REPORT FROM THE U.S.—Some hotel owners and operators believe markets dominated by colleges or universities are recession-proof, or close to it. They’re not, but these markets do generate stable hotel demand, with occupancies and rates to match, sources said.
“They’re somewhat insulated from the economy,” said Brad Robinette, senior VP of transitions and new business for Sage Hospitality, which has operated hotels in college environments including Tempe, Arizona; College Station, Texas; Missoula, Montana; and others. “If you look at the last two or three (economic) downturns, universities have continued to grow. Maybe the growth slows a little bit, but they continue to grow.”
Robinette said Sage is developing an Embassy Suites/Hilton Garden Inn dual-branded property in Boulder, Colorado, home of the University of Colorado, where it also operates a Homewood Suites. The company also is developing a hotel in Fort Collins, Colorado, site of Colorado State University. In late 2012, the company was part of a venture that purchased the Commonwealth Hotel in Boston on the campus of Boston University.
“Over time, universities have diversified the complexion of their businesses,” Robinette said. “Research universities, for example, are constantly bringing in people from around the world. And that demand for hotels is on top of business from parents, vendors and business generated by athletic programs.”
Plato Ghinos, president of State College, Pennsylvania-based Shaner Hotel Group, said operating hotels in university towns offers benefits not found in some other markets.
“Living and breathing in a university town for more than 30 years has been very beneficial for us,” he said. “It’s a great environment for the company to continually change and progress and keep up with the trends in society.”
Shaner operates five hotels in State College, home of Pennsylvania State University, as well as properties in Newark, Delaware, near the University of Delaware; and Glassboro, New Jersey, home of Rowan University.
“We like the environment a university or college offers, and if there is a hotel school (at the university) it is even more attractive for us because we can interact with the hotel students and faculty,” Ghinos said. Both Penn State and the University of Delaware have hotel management academic programs.
“We use the faculty for research, and we use the students for internships and also research, especially on new areas of the industry, specifically (information technology) and social media,” Ghinos said. “You get a 21-year-old student, and they are as knowledgeable as having a Ph.D. on that topic. It’s a great resource for us.”
Stable but below averages
According to a new study, demand for hotels in markets dominated by colleges and universities is more stable than for both the United States and similarly sized cities.
“I expected occupancy would be relatively stable in those markets, but what was surprising is that average rates are also more stable in those markets than in average markets,” said John O’Neill, study author and director of the school of hospitality management at Penn State.
The study looked at hotel performance data at 27 university markets. It showed that while since 1990 university town occupancies have been generally below U.S. averages, they’re more stable than the overall U.S. market.
During the 23-year period (1990 through 2013) covered in the study, university town occupancies rose slightly on an annual basis, while the U.S. occupancy rate declined at an annual average rate of 0.1%. Average daily rates in college markets were typically lower than U.S. averages, with ADRs ranging from 76.4% and 87.3% of total U.S. figures.
These trends continued in 2014 in select university markets. According to data from STR, parent company of Hotel News Now, 2014 occupancy in the central Pennsylvania market that includes State College was 55.3%, an increase of 1.3% over the previous year. Occupancy for the total U.S. hotel industry in 2014 was 64.4%, a 3.6% increase over 2013.
In Missoula, Montana, home of University of Montana, 2014 occupancy was 58.7%, up 3.1%, while in the Ithaca/Elmira, New York, market (Cornell University, Ithaca College), occupancy was up 4% to 54.9%.
Ghinos said it is difficult to generalize about hotel performance in college markets.
“These markets cut both ways,” he said. “You have situations in which these markets can be very price-sensitive during certain periods. But there are also some peak demand periods, such as around graduation or other large events, where you have a lot of price elasticity.”
Relationship marketing
Like most hotel marketing, selling a hotel in a college environment requires building relationships, sources said.
“The key is developing and maintaining an ongoing relationship with the university and with the individual departments,” said Phill Burgess, VP of sales and revenue optimization for John Q. Hammons Hotels & Resorts. “University organizational structures can be daunting, but when our hotel is considered a valued partner, both the business transient and group segments benefit.
“During holidays and summer months, universities continue to generate demand from organizational events supporting the arts and concerts. The energy and vibrancy of a university continues year-round,” he said.
Even though many universities generate hotel demand on a 12-month basis, some times of the year create challenges for hotel marketers.
“When a university shuts down for the Christmas holidays or between semesters, the towns empty and so does our business,” Ghinos said. “During those times, all you can do is work with the universities or other demand generators to create events during those times or convince them to shift some events into those quiet periods.”
Where to build
While all universities generate some hotel demand, certain markets are better candidates for hotel development.
“Universities that have a strong ongoing relationship with both local and national corporate partners usually have positive momentum in all other areas of the university,” Burgess said. “A school with strong senior leadership often translates into a school with long-term vision, not only for the university but for their students and post-graduation success.”
As part of his study of college markets, O’Neill found several factors—the amount of grant funding the university receives and the size of its graduate student population—developers should consider when assessing a university market for a new hotel.
“I had a sense area employment trends would be a decent predictor of lodging demand, and they are,” he said. “Grant funding is how you define a research university, and it usually generates a lot of commerce. Grant funders come in (to visit the university), the researchers sponsor conferences and symposia, and this all generates visitation, which puts heads in beds.”
He added that graduate student population correlates with grant funding as a hotel demand generator.
“As universities generate more grant funding they need more graduate students to support that research,” he said.
Correction, 2 March 2015: An earlier version of this story listed the hotel on Boston College’s campus. The caption has been updated.