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In North Carolina's Research Triangle December, Historically Slow Month
 for Hoteliers, Was the Emptiest Month in Eight years,
Registering 46.4% Occupancy

By Jack Hagel, The News & Observer, Raleigh, N.C.McClatchy-Tribune Regional News

February 26, 2009 - Triangle hotel rooms are going vacant, and in a hurry, as businesses and consumers dramatically cut travel budgets.

Hotel occupancy in the region fell at the sharpest rate in at least seven years -- including the one after the Sept. 11 attacks, when anemic travel hammered hotel returns.

Occupancy averaged 60.8 percent in 2008, down from 64.5 percent in the previous year. Meanwhile, revenue per available room, a measure of profitability, declined for the first time since 2003.

The emptiness increased in the second half of the year, as the economic tailspin increased.

December -- a historically slow month for hoteliers -- was the emptiest month in at least eight years, registering average occupancy of 46.4 percent. It could get slower as businesses scale back travel, affecting hotels across the country.

In the early weeks of February, revenue per available room fell by about 20 percent at U.S. hotels. Luxury hotels saw bigger declines. "This is due to the recent last-minute cancellations of pre scheduled events from companies," C. Patrick Scholes, an analyst at Friedman, Billings, Ramsey & Co., wrote in a research note recently.

"Demand continues to grow soft; there is little pickup in short-term bookings and cancellations continue to mount," he added.

The Triangle is not spared from the national slowdown.

Even before it filed for bankruptcy in January, Nortel Networks was trying to hack $400million in 2009 travel expenses out of its budget, which would include trips to its Research Triangle Park campus.

Similar cuts are being attempted by Cisco Systems, the world's biggest networking gear maker, which is trying to offset falling sales. That will depress hotel demand near its RTP campus.

Lenovo, the Chinese computer maker, is cutting travel as part of a restructuring designed to generate $300 million in annual savings, meaning less hotel demand near its U.S. headquarters in Morrisville, where it employs more than 1,500 workers.

"Fewer folks flying over to Beijing from Raleigh and fewer folks in Beijing flying here," spokesman Ray Gorman wrote in an e-mail message.

And Progress Energy is cutting travel by at least one-third. Out-of-town employees who visit the utility's downtown Raleigh headquarters used to stay at a nearby Sheraton.

But this year only critical business trips are allowed, Progress spokesman Mike Hughes said. Employees, of course, are still holding meetings -- just not face-to-face.

"All the video-conferencing and teleconferencing capabilities that we have are being scheduled every hour, every day," Hughes said.

The reduced demand comes on the heels of a room boom in the Triangle.

In Wake County alone, 732 rooms were built in 2008, which is a tad more than the total built in the previous three years combined. At least 328 more are under construction, according to the Greater Raleigh Convention & Visitors Bureau.

Much of the new construction came amid inflated commodities prices, which pushed daily rates to a high in 2008. For the year, rates averaged $80.77 a day, up 3.5 percent from 2007.

But rates appear to have peaked. Average daily rates declined in November and December, compared to the same months in 2007 -- the first time since 2003 that there have been two consecutive months of year-over-year declines. More declines are expected as competition increases.

The Carolina Inn, for instance, has seen rates and occupancy drop in the past year. Now, the Chapel Hill hotel is offering what it calls the "Meeting Stimulus Package," which offers business-meeting organizers a 10 percent discount off their total bill, plus perks such as room upgrades for keynote speakers. It's an effort to fend off cancellations and lure downsized meetings from other venues.

"We're definitely still feeling the effect," said Mark Nelson, director of sales at the Carolina Inn.

"People are just kind of feeling the intense scrutiny of expenditures, whether from a true financial perspective or from just a perception," he added. "We're just trying to focus on the fact that these meetings still need to happen."

Staff writers John Murawski and David Ranii contributedto this report. or 919-829-8917


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