February 2000 - In 1999 the Boston Cambridge lodging market continued its strong performance. As projected in our year-end 1998 report, however, market occupancy continued to decline from its 1997 high of 79 percent.  In 1999 occupancy levels declined by just over a point to 77.2 percent from 78.3 percent in 1998.  But the decline in occupancy was offset by strong growth in average room rates, which increased in 1999 by 6.9 percent to $188.77.  The strong growth in average room rates allowed revenues per available room (RevPAR) to increase by 5.5 percent. 

The Boston Cambridge market�s decline in occupancy was led by the properties outside of the two central business districts.  This market area (categorized as �Other�) experienced a nearly five point drop in occupancy from 79.1 percent in 1998 to 73.8 percent in 1999.  The Back Bay market area also experienced a decline in occupancy from 79.4 percent in 1998 to 77.7 percent in 1999.  The Back Bay was affected by a decline in citywide conventions during the first half of the year while the �Other� market was affected by increased supply in the suburbs and a decline in overflow demand from Boston. 

Demand in the Downtown market remained strong increasing by 5.4 percent over 1998. Increased supply resulting from the addition of the 362-room Wyndham and a 38-room addition at the Regal Bostonian, however, caused the occupancy level for the market to decline slightly from 76.9 percent to 76.8 percent. 

Even with average room rates already among the highest in the nation, the market still managed to achieve growth of 6.9 percent over the prior year.  The rate of growth, however, appears to be slowing after reaching a peak of more than 13 percent in 1997 followed by growth of 8.9 percent in 1998. The hotels in the �Other� market area experienced the largest gains in average rate.  Specifically, these hotels were able to achieve rate increases of 14.6 percent.  The next strongest growth in average rate was achieved by the Back Bay market, which increased by 7.5 percent in 1999. As was the case in 1998, Cambridge had a very strong year with a 6.5 percent increase in average rate coupled with a 5.4 percent increase in demand (all of which was absorbed by new supply which kept its market occupancy flat). 

When categorized by rate the properties with the highest average room rates in the city were the strongest performers in 1999.  Specifically, those properties with average room rates above $189.99 experienced a 3.2 percent increase in demand, which resulted in an increase in occupancy from 78.3 percent to 79.1 percent.  These properties also achieved rate growth of 5.6 percent from $242.95 to $256.54 yielding a RevPAR increase of 6.7 percent. 

Based on our research into projected supply and demand patterns for 2000, we believe a strong convention year will offset projected increases in supply and allow market occupancy to remain flat or increase by one point.  The market�s downward trend in rate growth is expected to continue due to increased competition and rate resistance.  Accordingly, we expect average room rates to grow by only 5 percent in 2000.