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Vancouverís Lodging Industry: 
2010 Olympic Impact

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by Eric S. Pateman, MBA, MHCIMA, February 2005

Introduction

In July 2003, the International Olympic Committee (IOC) accepted Vancouver, Canadaís bid to host the 2010 Winter Olympic Games. The local lodging and tourism industry met the announcement with optimistic predictions of the potential benefits such a mega-event would bring. However, there has been little research to date which clearly supports this optimism.

A literature search initiated as part of a research-based MBA thesis identified a common supply and demand problem which has plagued the lodging industry of past Olympic host cities. Examination of hotel room supply trends in the host cities revealed that the dramatic increase in room supply which typically occurs prior to the Games has a lingering negative effect on the lodging markets after the Games. The initial stage of the research required quantifying the potential impact that the 2010 Olympic Games would have on the Greater Vancouver lodging sector. To this end, a historical analysis was conducted on the lodging markets and their respective demand generators in past Olympic host cities including Salt Lake City, Sydney, Atlanta and Calgary. Data generated by Expo Ď86 in Vancouver was also included because of its similarities: same city, another mega-event. The entire thesis is beyond the scope of this article; however, a discussion of the historical analysis will illustrate the necessity for prudent planning by Vancouverís lodging and tourism industries in preparation for the 2010 Winter Olympics.

Past Experiences

Lodging industry performance for each of the five host cities was analyzed using multiple operations-based indicators which included Revenue per Available Room (RevPAR), Rooms Supply and Rooms Demand. The data was collected for an 11 year span including the five years before and after the Games as well as the Olympic year when possible.

Revenue per Available Room

Revenue per Available Room (RevPAR) is considered the prime indicator of hotel performance when comparing hotels within or between markets around the world. RevPAR analysis of the five cities showed consistent trends with minimal to moderate growth in the 5 years preceding and strong growth the year of the Games; however, a subsequent decline the year following tended to negate the positive growth. The three most recent Games (Sydney, Salt Lake City, and Atlanta) saw significantly reduced growth in the year of the Games compared to Calgary and Vancouverís Expo Ď86. This is a reflection of the impact IOC contracts negotiated during the bidding process had on RevPAR in Sydney, Salt Lake City and Atlanta. The contracts stipulate a maximum room rate for the Olympic Family and sponsors who account for up to 80% of the cityís room supply; RevPAR in Calgary and Vancouver (Ď86) were not affected by pre-determined maximum room rates.

Hotel RevPAR in Past Host Cities

Rooms Supply

Rooms supply describes the annual total number of hotel rooms available in a particular lodging market.

The analysis of Rooms Supply data for the five host cities revealed an upward trend in rooms supply over the years prior to the Games. However, the addition of new hotel rooms was not matched by post-Olympic demand and the oversupply in the market resulted in a subsequent decline in market performance after the Games. Atlanta was the only host city whose growth in supply was matched or exceeded in the years surrounding the Games. In Sydney, the recent opening of the first hotel in the four years since the 2000 Games signalled the recovery of the lodging market, after which more than 2,000 hotel rooms were closed or converted for residential uses due to oversupply.

Hotel Rooms Supply in Past Host Cities







Hotel Room Demand

Hotel room demand, which is hotel occupancy factored by hotel room supply, is the best indicator of supply absorption and growth trends in the lodging market. In the case of the five host cities, hotel room demand has proven to be stronger in the years leading up to the Games as opposed to after the Games. In cities such as Salt Lake City and Sydney, the demand in the years following the Games is a reflection of unfavourable international economic and travel conditions and may not accurately represent the true impact of the Games. While there will undoubtedly be a decline in demand in the year following the Games, should the economic conditions be favourable, future host cities may perform with a similar trend to that experienced in Atlanta and Vancouver (Ď86) with a surge in demand in the years following the Games as well.

Hotel Rooms Demand in Past Host Cities

Expectations

Hoteliers in future host cities, including Vancouver have much to gain from analyzing the trends generated by lodging data from former Olympic host cities.

  • The trend for reduced RevPAR growth in the year of the Games and a decline over the year after the Games can be expected to continue as the bidding to host the Games becomes more competitive and cities offer better price guarantees to the IOC. In 2010 this means that the average RevPAR gains for Greater Vancouver will most likely be less than those in Salt Lake City and Sydney and the declining trend in the percentage gain will continue.
  • Hotel room supply should be a primary concern for the Greater Vancouver lodging industry. If Vancouver experiences similar supply growth rates as Salt Lake City and Sydney (+30% in the years leading up to the Games), the problem of oversupply will be repeated; market occupancy will decline even with the demand created by the Games. Research supporting specific recommendations for Vancouverís lodging industry for 2010 suggests that if the supply growth is spread out over the entire eleven-year period as opposed to condensed into the pre-Games years, the Greater Vancouver lodging industry should perform favourably.
  • As Vancouver recovers from the recent poor market conditions, it will be important to maintain the balance between supply and demand. While demand may experience stronger growth between now and 2010, the trends observed in past Olympic host cities suggest that it is not until the year of the Games when demand peaks and possibly in the following years when the demand created by hosting the Games will be at its peak, as was the case in Atlanta. Should developers in the lodging industry get eager and start building again now that the market is in recovery and base their decisions on optimistic expectations created by hosting the Games in 2010, Greater Vancouver could suffer the same fate as past Olympic host cities.


This article is based on research compiled for the authorís MBA thesis from Oxford Brookes University, and only touches on a brief section of the research. The final research paper is available for interested parties. The research uses a market study incorporating various techniques including trend extrapolation, expert opinion (interviews), as well as economic and demographic indicators to estimate the induced demand created by hosting the Games and to then determine the optimal level of supply of hotel rooms in Greater Vancouver both before and after 2010. The research will allow Vancouver as well as future host cities to avoid the over-supply issues and subsequent declines in market performance which have plagued past host cities. If you would like to receive a copy of the research, please send an email requesting a copy to epateman@espconsultingcorp.com or call (604) 812-9660. Eric S. Pateman (ESP) Consulting Corp. specializes in hospitality consulting with a focus on Olympic and mega-event impact.

The estimates and analysis contained herein are based on sources deemed reliable, but are not guaranteed by the researcher or Eric S. Pateman Consulting Corp. This article offers only an opinion as to how hosting the Winter Olympic Games in 2010 may impact the Greater Vancouver hotel industry.

 
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Contact:
Eric S. Pateman (ESP) Consulting Corp.
epateman@espconsultingcorp.com
(604) 812-9660
Also See: Lodging Market Impact of Hosting Olympic Winter Games; Will Salt Lake City Experience Apply to Vancouver and Whistler? / Canadian Lodging Outlook - June 2003 YTD / August 2003
Hotel Market Update Report Western Canada; Hotel Transactions, Market RevPar, Occupancy Report, Mid Year 2004 / Aug 2004


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