By Sebastian J. Colella
Until late spring of this year, the Boston & Cambridge lodging market had been one of the country’s slowest to recover. Due to a number of factors, the market experienced very strong results in Q2 and Q3 and looks to continue those trends in the Q4.
1. Uneven Recovery: Much has been reported on the uneven recovery throughout the country’s lodging markets. The recovery across the different submarkets that make up the Boston & Cambridge lodging market has been equally distorted. Through August, the Fenway/Longwood and the Back Bay submarkets, two more leisure-oriented areas, lead the pack in the market’s recovery back to 2019 levels. When compared to 2019 through the same period, Fenway /Longwood has surpassed pre-pandemic levels by 3% while Back Bay is down only 4%. Alternatively, the Cambridge and Downtown submarkets have struggled without the mid-week corporate travel levels of the past and are down 24% and 18%, respectively.
2. Seaport’s Surge in Supply & Demand: Through August, lodging demand in the Seaport submarket is 30% greater than in 2019 during the same period. Despite these gains, occupancy is down 15 points, a direct result of its increased rooms inventory. During the pandemic, the Seaport submarket added almost 1,800 new rooms, increasing its supply by more than 60%. As corporate and group demand continue to recover, this submarket will slowly absorb this added supply. Until then, the submarket’s occupancy will continue to lag its counterparts.
3. Slow Shifts in Segmentation: While the market has relied largely on its leisure demand the last two years, group demand has made impressive strides since Q1 of this year. Corporate demand, also improving each month, has exhibited a much more slow and steady recovery. In August, group demand was down an estimated 25% to 2019 levels while corporate demand was down approximately 35%. Given the convention calendar for Q4, combined with the continued return of corporate demand, these improvements are expected to continue through yearend.
4. Luxury Market’s Premium: The luxury set, as defined by Pinnacle Advisory Group, makes up approximately 7% of the overall market. The landscape of the luxury set, as small as it is, has changed in recent years with the opening of the Four Seasons One Dalton in May 2019, the conversion and opening of The Newbury in May 2021, and the reopening of the Langham the following month. Year-to-date through August, the luxury set of eight hotels had a rate of $630, a 34% increase to the same period in 2019, greatly surpassing the growth in rate seen across all other segments. As the economy continues to soften, one would expect to see a higher degree of price sensitivity however there has been no sign of this yet. The Boston & Cambridge lodging market’s August ADR was 7% higher than in August 2019, its highest premium since the pandemic.
5. Q4 Highlighted by Citywides and Sports Events: This year’s Q4 offers some highlights which may allow for a continued push through yearend. The BCEC and the Hynes will host seven different citywides, three more than in Q4 2019. These events combine for close to 90,000 roomnights and include the American Association of Pharmaceutical Scientists in October and the American Public Health Association in November. Although the Red Sox will not be making a playoff run and the Boston Marathon was not rescheduled to take place in the fall, both which of which occurred last year, there is still a slew of sports-related events taking place in Q4. In October, the market should benefit from the Women’s Basketball Hall of Fame hosting its Ladies Ball Regional event followed by the Head of Charles Regatta, the world’s largest 3-day rowing competition. In November, WWE’s Survivor Series will take place at TD Garden and Harvard University will host the Ivy League Women’s Volleyball Championship. After being canceled due to the pandemic for two straight years, Fenway Park will host its first annual NCCA football bowl game, the Wasabi Fenway Bowl, on December 17. Lastly, after a two-year hiatus, hotels eagerly await the return of holiday parties for which inquiries and bookings have begun to pick up.
The Boston and Cambridge lodging market showed considerable improvement in Q2 and Q3 of this year. There are certainly a few submarkets and hotel classes which have lagged others in the recovery back to 2019 performance levels and the industry as a whole faces some headwinds when considering the economy and today’s labor market. However, the Boston & Cambridge lodging market has exhibited positive trends the last six to seven months and is on solid footing moving into the final quarter of 2022.