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2009 Projection For Boston/Cambridge Hotels Shows a Drop of
4 points to 72% and and Average Room Rates Decline
of 4% to $202.94
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October 30, 2008 - Due to the dramatic economic events currently unfolding both nationally and internationally Pinnacle Advisory Group has revised its outlook for Greater Boston for 2009.  Specifically, Pinnacle is projecting that market occupancy for Boston/Cambridge will decline by four occupancy points (5.3 percent) and that the market’s average daily rate will decline by 4.0 percent for a 9.1 percent decline in RevPAR.  For the suburbs, which essentially comprises the Route 128 and Interstate 295 belts surrounding Boston, Pinnacle is projecting that market occupancy will decline three occupancy points to yield an average annual occupancy of 58 percent, while average room rate will decline by 3.9 percent. The combined impact will result in an 8.7 percent decline in RevPAR.

“Since our original projections were released in July, we have seen significant changes in the world economy that are likely to have a dramatic impact on the Greater Boston Lodging Market,” said Rachel Roginsky, the firm’s founding Partner.  The rapidly deteriorating economic environment has lead to significant cut backs in corporate travel that are expected to negatively impact demand in 2009.  In addition, operators are reporting that companies with volume accounts are insisting on room rate reductions for 2009.  The economic situation is also expected to affect demand from leisure travelers as they cut back discretionary spending.  Group demand is expected to be down slightly in 2009 based on the current pace of convention related room nights.  International demand, that had once been a bright spot for the area is expected to decline in the face of the global economic situation and the rising value of the dollar.  

While the outlook for 2009 has gotten significantly worse over the last few weeks, the situation is not as bad as 2001 when Revenues Per Available Room (RevPAR) for the Boston/Cambridge market dropped by 19 percent.  “Looking at 2009, my concern is that operators may unnecessarily drop their rates in an effort to increase occupancy, fortunately I think the operators have better data than they did in the past and have learned from their mistakes,” said Matt Arrants, Managing Director for Pinnacle. According to Rachel Roginsky, the suburban hotels will face similar challenges in 2009. “The corporate mid-week travel is critical to the success of the suburban lodging markets and the increased office vacancies, anticipated job losses, and overall reduction in business travel will impact demand to the area’s hotels.”

To summarize, Pinnacle Advisory Group is projecting that the Cities of Boston and Cambridge will finish 2008 at an occupancy rate of 76 percent (one point lower than projected in July) at an average rate of $211.40 (versus a projection of $217.25 in July).  In 2009 Pinnacle is now projecting that occupancy will drop 4 points to 72 percent and that average room rates will decline by 4.0 percent to $202.94 resulting in a RevPAR decline of 9.1 percent. For suburban Boston, the 2008 occupancy will likely decline two points to 63 percent, and average daily room rates will increase 3.0 percent to $109.70, resulting in a RevPAR decline from 2007 to 2008 of 0.3 percent. The suburban markets will continue to experience a slowdown in 2009 whereby the market occupancy is estimated to be 58 percent, average room rate will be $105.40, and RevPAR will be $61.13. 

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Contact:

Matthew R. Arrants
Pinnacle Advisory Group
164 Canal Street, 5th Floor, Boston, MA 02114
617.722.9916
www.pinnacle-advisory.com

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Also See: Big Niche for New Hotels in Boston and Cambridge: Sixteen New Hotels Have Opened in the Last Five Years, Four More Scheduled for 2008 and 2009 / June 2008

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