Raleigh Downtown Hotel Market Study Final Results Raleigh .
Raleigh Downtown Hotel Market StudyFinal ResultsRaleigh, North CarolinaAugust 17-18, 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.
Agenda Description of the existing hotel market Event planner survey results Market outlook Anticipate new hotel supply Baseline Hotel development scenarios Impact on the RCC and Downtown Raleigh Conclusions Q&AAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.2
Description of theExisting Hotel MarketAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 3
Existing Hotel MarketKey Findings The Raleigh hotel markethas experienced strong growth in rateand occupancy reaching record highs in 2015 135 average daily room rates in downtown and adjacenthotels Occupancy rates are approaching 73% Business travel is the primary driver of demand growth, whichmakes up nearly 46% of room night demand. Business travel drives strong mid-week hotel occupancies. The Marriott Raleigh City Center is the market leader with revenueper available room of approximately 108 The Hampton Inn and Suites Raleigh Downtown has the highestoccupancy, which reflects its high penetration of business traveldemand.HVS Convention Sports and Entertainment ConsultingAugust 2015Page 4DRAFT. For discussion purposes only.
Existing Hotel SupplyIn addition to the four hotels located in Downtown Raleigh,we have identified 12 hotels that compete for downtownbusiness and benefit from convention center demand.Potential new hotel supplyMarriott Raleigh City CenterSheraton RaleighHoliday Inn Raleigh DowntownHampton Inn & Suites Raleigh DowntownDoubleTree by Hilton Raleigh BrownstoneMarriott Raleigh Crabtree ValleyEmbassy Suites Raleigh CrabtreeCourtyard by Marriott Raleigh CrabtreeHampton Inn & Suites Raleigh CrabtreeRenaissance Raleigh North HillsHyatt House Raleigh North HillsHilton North Raleigh MidtownHyatt Place Raleigh NorthCourtyard by Marriott North RaleighDoubleTree by Hilton Raleigh CaryHilton Garden Inn Raleigh CaryAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 5
TrendsAfter strong growth in the earlier part of the last decade, the Great Recession stalleddemand growth and caused average daily room rates (ADR) to stagnate. Since 2009,occupancy recovered to pre-recession levels. ADRs have grown faster than inflation.Revenue per available room (RevPAR), a combined measure of rate and occupancy, isat an all-time high. 14080% 12070%60% 10050% 8040% 60 4030%ADRRevPAROccupancy20% 2010% 00%2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.6
Recent Market MovementsSince 2012, hotel room night demand growth has exceeded supply growth andoccupancies are now in excess of 70%. ADR has also strengthened.YearCompetitive Set Recent Market PerformanceAccommodatedRoom NightsMarketMarket ADRRoom NightsAvailableOccupancyAmount201220132014Pecent ,0001,086,0001,106,00065.5%65.9%71.0% 117.86 120.27 127.83 77.26 79.30 ar-to-Date Through AprilOccupancyADRDemandAugust 20152014201571.5% 127.12286,02372.5% 133.41289,826Percent Change1.4%4.9%1.3%HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 7
Individual Property Performance in 2014 The Hampton Inn & Suites has thestrongest occupancy in thedowntown market.Marriott Raleigh City Centergenerates the highest room rates,which is to be expected of a fullservice property, and leads themarket in RevPAR.The Sheraton performs at asimilar level to the aggregatedsecondary competitors outside ofdowntown.Room CountSeconda ry CompetitorsMa rri ott Ra l ei gh Ci ty CenterShera ton Ra l ei ghHol i da y Inn Ra l ei gh DowntownHa mpton Inn & Sui tes Ra l ei gh DowntownOccupancyHa mpton Inn & Sui tes Ra l ei gh DowntownMa rri ott Ra l ei gh Ci ty CenterSeconda ry CompetitorsShera ton Ra l ei ghHol i da y Inn Ra l ei gh Downtown76%73%72%64%63%ADRWhile the Holiday Inn is theweakest performer in the market.Its conversion from the Clarion in2014 should improve itsperformance.Ma rri ott Ra l ei gh Ci ty CenterShera ton Ra l ei ghHa mpton Inn & Sui tes Ra l ei gh DowntownSeconda ry CompetitorsHol i da y Inn Ra l ei gh DowntownThe Marriott, Sheraton and to alesser extent the Hampton, arethe only hotels that provideadequate support to theConvention Center.Ma rri ott Ra l ei gh Ci ty CenterHa mpton Inn & Sui tes Ra l ei gh DowntownShera ton Ra l ei ghSeconda ry CompetitorsHol i da y Inn Ra l ei gh DowntownAugust 20152,251400353203126 148.00 140.00 138.00 123.62 99.00RevPARHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only. 108.04 104.88 89.60 89.30 62.37Page 8
Market SegmentationThe market benefits from a healthy mix of demand sources. Commercial travelersmake up nearly half of all room night demand. Local businesses such as Citrix, Red Hatand PNC Bank drive much of this demand. The Raleigh Convention Center and hotelswith function space attract meeting and group business, which makes up nearly onethird of occupied room nights. Leisure demand drives business on weekends andholidays.Market SegmentAugust 2015OccupiedRNPercent ofTotalCommercialMeeting and ,558100%HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 9
Seasonal Patterns of DemandDemand peaks in the spring and fall when commercial travelers and meetings andgroups are at their peak. Occupancy lags in the summer and is lowest in Decemberand January. ADRs show less seasonal variation than occupancies.80% 12070% 10060% 8050%40% 6030% 4020%Occupancy10% 20ADR0% 0JanAugust 2015FebMarAprMayJunJulAugSepHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.OctNovDec10
Weekly Patterns of DemandCommercial travelers cause hotel demand to peak on Tuesdays and Wednesdays.Strong leisure travel support occupancies in excess of 70% on the weekends albeit atlower rates than during the week since leisure travelers are more price sensitive.Thursday and Fridays are “shoulder” days and Sunday is the low point of weeklyoccupancy.90% 15080% 12570%60% 10050% 7540%30% 5020%10% 250% 0SunMonTueWedOccupancyAugust 2015ThuFriSatADRHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 11
Event Planner SurveyAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 12
Event Planner Survey Key Results An inadequate hotel package is the greatest obstacle toattracting convention events. Specifically, planners note the lack of hotels within walkingdistance to the RCC. Event planners have a favorable view of Raleigh as an eventdestination. They like downtown dining and retail amenitiesand natural beauty. The majority of planners prefer to host an event in downtownRaleigh in a full-service property with an upscale or uppermidscale brand. Booking hotel rooms within walking distance to the RCC isimportant to event planners.August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 13
Who Responded116 survey respondents are association, corporate, and other meeting plannersrepresenting 24 states. Approximately one-third of the respondents are from NorthCarolina and over half have held an event in Raleigh in the past 5 years.RESPONDING ORGANIZATIONS BY alSocialAugust 201563%22%15%13%4%3%TYPES OF EVENTS tionsBanquetsTrade ShowsEntertainmentConsumer ShowsSports EventsOtherHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.82%78%62%43%32%33%6%5%3%3%Page 14
Strengths and WeaknessesIn answers to open ended questions, event planners identified strengths and weakness ofRaleigh as a group meetings destination. HVS categorized these responses as shownbelow.DESTINATION STRENGTHSDestination amenities, downtownEase of accessGeographic location, prximity to baseVariety of meeting venues, convention centerBeauty, good weatherHotelsLow cost, good valueCustomer service, friendly people44%38%25%22%17%16%14%14%DESTINATION WEAKNESSESInadequate hotel packageLimited air serviceLimited destination activities, dining, shoppingTraffic congestion, lack of parkingLocation of hotels too spread outHigh cost for 2nd tier cityMeeting venues inadequateGeographic location, market sizeLack of support for eventsLack of knowledge about destinationAugust 201551%29%27%24%20%18%18%12%6%4%HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 15
Why Event Planners Don’t Come to RaleighSurvey respondents cite a lack of hotel room capacity and inadequate venue size mostoften as the primary reasons for not booking an event in Raleigh. Over half of theplanners consider Raleigh’s hotel package a primary weakness as an event destination.REASONS FOR NOT SELECTING RALEIGHHotel package inadequate36%Meeting venues inadequate31%Internal reasons, no interest from client31%2nd tier city, population size, demographic21%Lack of knowledge, not considered15%Geography, location in relation to base13%Air Service Limited13%Economy, budget reasons5%Raleigh is viewed as a second-tier city by many event planners. This indicates thatexpanding into the national market will take time and depend in part on the rate ofeconomic growth.August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 16
Total Lost Room Nights 2010-2015Greater Raleigh CVB reports that from 2010-2015, 73% of rooms nights were lost due toinsufficient rooms under one roof or within walking distance to the Raleigh ConventionCenter.Lack of hotel roomsunder one roof50,36433%Lack of market-widehotel rooms40,40727%Lack of hotel roomswithin walking distance61,44140%Source: Greater Raleigh CVBAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 17
Average Peak Room Nights for Lost Business(2010-2015)Lack of market-wide hotelrooms1,164Lack of hotel rooms withinwalking distanceLack of hotel rooms underone roof857480Source: Visit RaleighAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 18
Scale and Quality of HotelsOver 80% of planners prefer upscale or upper-midscale full-service properties.HOTEL SERVICE LEVEL PREFERREDFull ServiceSelect ServiceLimited Service84%13%4%HOTEL CHAIN SCALE PREFERREDUpper Upscale or LuxuryUpscaleUpper MidscaleMidscaleEconomyAugust 20155%33%51%9%2%HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 19
Room Night DemandEvent attendees and peak room night requirements vary by type of event.AVERAGE EVENT ATTENDANCE BY TYPE OF ,550850674358AVERAGE PEAK ROOM NIGHTS BY TYPE OF ugust 20151,008431369190HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 20
Importance of Hotel Proximity66% of planners indicate that hotel rooms within walking distance to the event venue isan absolute requirement, while 26% will not book an event with a room block in morethan one hotel.IMPORTANCE OF HOTELS WITHIN WALKING DISTANCEYes, it is an absolute requirement.It is preferred but not necessary.No, it is not necessary.66%23%11%MAXIMUM NUMBER OF HOTEL PROPERTIES IN ROOM BLOCK53%26%17%4%1August 20152 to 45 to 9HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.10 Page 21
Who Wants to Come?Around 61% of the meeting planners said they would be “very likely” or “likely” to bookan event in Raleigh if the venue and hotel package met their event’s needs. These eventsinclude conventions, conferences, meetings, and workshops.42%LIKELIHOOD OF BOOKING EVENT IN RALEIGH19%20%11%7%Very likelyAugust 2015Somewhat LikelyNeutralSomewhatUnlikelyHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Very UnlikelyPage 22
Market OutlookAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 23
Market Outlook Key Findings 750 new hotel rooms in five new hotels are expected to open by2018. Additional new supply is likely after 2018 as other new projects arein the planning stages. Recent announcements include two hotelsnear the convention center: Narsi Properties, 12-story hotel at South Wilmington and EastLenoir streets (General Baptist State Convention) Winwood Hospitality Group, at least a 175-room full-servicehotel at McDowell Street and Cabarrus Street (Enterprise Rent-ACar site) Market sources indicate continued strong growth in demand in androom rate in 2015 and 2016. None-the-less, occupancies are expected to decline as supply growsHVS Convention Sports and Entertainment ConsultingAugust 2015 than demand.Page 24fasterDRAFT. For discussion purposes only.
New SupplyHVS investigated new supply andidentified five hotel projects withprojected opening dates in 2015and 2016. These projects are likelyto happen and would add over 750rooms to the market. HVS weightedthe competitiveness of these hotelswith existing downtown propertiesand estimates a new competitiveroom count of approximately 650rooms.MapKeyYearProposed Property1243520152015201620162017Hilton Garden Inn Raleigh Crabtree ValleyAloft HotelAC Hotel North HillsStateView Hotel, Autograph CollectionResidence Inn by MarriottAugust 2015CompetitiveWeightProposedRoomsWeightedRoom 5HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Cumulative NewWeighted Room Count11922733448165625
Hotels within Walking Distance of RCCProposed HotelSheraton175 rooms2 min353 rooms2 minRaleigh ConventionCenterMarriott400 rooms1 minResidence Inn175 rooms2 minAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Proposed Hotel12 stories4 min26
Projected Growth in the Number of Hotel RoomsSince occupancy rates are in excess of 70% and ADRs are growing, new hoteldevelopment is likely to continue after 2016 and the known new supply is addedto the market. The figure below shows our estimate of new supply under abaseline scenario in which efforts are taken to incentivize new hoteldevelopment. Most of the new development is likely to be boutique and limitedservice products that are secondary competitors to downtown full-service hotels.Existing PrimaryNew PrimaryExisting SecondaryNew 2024August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.27
Downtown Hotel Development Areas The Downtown Experience Planfocuses on five “catalytic projectareas.” The plan anticipates hoteldevelopment in the threedevelopment areas closest to theRCC.NORTH ENDG CAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 41
Adjacent or Attached Hotels in Competitive CitiesState CompetitorsJos eph F. Koury Convention CenterGreens boroCha rl otte Convention CenterCha rl otteBenton Convention CenterWi ns ton-Sa l emRaleigh Convention CenterRaleighDurha m Convention CenterDurha mWi l mi ngton Convention CenterWi l mi ngtonAvera geNational CompetitorsWa l ter E. Wa s hi ngton Convention CenterWa s hi ngtonBa l timore Convention CenterBa l timoreTa mpa Convention CenterTa mpaMus i c Ci ty CenterNa s hvi l l eCha rl otte Convention CenterCha rl otteDa vi d L. La wrence Convention CenterPi tts burghRhode Is l a nd Convention CenterProvi denceSa va nna h Interna tiona l Tra de & Convention Center Sa va nna hMyrtle Bea ch Convention CenterMyrtle Bea chRaleigh Convention CenterRaleighCha rl es ton Area Convention CenterNorth Cha rl es tonAvera geAugust 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes 4403402400255681Page 42
Impact on RCC EventsGiven the proposed hotel development, HVS projects that the RCC would host over 30additional events.Estimated Number of Events300250200150100500201420162018With a 400-Room HotelAugust 201520202022Baseline ScenarioHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 43
Impact RCC AttendanceHVS projects that the RCC annual attendance levels would reach 490,000 and createapproximately 31,000 new room nights in the Raleigh market in a stabilized year.Estimated 000201420162018With a 400-Room HotelAugust 201520202022Baseline ScenarioHVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 44
Impact on RCC Growth in the number ofconventions and conferenceswould have the greatest roomnight impact. Assemblies would growassuming that local areacorporations would conveneregional or national meetings inRaleigh that required largeamounts of assembly space.August sumer ionsOtherTotal176143190497161231Total AttendanceConventionsTradeshowsConsumer 082,40059,9005,000421,000HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.With a 400Room ,10026,90020,9003,30051,100Page 45
Room Night Impact New business at the RCC and in-house groups in a 400-room hotel could induce 46,000room nights to the market 2020, a stabilized year of demand. More demand growth would come from baseline growth and the capture of demand thatis currently being turned away from the market (unaccommodated demand).Annual Room Night Demand By SourceSource201520162017Base AccommodatedPreviously UnaccommodatedInducedTotal Available Demand(Less Residual Demand)Total Accommodated 8,000)864,000Accommodated Demand Change3.5%7.4%5.8%9.9%3.5%3.2%Available Room Night Change2.8%7.2%7.4%17.1%2.1%1.6%Marketwide Occupancy71%72%71%66%67%68%August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes Page 46
Conclusions Growing businesses in downtown (Citrix, Red Hat, PNC, et. al.) drive lodging demand.New downtown residential, retail, and entertainment development will also supportthe lodging market. HVS forecasts continued growth in rooms demand and supply in the absence of anyextraordinary governmental incentives. But, this growth is likely to be in smallboutique and select service properties between 100 and 200 rooms Much of it maynot occur in the downtown core and will be not be supportive of the RCC. RCC demand cannot grow because of lack of a supportive hotel room supply asdemonstrated by event planner surveys, lost business, and comparisons tocompetitors. The RCC will struggle to maintain existing levels of events and attendance unlessappropriate hotel development occurs. The primary barriers to development of full-service hotels are land assembly, overalldevelopment costs, and relatively weak average daily room rates for a downtownmarket. Lack of hotel supply is currently a barrier to business expansion in downtown Raleigh.August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 47
Conclusions The need for structured parking in a downtown hotel development increases costsand places downtown sites at disadvantage relative to suburban locations. The Cityshould consider revision to its parking ordinance to allow for fewer spaces per roomin downtown hotels. A 400-room hotel would support the RCC well and not cause significant disruption inthe hotel market. Credit market conditions are favorable for hotel financing in the foreseeable future. None-the-less, significant incentives will be necessary to induce new full-service hoteldevelopment.August 2015HVS Convention Sports and Entertainment ConsultingDRAFT. For discussion purposes only.Page 48
Contact Information:Thomas HazinskiManaging DirectorHVS Convention, Sports & Entertainment312-587-9900 Ext. 11thazinski@hvs.comFor A copy of this presentation please go to:http://www.raleighconvention.com/hotelstudy/
Agenda August 2015 HVS Convention Sports and Entertainment Consulting DRAFT. For discussion purposes only. 2 Description of the existing hotel market Event planner survey results Market outlook Anticipate new hotel supply Baseline Hotel development scenarios Imp
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