with Improvement Predicted
|By: David J. Sangree, MAI, CPA, ISHC, Joe Pierce, and Laurel Keller
The Cleveland lodging market, along with the Cleveland economic picture overall, is a mixed bag of positives and negatives. 2003 remained a buyers market for the lodging industry in Cleveland while 2004 should see improvement, at last, in both occupancy and ADR.
Occupancy and ADR’s
Although occupancy within the Cleveland market grew slightly for the
twelve months ending December 2003, it was paid for with a drop in ADR
for the third consecutive year. The combination of a modest occupancy growth
and declining ADR has led to the lowest market RevPAR in recent memory.
For the first time in many years, the growth in demand in 2003 for rooms
outpaced the available supply. The following chart shows the Cleveland
MSA historical lodging performance and our projected performance for 2004.
The Cleveland MSA includes all hotels (22,158 rooms) located in Cuyahoga,
Lake and Medina counties.
The downtown Cleveland market includes seventeen hotels with 4,014 rooms. For 2003, the downtown market finished with occupancy of 56.1% and an ADR of $102.32 which compared unfavorably to 2002’s occupancy of 57.2% and ADR of $108.15. The market suffered its third consecutive year of RevPAR decline in 2003.
The following chart shows the occupancy and ADR for the Cleveland MSA
submarkets for 2003.
Unlike 2002, in which several new properties joined the supply of hotel rooms, 2003 saw only three new additions: the 300-room InterContinental Hotel and Conference Center in Cleveland, the 75-room Country Inn and Suites in Elyria and the 120-room Springhill Suites in Solon. New developments in 2004 are expected to be even more modest as the sluggish regional economy and tight money has kept developers on the sidelines. This, of course, is very positive to the ears of hotel operators who have been struggling to absorb the oversupply of recent years.
The following chart depicts recent and planned hotel supply additions
in the greater Cleveland area since 2000.
The Cleveland – Lorain – Elyria MSA ranks twenty-fourth in the nation for population, yet Cleveland Hopkins International Airport is the thirty-eighth busiest airport in the country. To increase the airport’s capacity a new runway was opened in December 2002.
Currently a runway is being extended 2,000 feet to accommodate wide-bodied planes. When the airport expansion project is complete in 2016 it will double the number of airport jobs and have an estimated monetary impact of $5.1 billion dollars on the regional economy. The expansion of Hopkins Airport is the most important current economic development project in the Cleveland market.
As originally planned the airport expansion would require that the adjacent International Exposition Center (I-X Center) be demolished. The I-X Center has over 1 million square feet of space, with an 800,000 square foot main exhibit hall and is the ninth largest convention center in the world. Cleveland’s other convention facility is the 375,000 square foot Cleveland Convention Center which is located in downtown. The Convention Center was constructed in 1964 and is built underground. The facility underwent a renovation in 1988, but is dated by current day meeting planner expectations. When the airport expansion was unveiled, along with the I-X Center demise was the expectation and enthusiasm for a new convention facility. As the City of Cleveland faces significant budget shortfalls, coupled with a stagnant regional economy, the new convention facility lacks strong political support and a method to finance its construction and operation. The business community continues to support such a facility, but has not yet found the vehicle to sell the project to the general public.
An upgrade in airport capacity coupled with a new state-of-the-art convention
facility for Cleveland would help attract conventions to the Cleveland
market. The following table presents historical convention activities in
the Greater Cleveland area:
As shown, the number of conventions is relatively flat when comparing 2003 to 2002, with a modest increase over 2001. Attendance of the past two years, however, pales when compared to the attendance figures of 2001. 2004 appears to be off to a better start as the Convention and Visitors Bureau of Greater Cleveland has stated that bookings for this year are 14% ahead of 2003. With growing competition from newer regional venues such as Pittsburgh and Cincinnati, the CVB has been pursuing groups which show a willingness to meet in atypical environments such as Cleveland State University Convocation Center and the Gund Arena.
The following table lists the top five conventions planned for the Cleveland
area for 2004.
As with the City of Cleveland, the CVB is being forced into belt tightening. The CVB is reducing programs and advertising in the face of budget reductions. In 2000, the CVB spent $2 million in leisure advertising, but only $400,000 in 2003. They look to spend between $600,000 and $800,000 in 2004 for leisure advertising.
Sales and Assessments
The stagnant economic conditions of the region have impacted the values of lodging properties. Some hotel owners have aggressively pursued dramatic downward valuations of their real estate holdings for tax purposes as recent sales indicate that assessed values are too high.
The following table indicates 2003 sales in the Cleveland market and
the respective assessed value.
As shown, recent sales were vastly over assessed by the Cuyahoga County assessor's office. We project more owners of hotels to ask for their property values to be reduced. The following table shows available listings for properties within the Cleveland market.
The Holiday Inn Airport opened in 1971 and most recently underwent a $5 million renovation in 2001. The Radisson and Holiday Inn Westlake opened in 1978 and 1970 respectively.
Regional attractions define a market as a tourist destination and improve
the quality of life for the area residents. As with other aspects of the
Cleveland market, the area attractions have been a mixed bag of performance.
After years of division winning performances, the poor performance of the
Cleveland Indians baseball team has caused attendance to drop. The Cleveland
Cavaliers basketball team, after a terrible 2002 – 2003 season with many
nights playing to a near empty arena, has new energy focused around the
drafting of a local high school star LeBron James and the team’s improved
play. The Cleveland Browns have been a consistent draw since re-entering
the National Football League, but in 2003 brought significant room nights
to downtown when they appeared on Monday Night Football. Attendance fell
again in 2003 at Six Flags Worlds of Adventure, the largest theme park
within the Cleveland MSA. The park has struggled with issues associated
with the combination of two theme parks into one and the failure to introduce
new rides to the park. The park has no plans to introduce a new ride in
2004. Weather also played a significant roll as the summer was wet and
cool. Cedar Point also had attendance issues early in the summer due to
weather and mechanical difficulties with their new roller coaster Top Thrill
Dragster. However, as the weather improved in August, coupled with the
repair of the new coaster, attendance figures for the year managed to surpass
2002. Cedar Point is also not intending to introduce a new ride to its
amusement park; however it is looking to upgrade the Soak City waterpark
segment of the facility, as part of a $10 million renovation. This will
include the introduction of a multi-level interactive play area called
Splash Zone. They are also upgrading the Radisson Sandusky Hotel into an
indoor waterpark resort called Castaway Cove which will open in November
2004. The following table shows attendance figures for leading attractions
in the Cleveland market.
The Cleveland lodging market has been soft for a number of years, exacerbated by the events of 9/11 and the slumping economy. As recent sales have shown, the market value of property assets has fallen with the economic climate and appeals are expected to occur for assessment purposes. But we are hopeful the bottom has been reached. With an improving national economy and minimal investment into new hotel rooms, hotel operators may show ADR growth in addition to occupancy improvement. The positive movement will still be modest as the area lacks a significant new demand generator and continues to side step the issue of a new convention center.
US Realty Consultants
|Also See:||Hotel Capitalization Rates Drop Further / May 2005|
|Cleveland’s Lodging Market: A Slow Climb Back / David J. Sangree & Joseph Pierce/ February 2005|
|Indoor Waterpark Resorts Continue Impressive Growth in ‘05; a Viable Segment of the Travel / David J. Sangree / January 2005|
|Indoor Waterpark Resorts Expand Nationwide / David J. Sangree / April 2004|
|Cleveland Lodging Market at Bottom with Improvement Predicted / US Realty Consultants, Inc. / January 2004|
|Hotel Capitalization Rates Drop Again / David J. Sangree, MAI, CPA, ISHC / April 2004|
|Appraisal and Financing of Indoor Waterpark Resorts / David J. Sangree / October 2003|
|Hotel Capitalization Rates Drop / David J. Sangree, MAI, CPA, ISHC / February 2003|