CLEVELAND, Ohio—Occupancy is one of many key performance indicators of a hotel market’s performance.
Two of Ohio’s four major markets recorded decreases in occupancy in 2017. However, it’s easy to miss the big picture if occupancy is the only data point considered, since all four of those markets achieved year-over-year growth in roomnight demand. Supply-and-demand trend analysis helps explain and anticipate market reactions, and understanding the catalyst(s) for a market’s occupancy change is the key to accurate market assessment and credible forecasting.
Over the past two years, regions throughout Ohio have experienced a variety of positive economic developments and large-scale events that have affected hotel performance. The following graph presents the supply and demand year-over-year change by quarter for the combined metropolitan statistical areas of Cincinnati, Cleveland, Columbus and Dayton:
Demand at the beginning of 2017 grew 3.5% from the first quarter of 2016, but demand growth slowed for the remaining three quarters of 2017. Supply followed the same trajectory.
Year-end rooms demand increased 2.3% year over year, and supply increased 2.2% over the same period, which resulted in the combined-MSA average occupancy remaining nearly unchanged at 63.9% for 2017. Supply growth nearly outpaced demand growth, a trend that has been occurring in markets throughout the United States.
To gain a deeper understanding of why and how the markets were affected, an analysis of each MSA follows.
Cincinnati MSA
In 2016, the city opened portions of The Banks, a massive mixed-use development connecting the space between the Cincinnati Reds’ and Cincinnati Bengals’ stadiums. Companies including GE and Paycor expanded their operations in the area, and in downtown Cincinnati, the September 2016 opening of The Cincinnati Bell Connector has been recognized as a major catalyst to downtown Cincinnati’s recent revitalization and increased capital investments.
The following graph illustrates 2017 supply and demand growth in the Cincinnati MSA:
The significant demand increase in the second quarter of 2017 can be attributed to Cincinnati hosting two citywide conventions in May and one in June. Supply growth remained below 3%, except in the fourth quarter, which saw the opening of the 171-room AC Hotel by Marriott at The Banks and Crestpoint Companies’ opening of two Holiday Inn Express properties in Cincinnati and Wilder, Kentucky.
Demand increased 3% in 2017 while supply increased 2.7%, causing the MSA’s average occupancy to increase 20 basis points to end the year at 64.5%, according to STR, parent company of Hotel News Now.
Notable properties opening in Cincinnati in 2018 include the 239-room The Summit, Dolce Hotel—part of Wyndham Hotel Group—in Madisonville and the 106-room The Lytle Park Hotel, Autograph Collection by Marriott, in downtown Cincinnati. The following table presents the net supply additions to the Cincinnati MSA:
Based on Newmark Knight Frank Valuation & Advisory’s tracking of the Cincinnati MSA hotel construction pipeline, supply is projected to increase between approximately 2% and 2.5% year over year in 2018. Beyond 2019, there are plans for 15 hotels, totaling approximately 1,400 rooms in downtown Cincinnati and its suburban markets. However, many of these projects are in the early planning stages, require financing and/or are contingent on being awarded historic tax credits.
Cleveland MSA
Cleveland’s recent economic development includes the revitalization of the downtown CBD, improved Lake Erie access, expansion of the Cleveland Metroparks system and biking trails, and renovation of the Huntington Convention Center of Cleveland. The city also experienced roomnight demand spikes in 2016 from hosting the Republican National Convention and due to playoff success of two of its professional sports teams.
The following graph illustrates 2017 supply and demand growth by quarter in the Cleveland MSA:
Cleveland experienced a significant increase in supply in late 2015 and throughout most of 2016. Many of these hotels were planned before Cleveland was named host of the 2016 RNC. This spurred developers to expedite construction timelines to benefit from the huge influx of demand that would be generated by the RNC. Additionally, the city’s 600-room Hilton Cleveland Downtown—connected to the convention center—opened in May 2016.
It is important to note that the Cleveland MSA enjoyed stellar performance in 2016 partially due to major events such as the RNC and the World Series. Although these one-time events did not recur in 2017, Cleveland-area demand increased 2% for the year. However, supply increased at a higher rate of 4.5% in 2017, causing the Cleveland MSA’s average occupancy to decrease 150 basis points and end the year at 59.7%.
Approximately 1,575 hotel rooms opened in Q1 2016, which explains the significant supply increase in Q1 2017 and to a lesser degree in Q2 2017. The following table presents the net supply additions to the Cleveland MSA:
Based on our tracking of the Cleveland MSA hotel supply pipeline, supply is projected to increase between approximately 2.5% and 3% in 2018, which is 150 to 200 basis points lower than that recorded in 2017. Most developments under construction are in suburban markets. Hotels planned beyond 2019 total approximately 860 rooms, many of which are in downtown Cleveland, but most require financing or are contingent on receiving historic tax credits or tax incentives. This includes the 279-room Curio Collection in the former Huntington Bank building and the 120-room hotel that is part of Stark Enterprise’s nuCLEus development.
Columbus MSA
Interest in development projects in downtown Columbus and in suburban markets remains strong. The $140-million renovation and expansion of the Greater Columbus Convention Center was completed in 2017. Amazon selected Columbus as one of 20 finalists to land its second headquarters, which emphasizes the region’s attractiveness for corporations.
The following graph illustrates supply and demand year-over-year percent changes by quarter in 2017 for the Columbus MSA:
New supply in Columbus entered the market primarily in the third and fourth quarters, with the largest openings including the 240-room Marriott Columbus OSU and 150-room AC Hotel by Marriott Columbus Dublin. Demand increased most in the first and fourth quarters due to increased convention business; demand growth was modest in the middle of the year. Demand increased 2.4% in 2017, while supply increased 2.6%, causing the Columbus MSA’s average occupancy to decrease 10 basis points to end the year at 65.8%, according to STR.
The opening of most hotels in third and fourth quarter 2017 and several projects anticipated to open in first and second quarter of 2018 will result in elevated supply increases in the first half of the year. The largest property planned to open the first half of 2018 is the 222-room Renaissance Hotel & Conference Center in Westerville. The following table presents the net supply additions to the Columbus MSA:
Supply in Columbus is projected to increase between 3% and 3.5% in 2018. Seven hotels are due to open in 2018, and two additional properties are scheduled to open in 2019. After 2019, openings are planned for roughly 20 hotels totaling more than 2,180 rooms, mostly within Columbus city limits. However, most of the properties are in the early planning stages, require financing or are contingent on receiving historic tax credits and/or tax incentives.
Dayton MSA
Dayton has seen a number of economic-development projects in the last few years, including job growth and capital investments from nonprofit CareSource, and several projects such as Austin South Springboro, Water Street District and Levitt Pavilion are already under construction. For future development, University of Dayton and Premier Health Partners have proposed the redevelopment of the Montgomery County Fairgrounds, which would become a large mixed-use development.
The following graph illustrates supply and demand year-over-year percent changes by quarter in 2017 for the Dayton MSA:
Dayton recorded modest growth in rooms supply, while demand growth was near and below 0% in three of the four quarters. The decline in demand is partly attributed to the 184-room Dayton Grand Hotel closing in December 2016. The property was renovating as part of a conversion to a DoubleTree by Hilton, but the hotel remained closed as those plans were abandoned. Two new properties opened in the region: the 109-room Staybridge Suites in Miamisburg—which generates demand from several corporations, including Teradata, LexisNexis and MetLife—and Austin Landing, a hub for entertainment, dining and Class A office space.
Demand increased 0.4% in 2017 while supply increased 2.1%, causing the Dayton MSA’s average occupancy to decrease 110 basis points to end the year at 62.2%, according to STR.
The following table presents the net supply additions to the Dayton MSA:
Dayton’s hotel supply is projected to increase between 3.5% and 4% in 2018. The five properties projected to open in 2018 are upper-midscale brands with an average guestroom count of 95 and include Hampton Inn by Hilton, Home2 Suites by Hilton, Holiday Inn Express and Fairfield Inn. Proposed developments in 2019 and beyond are primarily upper-midscale properties in Beavercreek, Huber Heights and Miamisburg. However, most of the properties are in the early planning stages, and many have yet to secure financing.
Focus on more than occupancy
Our examination of these four Ohio MSAs’ recent hotel supply and demand changes provides reasoning behind the resultant rise or fall in occupancy percentages. Columbus and Cincinnati incurred only slight average occupancy changes since the markets’ supply and demand increases were nearly in balance. In contrast, Cleveland’s recent hotel room supply additions have outpaced the region’s increase in demand, causing 2017 occupancy to decline. The Dayton MSA encountered an unusual situation when a large downtown hotel—one that generated significant group demand—closed and adversely affected demand and occupancy for the entire market.
This analysis reveals that comparing hotel occupancy changes among various MSAs might not accurately reveal market conditions. Examining additional KPIs—such as room supply and demand trends—is vital when attempting to accurately assess the health of a hotel market, gauge the need and timing for additional hotels, or when forecasting changes in rates, occupancy and revenue.
Laurel A. Keller, MAI is a senior vice president of Newmark Knight Frank Valuation & Advisory’s Hospitality, Gaming & Leisure practice in the Cleveland, Ohio office. Ms. Keller has been a hospitality consultant and appraiser since 2001 and has completed studies in 34 states. Ms. Keller’s expertise is in the appraisal and feasibility analysis of hotels, resorts, golf courses, amusement parks, ski resorts, indoor and outdoor waterparks, casinos, and family entertainment centers. Combined with her background in hotel and country club operations, she offers more than 20 years of hospitality consulting and management expertise in completing feasibility studies, brand-on-brand impact studies, appraisals, operational reviews, and economic impact studies. Contact her at 216.453.3023, or Laurel.Keller@ngkf.com.
John A. Kelley III, CHIA, joined Newmark Knight Frank’s Valuation & Advisory practice in 2018 and currently serves as a senior analyst for the Hospitality, Gaming & Leisure practice in the Cleveland, Ohio office. An eight-year hospitality and leisure real estate veteran, Mr. Kelley has substantial expertise in the valuation and advisory of amusements, convention and conference centers, hotels and resorts, waterparks, and other leisure-related assets. He has completed appraisals and feasibility studies on assets ranging from $1 million to $300 million and more. Contact him at 216.453.3083, or John.Kelley2@ngkf.com.
The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.