Denver�s 2001 lodging industry performed below prior expectations due to a slowing economy and the ongoing technology shakeout. Relative to the year 2000, occupancy rates during 2001 continued to decline as the year progressed while ADR growth began to moderate during the first half of the year, resulting in little to no growth as compared to the prior year.

Cancellation and postponement of several major conventions and group events after September 11 resulted in metropolitan area occupancies of 50 percent to 55 percent during the month of September, as compared to typical occupancies in the range of 70 percent to 75 percent for this period. Many events were rescheduled for October, November and December, mitigating the negative impact of September�s performance on year-end results.

Year-end 2001 RevPAR is anticipated to be approximately 7.5 percent below 2000. October year-to-date figures indicate a year-end occupancy of approximately 62.5 percent, six points below the previously anticipated occupancy. Relatively steady ADR�s are anticipated to be approximately $79 by year-end 2001, also slightly below previous expectations. Continued volatility in the technology market and increases in supply throughout the metropolitan area, are anticipated to result in slightly lower occupancies and stable ADR�s in 2002.

Major Demand Changes

The $268-million expansion of the Colorado Convention Center (�Center�), doubling its capacity to 600,000 square feet, is anticipated to have the largest positive impact on lodging demand. Local politics have pushed back the Center�s opening date to late 2004 or early 2005, relative to the original target of 2003. As such, short-term demand is anticipated to decrease while the Center is under construction and major conventions take place elsewhere through 2005. The new Invesco Field at Mile High opened in August 2001 attracting additional tourist demand to the downtown market. The stadium will host the Denver Broncos, the Colorado Rapids, and numerous special events.
While the entire metropolitan area has suffered increasing office vacancies, the northwest and southeast corridors have been hit particularly hard. The northwest corridor, formerly an emerging high-tech hotbed, saw office vacancies skyrocket from less than 3 percent at year-end 2000 to more than 30 percent in 2001. Consequently, hotels in this area, which previously enjoyed average occupancies of 70 percent, are experiencing quickly diminishing demand from the corporate sector.

The Denver International Airport (DIA) stepped up security measures in response to the attacks on September 11, leading to extreme delays. The general public�s reluctance to fly combined with major delays has resulted in passenger traffic declines. Furthermore, DIA�s largest tenant, United Airlines, reduced flight capacity by 32 percent following September 11. The ultimate impact of this reduction will impact demand throughout the metropolitan area.

Major Supply Changes

In the wake of a weak economy, political setbacks, and the events of September 11, several significant projects have been postponed indefinitely. The Colorado Convention Center�s 1,100-room Hyatt has been delayed due to union protests led by the Hotel Employees and Restaurant Employees upon approval of a $55.35 million subsidy for the project. The $220 million hotel is now rescheduled for completion by 2005. Other planned hotel projects in the downtown market include a $110 million renovation of the 337-room Executive Tower and a $6 million renovation of the 430-room Westin Tabor Center.
The $115 million, 500-room Westin Hotel at the Denver International Airport has been delayed indefinitely due to the decline in business at DIA. Development of three new hotels on a 10-acre parcel in Denver�s northwest corridor was also postponed primarily due to continued technology shakeouts and office vacancies within this submarket.  Moreover, severe declines in hotel occupancy and RevPAR have created uncertainty regarding the viability of planned new supply throughout this high-tech corridor. Hotels planned for this submarket include a 284-room Marriott and a 154-room Marriott Springhill Suites at the Church Ranch Corporate Center as well as a 225-room Renaissance Suites Hotel at the Flat Irons.

Additional proposed projects throughout the Denver metropolitan area include:

• 278-room, full-service Marriott Hotel in the southeast corridor at Park Ridge Corporate Center, anticipated to be complete in October 2002;
• 130-foot tall hotel in Cherry Creek, which will be part of a mixed-use project anticipated to be complete in 2004;
• 174-unit Embassy Suites hotel in the Denver International Business Center near the Denver International Airport; and
• A $20-million, 200-room hotel in downtown Boulder.

After overcoming numerous political and financial setbacks, the ability to complete the Colorado Convention Center expansion project in a timely manner will contribute to Denver�s competitiveness as a group destination. The Center�s postponement thus far has resulted in several lost opportunities for major conventions. In addition, the expediency with which the delays at DIA are resolved will also greatly impact Denver�s lodging industry demand.  Increased security measures and insufficient airport resources continue to result in extreme delays, discouraging travel in and out of Denver. While corporate travel is slowly returning to pre-September 11 levels, near to mid-term prospects for leisure travel continue to experience uncertainty.

Jeff Dallas, Los Angeles
Candace Chase, Denver 

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