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Hotel Horizons Reports Dallas Area Hotels Should
Expect Rates to Rise by Mid-to-Late 2010

By Karen Robinson-Jacobs, The Dallas Morning NewsMcClatchy-Tribune Regional News

Nov. 20, 2009--If the Dallas hotel industry were a late-night infomercial, the announcer would be breathlessly proclaiming: "Hurry in, folks -- these deals can't last."Desperate to fill empty rooms in this recession-wracked economy, local innkeepers mounted a price war in 2009, discounting rates to levels not seen, in some cases, since 2005.

But with consumers expected to gain a smidgen of confidence, and the spigot of hotel openings at a trickle, industry insiders say travelers next year can expect to see fewer freebies and a steeper tab.

"There are a lot of great signals that we've hit bottom, and we're seeing the trend, at least in the upper end, coming back," said Tom Santora, chief marketing officer and senior vice president of sales for Irving-based Omni Hotels. "Occupancy [rates are] starting to come back. Once companies get enough confidence in demand, you'll see rates start to come back up."

Experts expect local hotel rates to inch north by mid to late 2010 -- the first time for them to rise since fall 2008. Still, it will probably take until at least 2012 to get back to the area's pre-recession average rate of $95-plus per night.

In the near term, the industry will grapple with subpar occupancy, room rates and revenue per available room -- a key measure that's a function of both rooms sold and the price paid.

With the traveling public either lacking cash or afraid of flashing cash, the number of hotel rooms sold nightly -- or demand -- started slipping in late 2008 and then went into free fall, dropping an estimated 12 percent in spring 2009. That's according to the September-November Hotel Horizons report from PKF Hospitality Research and Smith Travel Research, firms that track the hotel industry.

That drop -- coupled with an increase in supply as new projects opened their doors -- is expected to pull fall room rates down as low as an average $84.36 a night at Dallas-area hotels ranging from luxury to lower end. That's 9.5 percent lower than a year ago, according to the report.

For 2009, PKF expects Dallas-area rates to be $88.95, or 8.7 percent below those of 2008.

For the luxury set, the slide figures to be a little steeper at 10.3 percent. Hotels in the North Central area, which runs near Central Expressway between Uptown and LBJ Freeway, can expect average rates of $73 this year, a drop of 11.7 percent and the sharpest decline locally, according to PKF.

"Rates came down much greater than anybody anticipated," said Lisa Swain, an associate in PKF's Dallas office. "We never thought the bottom would be as low as it was. Even in the '91 recession, it didn't get that low. We haven't seen this kind of rate decrease in a long time."

For hotels across a range of prices, deals have not been hard to find.

Last weekend, Irving-based La Quinta Inns & Suites offered weekend deals in Texas starting at $44.10 a night for stays this weekend. The Garland La Quinta on LBJ Freeway was charging $49.50.

That was 10 percent lower than a year ago, said spokeswoman Teresa Ferguson.

In October, Dallas-based Rosewood Hotels, which operates high-end properties including the Mansion on Turtle Creek, began offering a complimentary night at its hotels and resorts in the U.S., Mexico and the Caribbean. The deal -- on trips between Jan. 3 and May 30 -- applies to travelers who stay at least two nights in one of the company's seven nonresort hotels or four nights in a resort.

It's the first time Rosewood hotels have offered such an incentive across the brand, said spokeswoman Kersten Rettig.

"The American consumer is looking for savings at every price level," Rettig said. "Guests who are inclined to visit a luxury property appreciate that value."

While Rosewood is faring better than other luxury brands, it's still expecting a 20 percent drop in average revenue per available room this year, compared with last year, she said.

Along with lower rates, hotels are trying to get more heads in beds by tossing in perks -- everything from massages and laundry service to free Wi-Fi -- that would normally bring in extra revenue.

"We were giving a lot more complimentary services to the business traveler because we thought that value would be particularly relevant today," said Caryn Kboudi, vice president of corporate communications for Omni. "That could be $30 or $40 coming off their expense report."

At the Westin Dallas Fort Worth Airport Hotel, annual revenue will be off about 10 percent, due largely to a 30 percent decline in group business, said Todd Raburn, general manager.

Hotels nearest Dallas/Fort Worth International Airport and in Irving are expected to see the greatest occupancy drop among eight local submarkets tracked by PKF. Occupancy is expected to fall 8.5 percentage points between 2007, the last pre-recession measure, and 2009.

But rates in that area are projected to be essentially flat -- the best showing among submarkets.

Raburn said the occupancy rate at the D/FW Westin will be up this year, but the rooms are filled with guests who pay less than normal.

To gain back some of that lost revenue, the hotel is entertaining more individual travelers who book through "opaque" online sites such as Priceline or Hot Wire. Such sites offer steep discounts, but consumers must pay for the hotel room before learning where they'll be staying.

"If you want to capture those rooms, you've got to fish in those ponds," Raburn said.

While the bevy of hotel deals helped travelers cut costs, hoteliers have felt a pinch to the bottom line.

Last week, an attorney for the owner of the Four Seasons Resort and Club Dallas at Las Colinas said the owner could default on a $175 million loan and added that the luxury spot is operating in the red because of the economy.

Earlier this month, Gaylord Entertainment Co. said third-quarter revenue at its Gaylord Texan Hotel & Convention Center in Grapevine fell 15.6 percent to $39.5 million. Occupancy held steady at 73 percent, but the average daily rate fell 11 percent to $149.86.

And FelCor Lodging Trust Inc., an Irving-based hotel real estate investment trust, posted a net loss of $25.5 million for the third quarter ended Sept. 30, as sales fell at its 85 hotels, which include the Embassy Suites, Doubletree and Hilton brands. Revenue per available room fell nearly 18 percent.

"With each fluctuation in the rate, you're either making money or losing money," said Omni's Santora.

"If your rate goes down 8 to 10 percent, you can see your profits going down by 6 percent."

Santora said privately held Omni will be profitable this year in part because the company has no debt.

Omni sales also were helped by the launch early this year in Fort Worth of a convention center hotel that "has exceeded our expectations," he said.

The company also has high hopes for the Omni Dallas Convention Center Hotel, which is expected to get 80 percent of sales from group business once construction is completed in early 2012.

The inn, which will cost more than $500 million, is already generating buzz among meeting planners, said Brooke Dieterlen, executive director of the Hotel Association of North Texas.

"We're going to feel the benefit before it opens," said Dieterlen, referring to pre-opening hiring and purchasing.

She also predicts that investors will boost the value of nearby properties as opening day approaches.

"You'll start to see and feel and hear more about it in 2010," she said.

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Copyright (c) 2009, The Dallas Morning News

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