The Georgia 400 North Lodging Market is defined as that area along Georgia 400 north of the Chattahoochee River and within Fulton and East Cobb Counties. For hotel supply purposes, the market area is realistically defined as the corridor adjacent to GA 400 at Exits 7 through 13. Most of this area is in Fulton County; a small portion is in Forsyth County.

 The GA 400 North market area experienced the most rapid growth of all seventeen (17) lodging sectors in the Greater Atlanta MSA from 1995 through 1998. Over this period, the compound annual growth rate (CAGR) in the average daily supply of hotel rooms was 44.6% in this market area, more than twice the 18.8% rate of the next-fastest growing sector, Gwinnett Place North, located just to the east of GA 400 North. For perspective, the CAGR in average daily room supply for the Atlanta MSA as a whole from 1995 through 1998 was 7.8%. Part of the reason for the high growth rate is that before 1995, there were very few rooms in the sector.

This growth continued in 1999, when 8 new hotel properties with a total of 728 rooms have opened. The largest property in the GA 400 Sector, the Marriott Hotel at Windward Parkway with 318 rooms, will open in mid-January, 2000. 

After 1999, things appear to settle down a bit. Besides the Marriott on Windward Parkway, there are two other hotels now under construction, also on Windward Parkway. A Courtyard by Marriott and a Sleep Inn with 154 rooms and 60 rooms respectively, will open in 2000. There are three other hotels with a total of 650 rooms under consideration for development in the GA 400 North Sector, all likely to open in 2002 or later. 

The influence for all of this growth is and has been the rapid expansion of commercial office parks, light industrial parks, the North Point Mall and many thousands of new residential units throughout North Fulton, East Cobb and Forsyth Counties since 1992. Windward, a 3,400-acre planned community in North Fulton County, straddles Windward Parkway. This community was begun in 1983 and is nearing build-out for its residential components. Several million square feet of Class-A commercial office space constitute Windward’s western end along GA 400. Other office parks have emerged along North Point Parkway and west of GA 400 along Windward Parkway, and along Old Milton Parkway and Haynes Bridge Road to the south of Windward. This development is continuing apace as more and more high-technology and other internet-based firms locate major installations in Alpharetta. Some of the major companies in the Alpharetta area include Nortel, Alltel, e-bay.com, Compaq, MCI, AT&T, State Farm Insurance, and Siemens, to mention only a few. These companies and the many supporting professional service firms and suppliers constitute the principal sources of hotel room demand in the GA 400 North Sector.

Development of hotels along GA 400 North began in 1985 with the opening of what was then the 174-room Roswell Sheraton Inn, now affiliated with Holiday Inns. A 129-room Hampton Inn arrived in 1987 followed by a 154-room Courtyard by Marriott in 1988. All of these are located at Exit 7 of GA 400, the Holcomb Bridge Road interchange. In 1990, two hotels were added to the then small supply, one again at Exit 7 on Holcomb Bridge Road, and the other at Exit 11, Windward Parkway. Then all was quiet until 1995 when two more hotels opened, one each at Exits 8 and 9. Then the floodgates opened, with 7 hotels in 1996, 4 of which are at Exit 8, then 4 hotels in 1997, 5 hotels in 1998 and the 8 hotels mentioned above in 1999. There are now 3,387 guestrooms in 31 hotel properties serving the GA 400 North Sector. If everything now under construction or proposed is completed as scheduled, by 2003 there will be approximately 4,700 guestrooms in 37 hotels in this sector.

The rapid growth in hotel room supply in the Georgia 400 North corridor was, as mentioned, in response to a rapid growth in demand for hotel rooms. Accommodated demand in the GA 00 North sector grew at a CAGR of 32.4% from 1995 through 1998. Since large amounts of commercial development in the area preceded much of the increase in room supply, a significant amount of room demand was forced to seek lodging elsewhere in adjacent lodging sectors. The principal beneficiaries of this displacement of demand were the Gwinnett Place North and the Central Perimeter sectors, both of which abut the GA 400 North sector. 

When the room supply increased between 1995 and 1998 as described above, major amounts of displaced demand shifted back to the GA 400 North sector because of the convenience of location and ease of travel. The resultant increases in accommodated demand in the GA 400 North sector during the years in question were dramatic, ranging from a high of 39.8% from 1995 to 1996 to a more modest 24.1% from 1997 to 1998. This growth pattern is illustrated graphically below:

While the increase in accommodated demand was indeed dramatic, supply growth outpaced demand growth over the four-year period, resulting in decreasing occupancies for the hotels in the GA 400 sector. Occupancies in 1995 averaged over 85%, more than 20 points higher than the experience of the Atlanta MSA lodging market in that year. In 1999, however, occupancies are projected to be only 63% in the GA 400 sector, slightly below the average for the Atlanta MSA. This information is illustrated graphically in the following chart:

Revenue Per Available Room

Revenue per available room (RevPAR – the product of multiplying occupancy by average rate) is generally a measure of operating success, and facilitates the comparison of different kinds of hotels operating in the same market. Overall, RevPAR for the aggregate supply of rooms over a period of time indicates how well an increase in supply is being absorbed. An increasing RevPAR over time, when either occupancy or average rate declines, indicates that the increases in room supply are generally being absorbed with minimal difficulty for operators. However, if RevPAR decreases over time, then this is a signal that operators are scrambling to retain market share through rate manipulation principally. 

The GA 400 North sector experienced an overall RevPAR in 1995 of $61.26; the composite average rate in 1995 was $71.65. As the foregoing chart shows, occupancy over the four-year period declined dramatically, foreshadowing a decrease in RevPAR. In fact, average rates from 1995 through 1998 increased by a CAGR of only 1.3%. They are forecast to stay stable at about $75 through 2001. RevPAR has decreased from $61.26 in 1995 to a forecast $47.90 in 1999. The significance of this drop in RevPAR is that operators are precluded from increasing room rates as supply increases. Operating margins are becoming thinner each year, and only the strongest financial participants will escape significant financial pain over the next two to three years until the market starts to stabilize after the supply increases stop.

Summary

The GA 400 North lodging sector has experienced dramatic growth in both supply and demand since 1995. Supply growth outstripped demand growth, putting increasing pressure on hotel operators to maintain profit margins and acceptable returns on investment. Increasingly creative marketing will be required over the next few years to enable those with the staying power to survive intact. Once operators have the ability to increase room rates, market stability from a financial perspective will once again be achievable.

This sector has a lot of underlying strength in its concentration of commercial and retail activity. This strength will continue to grow for the foreseeable future, indicating that the longer-term future may be quite bright for those hotel owners, investors and operators who can withstand the shorter-term pains of market stabilization from the perspectives of both occupancy and average rate performance. The new millennium will bring early difficulties to those who did not obtain favorable locations, accessibility and visibility, but a slowdown in supply growth and increasing commercial activity will eventually provide opportunities for all.