'No Vacancy’ Signs Are On

Thousands of more hotel rooms are on the way in metro Atlanta, as the conventions and hospitality industries continue impacting the region’s bottom line.

Bobby Hickman

October 22, 2007

Atlanta's hotel and hospitality industry is primed to add thousands of new rooms to the market in coming months as a number of new developments near completion. "We're getting close to the peak of the hotel market cycle," says R. Mark Woodworth, executive VP of PKF Consulting, during a recent conference on the Atlanta lodging industry. "Demand is rising again after the post-2001 slowdown, and we're seeing demand back around what had been a normal national average."

Atlanta continues to rank slightly above the national average of 62.7 percent, with 2007 demand around 63.4 percent.

"We see Atlanta's lodging market staying above average next year, as well as for the foreseeable future," Woodworth says, adding the market is "doing well in both the upper-price tier (such brands as Hyatt, Marriott, Ritz-Carlton) and the lower-priced tier (Days Inn, Fairfield Inn, Hampton Inn, Microtel)."

Strong demand is fueling the higher rate of new hotel development, with a number of projects in the development pipeline for the metro area. Woodworth says there are 21 proects under construction that will add 2,431 rooms throughout the area. There are a total of 94 projects in the planning stages, including eight near the airport, 10 in Gwinnett, 11 in Midtown and 18 in the Town Center North submarket.

"The lower-priced hotels are particularly strong, but all segments of the hotel market are strong," Woodworth says.

Mark Vaughan, executive VP of the Atlanta Convention & Visitors Bureau, says the current rate of hotel development is promising for the immediate future. This year, Twelve at Centennial Park and the Ellis Hotel are opening. For 2008 and beyond, the city will add the Hilton Garden Inn Downtown; W Hotel Midtown; The Mansion on Peachtree in Buckhead; W Atlanta Downtown Hotel & Residences; St. Regis Hotel Atlanta; Hotel Palomar Atlanta; Hilton Hotel in Buckhead; 1 Hotel & Residences in Buckhead Village; Hotel Indigo Downtown; and the Mandarin Oriental in Midtown.

Vaughn says there will be two new hotels connecting the Georgia International Convention Center: a 400-room luxury hotel and a 150-suite hotel.

While Atlanta has plenty of development going on, Vaughan says Atlanta must keep an eye on the competition. Many of Atlanta's competitors are opening or planning convention centers or upgrading existing centers and hotels. For example, Chicago, Indianapolis, Las Vegas, Nashville, Orlando and Philadelphia all have significant projects underway or being completed.

David Neises, president of The Commonwealth Company, says an increasing amount of Atlanta's new lodging supply is in the residential/hotel hybrid sector, also known as condo/hotels. "Atlanta, like the rest of the nation, has seen very few full-service, upscale or luxury hotels being developed," he says.

"However, during the last few years, there have been a growing number of hybrids, with success stories seen in several cities. We're seeing condominium developments being attached to upscale hotels that offer room service, restaurants and other amenities."

Some of those projects are coming on line in Atlanta, while others that started as hybrids are being changed to strictly hotels. "We may be seeing the end of that trend, or at least a tapering off," Neises says.

The new supply of hotels arriving in Atlanta includes some of the most luxurious the city has ever seen. "We're also seeing a substantial redevelopment of existing properties, with many projects going beyond just the basic refurbishing," Neises says.

Vaughan says there will be a convention market for luxury properties, even at the prices seen in condo/hotel projects.

"There is a demand for even higher priced product in Atlanta than what we're seeing today," Woodworth adds. "We think the rates for those projects will go up substantially [over current hotel rates]."

State officials say tourism is Georgia's second largest industry, with much of that impact in Atlanta. Vaughan says the metro area had 38 million visitors in 2006 that contributed $11.4 billion in direct economic benefits and sustained more than 215,000 jobs last year.

Georgia has the eighth largest tourism economy in the United States, with Atlanta ranking fifth nationally in number of hotel rooms and sixth in nightly demand. The average party of Atlanta visitors consists of 2.7 individuals who stay an average of 2.51 nights. Each individual visitor spent an average of $144 per day in 2006, including lodging, food, entertainment and shopping.

"The first quarter of 2007 was a little down but it started to level out in the second quarter," Vaughan says. "The rest of the year looks pretty good. The Atlanta hospitality industry's pulse has improved over the course of the year and looks to continue to be steady for the remainder of 2007."

While the convention booking pace for seven of the next eight years is above the baseline index of 100 percent, 2009 could be a challenge, as bookings are only at 97 percent. However, 2010 will be a good year, with bookings at 161 percent. "In some situations, it's proving difficult to find space at both hotels and convention centers," Vaughan says.

While most U.S. visitors come to Atlanta from the southeastern states, foreign travelers also make up an important segment of the tourist population. The top international cities for travel to Atlanta are London, Mexico City, Frankfurt, Toronto and Montreal, according to the Atlanta Convention & Visitors Bureau.

"Delta added 20 new international destinations in 2006 and is adding more in 2007," Vaughan says, with plans for other new destinations next year including China. "Meeting planners rate Atlanta favorably as a meeting destination,"

Vaughan says. As an overall convention destination, surveys of planners show Atlanta moved up from 18th to 12th place. "However, our surveys find some challenges remain," he adds. "There are concerns about taxi service, general safety and the ease of getting around Downtown."

A potential slowdown in the economy would also have some impact on the hospitality industry. Michael Chriszt, director of international and regional analysis for the Atlanta Federal Reserve Bank, says the housing market and recent financial markets turmoil are key factors.

"We're expecting growth of around 2.5 percent for the third quarter of 2007, 2 percent for the fourth quarter and 2.5 percent for 2008, below what we've seen the last few years," he says.

The hospitality industry is slow as the national economy cools down. "It's reasonable to expect business travel might slow down, as well as leisure spending by families," Christz says. "One of the things that might suffer in a slow-down is vacation spending. It's not that families won't go on vacation; maybe the trips will be shorter and there will be less spending." This trend also is showing up in statistics from Florida, where "occupancy rates are steady but guests aren't spending as much as they used to," he says.

Overall, the Fed sees the economy growing moderately. Says Chriszt, "The outlook is not terribly negative; it's just not as good as it was."