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900 New Hotel Rooms Scheduled For Completion this Year in the
 Norfolk, VA. Area as Hotel Occupancy Drops to
 Lowest Level in Decades

By Josh Brown, The Virginian-Pilot, Norfolk, Va.McClatchy-Tribune Regional News

October 23, 2009 - --The $680 million hotel industry in Hampton Roads faces what appears to be a few years of stiff competition, price wars and slim profits under the weight of a ballooning supply of rooms.

Since 2003 when the occupancy rate reached its highest point in more than a decade , developers have added more than 4,000 hotel rooms throughout the region, according to Old Dominion University's State of the Region report released last week. A quarter of those rooms were completed in 2008 alone.

Despite the growing number of hotel rooms, the local industry's revenue fell 5.3 percent in 2008 to $680 million, down from $718 million the previous year. This year, ODU economists expect total revenue to fall an additional 2.2 percent.

Meanwhile, a closely watched indicator of hotel performance has skidded. The average revenue-per-available-room -- a measure of hotel profitability -- slid to $48.80 last year from $53 in 2007. The economists anticipate it to fall to $47 in 2009, the lowest point since 2002.

Yet hotel developers continue to build.

Nearly 900 rooms are scheduled to be completed this year, according to the report, which used data from Smith Travel Research.

ODU economists warned that less- profitable hotels in the region could shutter in the coming years.

"There's going to be a fairly brutal competition between the hotels and motels in the region trying to steal customers away from each other," said James V. Koch, one of the ODU economists and the university's president emeritus. "Newer hotels are also quite vulnerable, unless their owners have deep pockets."

The revenue decline last year was hastened by the start of the recession and subsequent financial crisis last fall. Occupancy rates in 2008 fell to about 55 percent, their lowest point in more than two decades.

While the region's overall hotel revenue and revenue-per-available-room are down, a significant portion of the decline was centered on hotels in the Williamsburg market, which so far this year have seen both figures decline nearly 18 percent, according to Smith Travel.

The Chesapeake and Suffolk market also saw a nearly 19 percent drop in revenue-per-available-room, compared with the same time period last year; however, total revenue actually grew, according to Smith Travel. The numbers reflect the growing number of rooms available in the submarket.

Elsewhere in the region, the declines this year have been less severe.

There even are early signs that Hampton Roads has weathered the downturn better than other regions.

During the first three months of this year, ODU economists found local hotel revenue fell 4.5 percent compared with the same period in 2008. Other areas in the Southeast such as Jacksonville, Fla.; Charlotte, N.C.; and Charleston, S.C., saw revenue declines between 16 and 18 percent.

"If we didn't have government spending, we would be in big trouble," said Raj Randeria, a partner in Aniesh Corp., which owns and operates four hotels in Hampton Roads. "The hotels that don't have the right brand and quality of rooms are going to suffer. In this economy, people are looking for better deals. But people always want to go to the new product."

The supply of hotel rooms means operators likely will try to undercut their competitors' room prices, igniting price wars, Randeria said.

"Two years ago, there was not much negotiating" with customers, he said. "It was just like, 'This is our price.'"

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com

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To see more of the The Virginian-Pilot, or to subscribe to the newspaper, go to http://www.pilotonline.com.

Copyright (c) 2009, The Virginian-Pilot, Norfolk, Va.

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