Philadelphia hotels set for performance spike from DNC
 
Philadelphia hotels set for performance spike from DNC
25 JULY 2016 9:01 AM

The Democratic National Convention will bring 50,000 people to Philadelphia. With those visitors come performance gains for the market’s hotels.

PHILADELPHIA—Hoteliers in Philadelphia said they are prepared to benefit from the 50,000 people expected to visit 25-28 July 2016 for the Democratic National Convention. In a market that some consider undersupplied for large-scale events, hoteliers are set to see favorable performance growth, according to sources.

“We’ve been preparing since even before it was officially announced last February,” said Mark Hayes, GM of the 230-room Hotel Palomar Philadelphia. “Since then, we’ve had a longer lead time with more conversations about what the occupancy would look like, what the rates (are) going to look like and the mix of business we’re planning on having.”

Hayes said his hotel—as is the case during any citywide convention—will enjoy higher average daily rates.

“Our typical rate in a July would be in the mid-200s, maybe. We and our competitors are seeing rates two or three times that,” he said.

Laura N. Kalcevic, VP at HVS’ New York/Philadelphia office, said hoteliers are expected to raise rates for the event to achieve strong revenue-per-available-room performance.

“The downtown lodging market has recorded occupancy in the mid-80s for July and August since 2013, and special events at the convention center have driven occupancy performance in excess of 90%,” she said via email.

Year-to-date figures through June show performance for Philadelphia and southern New Jersey has been relatively flat, according to data from Hotel News Now’s parent company STR. RevPAR is up 0.2% to $86.64, driven by a 0.2% increase in ADR $128.35. Year-to-date occupancy is at 67.5% with flat growth. 

The Philadelphia central business district has seen slight declines in year-to-date performance through June, according to STR. RevPAR is down 0.8% to $138.25; ADR is down 0.3% to $182.34; and occupancy is down 0.5% to 75.8%.

Sandy Heydt, director of sales and marketing for the 391-room Logan Hotel, said her hotel’s rates are priced according to the city’s demand—but that doesn’t necessarily mean raising rates just for the event.

“We don’t increase our rates; we just don’t discount any rates. We keep them high,” she said.

Hayes and Heydt said their hotels are sold out for the convention.

“Pretty much every hotel in the city, if not the region, committed about 80% of their inventory to the block to make sure there were enough rooms to accommodate all the delegates and associated blocks,” Hayes said. “Realistically, we’re working with 20% of our rooms, so about 50 rooms on a nightly basis to kind of sell on our own.”

Ed Grose, executive director for the Greater Philadelphia Hotel Association, said he expects city-center occupancy to be at 100% for the event. He added that there are rooms booked for the convention expanding beyond the center of the city.

“There are rooms as far as Lansdale,” he said. “There’s fill-in hotels in the suburbs. There’s fill-in hotels in the airport area. There’s even fill-in hotels in South Jersey.”

Kalcevic said HVS expects areas surrounding Philadelphia will get a piece of the demand pie.

“We expect some of the demand related to the DNC to be displaced to submarkets surrounding the downtown area because of this historical high-occupancy performance,” she said.

The supply story
Philadelphia hasn’t seen new supply come on line in the way that it has in the Cleveland market experienced leading up to the Republican National Convention. In Cleveland’s case, the market experienced a 9.8% increase in supply over a two-year period after the city was announced as the convention host, according to STR data. Sources said that Philadelphia saw no new supply come online in preparation for the Democratic National Convention.

Through June, there were 386 hotels with 46,432 rooms in the Philadelphia market, according to STR.

Hayes said the lead time from when Philadelphia was announced as the DNC host city to now has been relatively short—about 18 months—which wouldn’t have given hotel developers enough time to get new supply ready.

“Typically you would expect the development timeline to be three-plus years,” he said. “There’s really no additional supply that’s come online this year and minimal supply next year. What happens next year is the back half, and that’s supply that was just naturally coming into the market.”

Grose echoed that sentiment and said no new hotels have opened for the DNC, but he added Philadelphia can expect to see more supply in the near-term.

“There’s going to be a lot more hotel supply coming after the event from hotels that weren’t done on time,” he said.

The Philadelphia market, including South Jersey, has 45 hotels with 5,969 rooms in its pipeline as of June. Drilling down into the CBD, the pipeline comprises 17 hotels with 3,072 rooms. Of those, six hotels with 1,429 rooms are under construction.

Kalcevic said Philadelphia shouldn’t have any trouble absorbing new supply, as the market reached peak ADR and occupancy performance last year. She said there is a need for the market to increase room supply if it wants to compete with markets like Boston and Washington, D.C., to host large-scale events.

Kalcevic noted a proposed dual-branded, 755-room Element hotel is set to open a few blocks from Philadelphia’s convention center in 2018 and will be a key development for the city.

“The developer for this project has been working closely with city officials, and the development of this hotel is expected to aid in the positioning of the city following the $787-million expansion of the Pennsylvania Convention Center in March of 2011,” she said. “The development of this project is expected to fulfill a gap in room supply that currently exists in the market.”

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