By Shelly Bradbury, Chattanooga Times Free Press, Tenn.McClatchy-Tribune Regional News
May 19, 2013--The supply of hotel rooms in the Chattanooga market will jump by about 7.5 percent during the next year, which could spell trouble for hoteliers despite expectations for a busy summer tourism season.
At least 728 new hotel rooms under construction are to be added this year and next in the Chattanooga market, according to Smith Travel Research.
"That's a pretty stiff add," said Bobby Bowers, senior vice president of operations at Smith Travel Research. "If you just look at what will be added as a percentage of what's there now, that's a significant add that's going to be pumped into the supply."
That extra supply is coming on the heels of a marked decrease in demand so far this year. In the first three months of 2013, Chattanooga's occupancy rates dropped 10.4 percent lower than the first three months of 2012, according to Smith Travel Research.
Demand dropped by 7.5 percent, and supply rose by 3.2 percent.
"That's definitely unfortunate, to say the least," Bowers said. "You're getting hit on both ends of the market. You definitely don't want that to happen when those new hotels are open."
About 300 more hotel rooms will hit the market this summer with the opening of the $40 million Embassy Suites on Shallowford Road and a 94-room Lookout Valley Hampton Inn in June.
The new hotels follow four years of booming revenues for Chattanooga's hotel industry. Revenues jumped by 17 percent from 2009 to 2010 and climbed another 9 percent in 2011 to hit $162 million, according to Smith Travel Research. Last year, that growth started to slow, leveling off at $164 million -- just a 1.2 percent increase.
Part of that slowing growth could be a reflection of how well Chattanooga's hotel market weathered the recession, said Bill Mish, general manager at the DoubleTree by Hilton in downtown. The Scenic City's hotel market was growing at the same time hotels in larger markets were struggling to stay out of the red.
"I think what's happening now is that all those other cities in the country are just now finally experiencing market growth and Chattanooga, because we never really lost market growth, we're not seeing the double digit increases in markets that other cities are seeing," he said.
And while a 7.5 percent increase in hotel rooms is a big jump, a city can sometimes absorb that increased supply, Bowers said, if there is a large-scale, long-term increase in demand.
"Think big picture, like when the Volkswagen plant came in there," he said. "If there are things like that, maybe not to that scale, but things on the event side or conventions that are going on, that's what I'd think about."
The question, he added, is whether Chattanooga can generate that demand. Developers are betting it can.
As a start, the forecast for this summer's tourism bodes well for the city's hotel market. Most locals expect tourism to increase this year, and the summer will kick off with a bang when the USA Cycling Professional National Championships roll into town Memorial Day weekend.
That event is expected to generate about 25,000 spectators, and many downtown hotels are already completely booked.
"That's always a busy weekend," said Tom Cupo, general manager at The Chattanoogan, which has 199 rooms. "We pretty much sell out every year, and we will sell out this year, as well. I would say the whole entire downtown will be sold out. It will be very, very busy."
The Chattanooga Choo Choo is on track to have its best summer in 10 years, general manager Jim Bambrey said. That's driven by several large group reservations, as well as a general trend upward in bookings, he added.
And across town, the Tennessee Aquarium saw a strong spring performance -- attendance was up by 10 percent, Thom Benson, communications manager, said. He hopes to build on that increase as the attraction hits the busy summer months.
"It looks like things are running strong, and gas prices haven't fluctuated too much in the last few months," he said. "We're optimistic that if things stay stable, we'll have a good year."
Bob Doak, president and CEO of the Chattanooga Convention & Visitors Bureau, said he also expects this summer's tourism to top last year.
"We weren't that optimistic about last summer, and we were right," he said. "I'm more cautiously optimistic about this summer. We've got some softball on the books that is coming and some other events. I think it will be a good time for us, and we'll beat last year's numbers."
The region is adding a handful of new attractions this year, he added, including Lake Winnepesaukah's new water park and Chattanooga's downtown climbing gym, The Block.
Even nationwide, the hotel industry should expect a moderate increase in summer occupancy, Bowers said. More hotels are finding the power to up rates without harming occupancy, and the summer's average daily rate is expected to be 5 percent higher than in 2012.
But even with the upturn in tourism -- a $15 billion industry in Tennessee -- Bowers expects to see occupancy rates take a hit as Chattanooga's hotel rooms multiply.
"In a market like Chattanooga, I would think unless there is something going on up there that I'm not aware of that's a new demand generator, you'd expect to see some sort of impact on the occupancy of hotels now," he said.
Kevin Richards, a managing partner at Legacy Hotel Partners -- the company working with Ken and Byron DeFoor to open the new Embassy Suites this June -- said that while his data does show a moderate decline in occupancy, he thinks the high-quality, brand-new luxury hotel will hold its own.
"Does it give you pause or concern?" he said. "Yes. But there are ways to overcome that. There are ways to outperform the market, and we think we have the recipe to do that."
He said that some of this year's new supply is replacing old hotels and motels that are closing or leaving the market, and added that newer hotels with strong brands often outperform the market as a whole.
"We have a strong brand in Embassy Suites, a strong brand in Hilton that provides a great reservation system, fabulous rewards and great service, and we think that while there is a moderate decline, our hotel is still posed for significant success in the market. We're the first-full service, all-suite hotel coming to the Hamilton Place market."
The impact of the new rooms will be mitigated by the hotels' locations and specialties across the board, Mish said, as each hotel uses price point and service to create a niche within the city's market.
"A new hotel opening at Hamilton Place isn't going to greatly affect the downtown market," he said. "Chattanooga is almost like two separate markets. People who want to stay downtown will stay downtown, and people who want to stay at Hamilton Place will stay at Hamilton Place."
Sometimes, a new hotel can even help create demand, Bowers said. At The Chattanoogan, Cupo doesn't think the market is in danger of being overbuilt.
"The properties are quality properties, run by quality management companies, and I think it will be absolutely positive," he said. "It gives more options, and we can attract a different demographic by having different hotels in town."
Contact staff writer Shelly Bradbury at email@example.com or 423-757-6525.
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