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The Lodging Market is
Improving
in Ohio’s Big
Cities
A Close Look at Cleveland, Columbus,
and Cincinnati
By: David J. Sangree, MAI, CPA, ISHC and Joseph Pierce,
September 2010
The economic upheaval of the past few years has impacted all
industries. Nationwide, the hospitality industry experienced some of
the sharpest declines in occupancy and average daily rate in 2009 since
records have been kept. Gains in occupancy and rate that were made
through the middle of the decade were erased in 2008 and 2009. Ohio did
not escape the Great Recession and hospitality fundamentals took a
sharp nosedive in 2009. But in 2010 those fundamentals have been
improving strongly in Ohio’s three largest cities: Cleveland, Columbus,
and Cincinnati. The prospect for improvement in 2010 and beyond in
occupancy of Ohio lodging facilities is good, but the markets continue
to struggle to increase average daily rate.
CLEVELAND, COLUMBUS, AND
CINCINNATI HOTEL PERFORMANCE
According to Smith Travel Research, a Hendersonville, Tennessee
research firm, 1,381 hotels with approximately 125,000 hotel rooms
operate in Ohio. We have focused our analysis upon the major lodging
markets of Cleveland, Columbus, and Cincinnati as they comprise over
60% of the total hotel rooms in Ohio. The Cincinnati MSA contains over
252 hotels with over 27,900 guest rooms while the Columbus MSA provides
over 230 hotels with over 25,800 guest rooms and Cleveland offers more
than 190 hotels with over 21,700 guest rooms. The following charts show
the historical lodging performance for Ohio’s three largest markets.
The Columbus market has historically generated a stronger occupancy
than the other major markets; however, Cleveland has generated a higher
average daily rate per guest room. All three markets experienced a
decline in occupancy from 2007 to 2009. In 2010, demand for hotel guest
rooms has grown. Through June 2010, each market has experienced growth
in occupancy with the Cleveland MSA market growing by 9.1%, while the
Columbus MSA and Cincinnati MSA have grown by 4.6% and 4.3%,
respectively.
While the Cleveland and Cincinnati markets advanced the average daily
rate in 2007 and 2008, all three markets experienced a sharp drop in
rate in 2009. Through June 2010, each of the markets continued to lose
ground with the average daily rate falling below 2006 levels for both
Cleveland and Columbus. Only Cincinnati has managed to maintain guest
room rates above those of four years earlier.
CLEVELAND
The growth in occupancy in the Cleveland is supported by
the limited amount of new supply of competitive hotel rooms in the
market. While a handful of properties have opened in suburban
communities since 2006, no new properties have opened in downtown
Cleveland since 2003. The following table identifies the new properties
that have opened in the Cleveland market since 2006.
There are a number of proposals for new hotel developments in downtown
Cleveland due to the major new projects planned in the downtown market
as described in the following paragraphs.
- Dan Gilbert, owner of the Cleveland Cavaliers, is head of
the investment group that will own and operate a casino, partnering
with Harrah’s Casino. The group has negotiated with Forest City
Enterprises to locate the casino downtown adjacent to Tower City
Center. The new casino is expected to have a significant impact on
downtown hotels, restaurants, and retail stores. A temporary casino is
projected to open in 2011 in the Higbee Building. The new permanent
casino is expected to be completed and open by 2013. The location of
the new casino in the downtown area is expected to provide additional
traffic within Tower City Center and to area hotels. It is also
anticipated to provide an additional marketing tool to meeting planners
when selling Cleveland as a convention site.
- A new $425 million Medical Mart and Convention Center is
slated for downtown Cleveland in 2013. The Medical Mart concept is
intended to leverage Cleveland’s strong reputation in the health
sciences by attracting medical-related events to the city. The Medical
Mart facility, to be located at the northeast corner of St. Clair
Avenue and Ontario Street on the site of the existing convention
center, will be a glass-walled, 200,000 square foot structure with
showrooms and meeting space on the ground floor and showrooms of up to
6,500 square feet on the upper floors. The Medical Mart building will
connect to the L-shaped 300,000 square foot new construction Convention
Center below malls B and C. Ground breaking is due to occur in the fall
of 2010. MMPI, operators of the new Medical Mart, announced in
September 2010 that they have achieved 32 signed letters of intent from
companies and vendors wanting permanent display space, and 16 letters
of intent from conferences and conventions.
- Developer Scott Wolstein has announced a far-reaching
redevelopment plan for the east bank of the Flats, stretching to the
edge of the Warehouse District. The $500 million plan calls for 975,000
square feet of office space, an aloft hotel, public park, 1,200-foot
boardwalk, and 430 residential units including apartments, lofts, and
condominiums. The development would also include a new movie theater,
gourmet market, and retail shops. In January 2010, Wolstein’s
development team received approval from a Cleveland city review board
to begin work on the $270 million first phase of the project, which
will include an office building, fitness center, retail stores, and
parking.
- LeBron James, the National Basketball Association All-Star
and league Most Valuable Player, left the Cleveland Cavaliers after the
2009/2010 season to play for the Miami Heat. Drafted out of high school
in 2003, James has been an All-Star every season since 2005 and has led
the Cavaliers to the playoffs from 2006 through 2010. Prior to James’
arrival the Cavaliers attendance had declined to 11,497 people per game
for the 2002/2003 season, the lowest in almost two decades. Since 2006,
the team has averaged over 20,000 people per game, playing in an arena
which seats 20,562 people. During his time in Cleveland, game day
activity in downtown increased in both hotel occupancy and restaurant
activity. For the 2010/2011 season the team projects solid attendance
due to having presold its season tickets. However, for future years it
will need to show that it can overcome the lack of a recognized super
star.
- In addition to the aloft hotel mentioned earlier, there are
a number of hotels proposed for the Cleveland market including:
- Renovation of the Tudor Arms Hotel near the Cleveland
Clinic into a mixeduse 157-room Doubletree Hotel and office building
- University Hospitals and University Circle Inc. have
proposed a 160 to 200 room property on the corner of Euclid Avenue and
Cornell Road
- The restoration and conversion of the Cleveland Athletic
Club to a 162-room full-service hotel
- 65-room Country Inn & Suites has been proposed for
Middleburg Heights along I-71 south of Bagley Street
- 105-room Hampton Inn & Suites has been proposed in
North Olmsted near the Great Northern Mall
- Conversion of the Schofield Building on East 9th Street
and Euclid Avenue to a Kimpton Hotel with 140-rooms and 24 luxury
apartments.
The Cleveland lodging market has been soft for a number of years but
had been moving forward until 2008 and the slumping economy. However,
the market is making a strong rebound in 2010. Current projects, such
as the Cleveland State University expansion and the Euclid Corridor
project, provide support to the city’s hospitality industry while the
future developments of the Cleveland casino, Medical Mart, and new
convention center will provide the underpinning of future growth. The
RevPAR increase realized year-to-date 2010 is encouraging, as the
slowly improving national economy and lack of new supply in the market
will allow for rate growth. For 2011, hotel operators anticipate ADR
growth in addition to continued occupancy improvement.
COLUMBUS
Unlike the Cleveland market, the Columbus MSA has
experienced a number of new hotels within the market. The following
table illustrates the 21 properties that entered the market since 2006.
As shown in the above table, 2,576 guest rooms have entered the market.
This growth in inventory has occurred at a time when the demand for
guest rooms has been declining due to the national and state economic
recession. As the economy slowly moves forward, the increase in
inventory will need to be absorbed before the market will stabilize.
Columbus has a substantial new hotel project underway. A 532-room
municipally funded Hilton Convention Center Hotel located directly
across the street from the Greater Columbus Convention Center broke
ground in July 2010. The $160 million hotel is scheduled to open in the
fall of 2012 and will include 48 suites, 30,650 square feet of meeting
space, and an adjacent 900-car parking garage. The property will be
connected to the convention center via an enclosed overhead walkway.
The new property will permit the convention center to
attract larger groups looking for a state-of-the-art hotel. The Hilton
will also compete with downtown properties for corporate and leisure
transient guests.
The Columbus MSA has a number of development projects underway and on
the drawing board which will drive demand within the market:
- As one of the four sites approved in November 2009,
Columbus will be the location for one of Ohio’s new casinos. It will be
located at the site of the former Delphi Automotive Systems plant near
West Broad Street and Georgesville Road on the west side of Columbus.
The relocation referendum passed over the objection of downtown hotels
and restaurants which viewed the casino as an additional attraction to
complement the hospitality oriented Arena District. The Columbus casino
will be developed by Penn National Gaming. The casino will include
3,000 slot machines, a poker room, and 85 tables for other games. The
facility will also include a steak house, a buffet restaurant, a food
court, an entertainment lounge, a sport bar, VIP lounge, and a
potential future hotel. Groundbreaking on this $400 million project is
expected to occur in late 2010, and the casino is scheduled to open by
the end of 2012.
- The largest convention facility in downtown Columbus is the
Greater Columbus Convention Center, with 426,000 square feet of exhibit
space and 61 meeting rooms. In January 2010, the Convention Center
introduced the new Battelle Grand ballroom, featuring 50,000 square
feet of main floor space and a 24,000 square foot mezzanine, making it
the largest ballroom in Ohio.
- In June 2010, Huntington Bancshares Inc. reached an
agreement with the City of Columbus to create 500 new jobs over the
next five years in return for city tax breaks. These jobs will be split
between the Huntington Center office tower in downtown and the
Huntington campus at Easton. JPMorgan Chase has announced plans to add
more than 1,100 jobs in central Ohio over the next three years. Company
officials have said that most of the new telephone customer service and
technology jobs will be in Columbus and the rest will be in
Westerville. Both expansions will boost hotel usage.
- Nationwide Children’s Hospital, a national leader in
pediatric care and research, has announced an $800 million expansion
project that will create a new, 12-story, 700,000 square foot hospital
building and create 2,400 jobs by 2012. This will boost demand for
downtown area hotels.
- The Columbus Zoo & Aquarium is currently in the midst
of a long-range expansion campaign that will more than double its size
over the next several years. The facility opened the Polar Frontier
exhibit in 2010 and plans to develop the African Savannah and a
proposed resort hotel in future years. In 2008, the Zoo began operating
the neighboring Zoombezi Bay outdoor waterpark, formerly Wyandot Lake.
The Columbus MSA is bolstered by the presence of the state government
and The Ohio State University, both of which have a stabilizing effect
on the regional economy. The addition of the Battelle Grand ballroom to
the convention center should aid in attracting larger conventions to
the market and assist in the absorption of additional guest rooms. The
addition of the casino to Columbus market will provide the city with an
additional attraction, but the location of the facility on the west
side will lessen its impact to the downtown oriented hotels.
CINCINNATI
The Cincinnati MSA has experienced a number of new hotels
within the region. The following table illustrates the 24 properties
that entered the market since 2006.
The Cincinnati market experienced the largest increase in guest rooms
of the three largest Ohio cities with 2,727 units added since 2006. As
with Columbus, this growth in inventory has occurred at a time when the
demand for guest rooms has been declining due to the national and state
economic recession. As the economy slowly moves forward, the increase
in inventory will need to be absorbed before the market will stabilize.
The Cincinnati MSA has a number of development projects underway and on
the drawing board which will drive demand within the market:
- Cincinnati was also approved in November 2009, to be the
recipient of a new casino. As with the Cleveland casino, Dan Gilbert is
head of the investment group that will own and operate the casino,
partnering with Harrah’s Casino. The casino will be located downtown at
Broadway Commons on a 20-acre site, north of East Court Ohio Lodging
Market Overview 8 Street, between Gilbert Avenue and Reading Road. The
casino is projected to be a 300,000 square foot, two- or three-story
structure with 5,000 slot machines and table games. The new casino is
expected to be completed and open by 2012.
- The Sharonville Convention Center is undergoing an
extensive renovation and expansion project that will more than double
the amount of available event space. The newly expanded Sharonville
Convention Center will offer a total 63,000 square feet and 19 rooms.
The expanded convention center is projected to open in 2012. The lack
of expansion at this facility in recent years has hurt hotels in the
Sharonville market.
- In 2008, Delta Airlines, the largest carrier at
Cincinnati/Northern Kentucky International Airport (CVG), merged with
Northwest Airlines and began to cut flights from the Cincinnati hub.
Delta has reduced CVG from 140 destinations to 70 destinations. Delta
discontinued activity from Concourse A in Terminal 3 in 2010 and
consolidated all activity into Concourse B. This resulted in the
reported layoff of more than 800 employees. The reductions have caused
a number of area companies to suggest they would relocate to other
cities with more prominent airports. The reduction in flights has
resulted in the decline of guest room demand within the airport market.
- A number of hotels are proposed in Cincinnati including:
- Renovation of the Metropole Apartments into a boutique
21c Museum Hotel in downtown Cincinnati
- Renovation of an existing downtown apartment building
into an extended stay hotel
- Proposed 200-room Holiday Inn in downtown Cincinnati at
Sycamore and Eighth streets
- Redeveloping the Old St. George Church into a boutique
hotel in Clifton Heights
- Proposed hotel in the Clifton Heights neighborhood as
part of mixed-use development
- Jeffrey R. Anderson Real Estate Inc. is looking to
develop a 1.1 million square foot lifestyle retail center in Butler
County near the new Liberty Way interchange on Interstate 75. The plan
shows three department store anchors, a 160,000 square foot outdoor
sports retailer, 209,000 square feet for junior anchors, and 275,000
square feet for restaurants. New hotels proposed in the area around
Liberty Township and West Chester include a new Holiday Inn and a new
hotel with a to be determined brand.
The Cincinnati market has experienced sluggish occupancy for much of
the decade. However, the market managed to advance rate until 2009. The
year-to-date decline in rate has not been as sharp as the other
metropolitan areas and it has rebound occupancy levels similar to
Columbus through June 2010. A number of projects in the region have
demonstrated the investment commitment on the part of private industry
to the market. The Duke Energy Center has provided the market with a
strong meeting center to
complement the number of downtown hotels. The future casino will
provide an additional amenity and promote activity within the downtown
market.
SUMMARY
The three largest economies in Ohio have struggled for a number of
years and have drawn the overall hospitality outlook of the state with
them. But 2010 has shown to be a stronger year for all three markets
and the state overall. While Ohio and the national economy are not out
of the Great Recession just yet, the first half of 2010 has provided
reason for optimism within the hospitality industry. The fundamentals
of profitability are stabilizing and in the case of occupancy moving in
a positive direction. Business travelers and groups are returning to
hotels, while leisure travelers are projected to increase their
visitation patterns.
Authors
David J. Sangree, MAI, CPA, ISHC is President of Hotel
& Leisure
Advisors, a national hospitality consulting firm. He performs
appraisals, feasibility studies, impact studies, and other consulting
reports for hotels, resorts, waterparks, golf courses, amusement parks,
conference centers, and other leisure properties. He has performed more
than 1,000 hotel studies across the United States and Canada. Since
1987, Mr. Sangree has provided consulting services to banks, hotel
companies, developers, management companies, and other parties involved
in the lodging sector throughout the United States, Canada, and the
Caribbean. He has spoken on various hospitality matters at seminars
throughout the United States and on Good Morning America and CNBC. He
has written numerous articles for, and is frequently quoted in
magazines, television, and newspapers covering the hospitality field.
He is a 1984 graduate of Cornell University’s School of Hotel
Administration. He can be reached via telephone at 216-228-7000 ext. 20
or via e-mail at [email protected].
Joseph Pierce is a Senior Associate with Hotel & Leisure Advisors.
He has been a hospitality consultant and appraiser since 2003 and has
worked in numerous states for a wide variety of hotels, indoor
waterpark resorts, restaurants, and other leisure properties
nationally. He has a wide range of experience in management and
accounting at a variety of Westin, Marriott, and independent hotels and
resorts. He holds a MBA in Hospitality Management from Michigan State
University and a BS in Accounting from the State University of New
York. He can be reached via telephone at 216-228-7000 ext. 23 or via
e-mail at [email protected]. |
