Jun. 5, 2009 - Boston and Cambridge hotels suffered a dramatic drop in business in April, with declines in demand from leisure and corporate travelers -- and particularly group bookings -- forcing them to heavily discount rates.

Revenue per available room, the key indicator of a hotel's health because it factors both demand and room rates, sank a whopping 28.5 percent to $136 from $191 in April 2008, according to a new report by Pinnacle Advisory Group.

The average hotel occupancy rate, meanwhile, fell to 71.8 percent from 83.7 percent, and the average room rate dropped 16.7 percent to $190. Hotel industry executives say it likely will take room rates at least three years to recover to pre-recession prices, but it's expected that the worst is behind the industry this year.

"We're not going to see (revenue-per-available room) growth, but we're not going to see any declines worse than what we saw in April," said Matt Arrants, managing director of Pinnacle, a Boston hospitality consulting firm.

The booking pace for group reservations for blocks of 10 or more rooms has been a good indicator of market performance, Arrants said. April demand had been tracking about 30 percent below year-ago levels for quite a while, which was reflected in the numbers for hotels that accommodate that segment of the market. Hotels in Boston's Back Bay saw a 32 percent drop in revenue per available room, while hotels with 450-plus rooms experienced a 29 percent drop.

Hotels have been fighting to maintain their market shares by lowering rates. "It's all about volume right now and offering a good price value to the consumer," said Paul Sacco, CEO of the Massachusetts Lodging Association.

The Lenox Hotel, a 214-room boutique property in the Back Bay, recorded an approximately 30 percent drop in guest room rates and revenue per available room in April, according to general manager Daniel Donahue.

"That number is our bread and butter," Donahue said. "It's how you can survive in January and the doldrums of winter, and we don't have that this year. We don't have the profit to reinvest back into the property."

Going forward, that's going to make it harder for hotels to make capital expenditures on new furniture and renovations, Donahue said, because it's money that they can't put away right now.

"We're just not making up those losses quick enough," he said. "Right now, you're just making operating costs."

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