Owners and operators in the Pittsburgh market are enjoying a hotel performance recovery as supply growth softens and demand skyrockets.
REPORT FROM THE U.S.—Hotel development is beginning to pay off in Pittsburgh, as the Steel City is refreshing its image from a blue-collar manufacturing town to a diverse hub of higher education, technology, and arts and culture.
Ali Hoyt, senior director of consulting and analytics at STR—parent company of Hotel News Now—said Pittsburgh appears to be absorbing the hotel supply booms from 2015 (+5.3%) and 2016 (+6.1%). October 2018 year-to-date data from STR shows hotel occupancy in the greater Pittsburgh market increased 5.4% to 65%, which is fueled by an 8.3% year-to-date demand increase compared to 2.8% supply growth.
“Occupancy fell pretty consistently in 2015 and 2016, and now is starting to rebound, and it looks like that was very supply-driven,” Hoyt said. “The market has seen a lot of new supply come in—in 2015 and 2016 north of 5% annual supply growth. That’s now starting to level off a bit, and there isn’t as much in the pipeline, so the market is starting to see that recovery after absorbing those new hotel rooms. … Demand is certainly driving that occupancy growth now … this year up 8.3% year to date, which is certainly pretty strong demand growth given this point in the cycle compared to other markets.”
Pittsburgh’s occupancy on a trailing 12-month basis peaked in June 2012 at 68.5%, Hoyt said. While an 8%-plus demand increase isn’t sustainable, occupancy in the market still has some ceiling left, she added, especially with supply growth beginning to slow. The market has just six hotels and 758 total rooms in construction, which is 2.6% of its existing supply, according to STR’s AM:PM data.
“We’re certainly seeing nationally there are a lot of markets well above that number in terms of what supply they’re still looking at to be built in the next couple of years,” Hoyt said, adding that while there are more properties in the planning stage of the pipeline, Pittsburgh hotels will likely see a performance boost in the next year or so.
With new hotel supply growth slowing and demand on the upswing, hotel owners and operators are bullish on their portfolios in Pittsburgh and future opportunities in the market.
Nick Kellock, COO of Concord Hospitality Enterprises, said in an email interview that his company has tracked Pittsburgh’s performance recovery.
“The city’s hotel market did suffer a downturn, yet it absorbed a significant increase in hotel supply,” Kellock said. “In particular, the downtown market is bouncing back.”
Year-to-date through October, hotels in Pittsburgh’s central business district reported occupancy rose 4.1% to 70.8%, average daily rate increased 1.9% to $153.78 and revenue per available room rose 6.1% to $108.92. Similar to the greater Pittsburgh market, demand growth (+8.7%) is outpacing supply growth (+4.4%).
Businesses across all sectors are choosing to settle or expand in Pittsburgh, Kellock said.
“We have seen continued new investment in Pittsburgh for several years, and this continues unabated,” he said. “Inward investment continues, while the city’s economy continues to diversify and grow across multiple sectors—software, biotech, education and health care to name a few of the more prominent.
“All of this creates travel and the need for hotel space. While we foresaw a period of slowdown in actual revenues, we also saw the longer-term opportunity to develop new hotels that meet the demands of today’s travelers.”
Concord Hospitality recently opened the 134-room AC Hotel Pittsburgh Downtown in the city’s Strip District, Kellock said, and soon plans to open The Oaklander Hotel, a 167-room full-service, independent hotel affiliated with Marriott International’s Autograph Collection. Kellock said Concord continues to feel confident in Pittsburgh as a key piece of its portfolio strategy.
“Our existing presence and our continuing investment in new hotels both reflect our confidence in the city from the standpoint of continued economic growth and associated increases in travel to the city,” he said. “We have built more hotels in Pittsburgh than any other city in the U.S. and are extremely proud to be a part of this thriving community.”
An active hub
Concord has nine hotels in Pittsburgh, including the 110-room SpringHill Suites by Marriott Pittsburgh Bakery Square. GM Katie Baldassaro said the Bakery Square neighborhood already has become a hub of activity with business and retail growth, including Google’s Pittsburgh office. The city’s four biggest universities—The University of Pittsburgh, Duquesne University, Chatham University and Carnegie Mellon University—are also close by. In October, the hotel hosted an “Art of Local” event in its lobby that blended music, screen printing and a collaborative painting project to grow guest engagement.
“It’s so trendy and revitalized over here, it’s awesome,” Baldassaro said. “We love being a part of this growing community. Bakery Square in general has been around 10 years, and our hotel is eight years old. We sit right in a revitalized area with so many tech companies that are right here and more that are projected to come within two years. There will be so many more businesses right here in this corridor.”
Baldassaro added she’s seen plenty of development throughout Pittsburgh.
“It’s just growing so much, and we’re so glad to be a part of it,” she said. “Pittsburgh, too, has just seen this resurgence. We’re feeling a lot of that, especially over here (where) we’re in our own little hub. … There’s just such a cool vibe over here, and it’s spreading out back into certain areas, even a bit further, like into Lawrenceville. We’re just seeing this big connection of everything falling into place and people putting in new businesses.”
Wyndham Hotels & Resorts is bringing its Tryp brand to Lawrenceville, located in the northeast part of the city. Anthony Emanuelo, brand leader and VP of brand operations at Tryp, said the new hotel is an achievement in embracing neighborhood history, identity and culture.
“We hit it out of the park with this property—an adaptive reuse of a historic building that truly celebrates its location,” Emanuelo said in an email interview.
The hotel is housed in the Washington Education Center, a former vocational school in the Lawrenceville neighborhood of Pittsburgh.
“Many developers wanted to tear this building down and build new, but our partners on this project, Century Group, had a different vision,” he said. “They wanted to create an anchor in the neighborhood reflecting the spirit of Lawrenceville and offer a hotel experience commemorating this great city. As a result, Tryp by Wyndham Pittsburgh/Lawrenceville will feature custom artwork from local artists, as well as multimedia installations and experiences detailing the history, culture and flavor of both the building and the neighborhood.”
Emanuelo said that as a lifestyle brand, Tryp is positioned to take advantage of the high demand Pittsburgh is experiencing.
“(Lifestyle) is a segment which CBRE projects will enjoy the greatest gains in RevPAR and highest ADR this year, and one that we believe has long-term momentum,” he said. “But the segment isn’t about a particular mix of guest—it’s simply about how we travel these days. And getting our share of those travelers looking for experiences is top of mind for Tryp. … We’re offering the lifestyle and hotel experience in Pittsburgh that today’s everyday traveler seeks.”