving annually from the commercial, leisure, and meeting and group sectors. While the city’s hotel industry has been hard hit, we need to put the most recent recession into perspective. Boston lost 71,000 jobs (11% of total employment) over four years in the recession of the early 1990s and another 41,700 jobs (6.2% of total employment) during the 2001/02 recession. In the wake of the 2008/09 recession, Boston finds itself faring much better than the nation as a whole, particularly because the most vulnerable sectors nationwide, construction and manufacturing, count for only a fraction of the city’s economic structure. The strongest sectors—professional and business services, health care, and educational services—encompassed 43% of the city’s jobs before the onset of the recent economic downturn. 1
Following the recession, it looks as if two pillars of Boston’s economy, health care and higher education, will play an even greater role in supporting the city’s future growth.2 Regional forecasts suggest that Boston will recover all jobs lost to the recent recession in 2013.3
Market Indicators
The following points highlight some of the strengthening market conditions in Boston.
• The Greater Boston office market experienced positive trends in office space statistics in the second quarter of 2011, when 560,000 square feet of net absorption marked the fourth straight quarter of gains in tenant occupancy. With the migration of more businesses to Boston, the CBD experienced its strongest net occupancy gain in over two years. Average rents are up modestly and are expected to continue to increase in the near term.4
• Favorable convention center statistics also bolster Boston’s economy. The city’s two convention centers, the Boston Convention & Exhibition Center and the John B. Hynes Veterans Memorial Convention Center, registered 239 events with 773,387 attendees in 2010, an increase of approximately 8% in events and 12% in attendees from 2009. Furthermore, 77 events have been booked in the fiscal year ending June 2011, the most advance bookings signed at these two venues since 2007. This figure represents a 10% increase over the number of meetings booked in 2010, resulting in a 37% bump in projected hotel room nights and a 60% rise in attendance, according to convention center officials. The events are estimated to generate a $676.8-million economic impact for the state of Massachusetts and bring in $43.2 million in state and city taxes.5
• Airport passenger levels are also experiencing growth. Boston Logan International Airport, the largest in New England, handled 27,428,962 passengers in 2010, a 7.5% increase over 2009; this positive trend continued into the year-to-date period through May of 2011.
The Hotel Sector
Similar to trends seen across the U.S., the Greater Boston lodging industry responded to the recent recession by discounting room rates in 2009. Occupancy also fell to the lowest level since the 2001 recession, registering in the high-60% range. Nevertheless, interviews with hotel managers in the market reveal that the decline in average rate was short-lived, as a modest level of pricing power returned to Boston hotels in 2010. Full rate recovery is expected to lag the normalization of demand, a pattern that also occurred subsequent to the 2001/02 recession.
Unlike 2010, during which stronger demand drove hotel performance gains, it is expected that RevPAR growth in 2011/12 will be driven primarily by a rise in average rate, especially as the lack of proposed supply averts the competitive drain on pricing power. The Boston market is actually experiencing a hiatus from 13 years of hotel development that increased the area’s total room supply by 52%. Since 2009, roughly 380 rooms have been added to the market through the construction of new hotels such as the 30-room Hotel Veritas, the 113-room Ames Hotel, and the 235-room W Hotel.
Hotel Transactions
Although Boston wasn’t affected as severely as most other U.S. markets in terms of occupancy and average rate performance, the recent recession made its impact on the transaction side of the industry. The following table represents hotel transaction activity in Boston from 2002 through June of 2011.
The deep dent left by the recession is evidenced by the near absence of hotel transactions in the city for 2008 and 2009, though activity began to pick up in 2010 with the sale of three branded hotels.
Conclusion
Boston’s strengths as an internationally known destination city for tourists, commercial travelers, and conventioneers remain in place, positioning the city for future growth as the U.S. and world economies find their bearings. While transactions activity was nearly buried in the depths of the recent recession, four high-profile hotels have sold in the past 18 months, and hotel performance as a whole is trending upward. If supply stays in check, as looks likely, existing hotels in Boston stand to readily make up ground lost in the downturn.
_______________
1 - Research Division, and Alvaro Lima. Boston Economy in 2010. Boston: Redevelopment Authority, Jan. 2011. Print.
2 - Research Division, and Alvaro Lima. Boston Continues to Give More Than it Gets. Rep. Boston: Boston Redevelopment Authority, Apr. 2010. Print.
3 - Research Division, and Alvaro Lima. Boston by the Numbers - Economy and Jobs. Rep. Boston: Boston Redevelopment Authority, Mar. 2011. Print.
4 - http://bostonrealestate.citybizlist.com/7/2011/7/25/Grubb--Ellis-Q2-2011-Boston-Office-Market-Snapshot.aspx
5 - Massachusetts Convention Center Authority press announcement on July 12, 2012
About the Author:
Brian Bisema is Managing Director of the U.S. Hotel Appraisals office in Boston. Brian graduated from Boston University with a degree in Hospitality Administration and has lived and worked in the city and its suburbs for more than 20 years. A state-certified appraiser, Brian has conducted or supervised more than 200 assignments for limited-, select-, and full-service hotels and resorts in markets throughout New England. Contact Brian at +1 (781) 454-8930 or bbisema@ushotelappraisals.com.