The Boston Cambridge market�s increase in occupancy was led by the properties outside of the two central business districts.  This market area (categorized as �Other�), which in 1999 dropped nearly 10 points in occupancy, experienced an 18.3 percent increase in demand lifting its occupancy from 69.8 percent to 75.5 percent in 2000.  The Back Bay market, which in 1999 lost nearly five occupancy points due to the decline in convention demand, grew from 74.9 percent to 78.7 percent.  The downtown market, which experienced the largest increase in supply in 2000 gained more than three occupancy points increasing from 75.5 percent to 78.9 percent as the Hilton at Logan Airport and the Wyndham Boston were absorbed into the market.  

Demand in the Boston Cambridge market grew by 8.9 percent in 2000 compared with only 4.1 percent in 1999.  The largest increase in demand occurred in the �Other� market area, which absorbed new supply and benefited from strong overflow demand from the central business district.  Due to a lack of new supply, Cambridge saw demand increase by only 2.8 percent compared to an increase of 8.6 percent in 2000.  

While average room rate growth continued to outpace inflation, the rate of growth continued to decline, increasing by 6.2 percent in 2000 compared to 6.6 percent in 1999, and 8.9 percent in 1998.  The Downtown (Boston) market achieved the strongest growth increasing by 7.4 percent, but it was followed closely by the �Other� and Cambridge markets at 7.1 and 7.0 percent respectively.  The Back Bay market grew by only 5.3 percent, compared to 7.1 percent in 1999.  

Based on our research into projected supply and demand patterns for 2001, we believe that a decline in citywide conventions will negatively affect demand, however, new supply is not expected to be an issue.  Accordingly, we are projecting a decline in occupancy of approximately two points.  In addition, the market�s downward trend in rate growth is expected to continue due to increased competition and rate resistance.  Accordingly, we expect average room rates to grow by only 5.0 percent in 2000.

Pinnacle Advisory Group is a national hospitality-consulting firm with offices in Boston, Philadelphia, Portland, Houston and the Gulf Coast.  The firm specializes in appraisals, asset management and consulting.