Beefed-up Cleveland hotel market prepares for ‘a price fight’

H&LA President, David Sangree, weighed in with Crain’s Cleveland Business about the recent supply additions to the Cleveland hotel market as the city positions itself as a convention, meeting, and leisure destination. 

Published by: Stan Bullard/Crain’s Cleveland Business
Published date: February, 2017

When it comes to the Cleveland hotel market, you haven’t seen anything yet.

Hotel occupancies are poised to fall in the coming year, even as real estate developers continue to talk up plans for more suites downtown and throughout the region. At the same time, the market is posting gains on the revenue side of the equation, showing the city is making progress toward its goal of becoming more of a convention, meeting and leisure destination.

Sheer numbers and fate dictate the gloomier outlook on occupancy after Cleveland gained 2,000 hotel rooms last year — half in downtown Cleveland, and the remainder in suburbs from Avon to Lyndhurst.

The 600-room Hilton Cleveland Downtown Convention Center, Drury Plaza Hotel and Schofield Kimpton Hotel will be open for a full year in 2017 after having opened between April and June in 2016. Moreover, the events that made for a stellar 2016 — the Republican National Convention, the NBA Finals and the World Series run of the Cleveland Indians — are a troika unlikely ever to be repeated, though reruns of either of the sports runs can be envisioned.

Against that backdrop, David Sangree, president of Lakewood-based Hotel and Leisure Advisors, said, “I’m confident occupancy will be a downward trend this year.”

He refused to put a figure on the continued occupancy dip. CBRE’s Hotel consultancy estimates occupancy will be 62.7% in 2017 and 2018, and then just 61.8% in 2019 and 2020.

STR, the Hendersonville, Tenn.-based hospitality analytics firm, reports Cleveland-area occupancy fell to 61.3% in 2016 from 63% the prior year. Meantime, downtown Cleveland ended 2016 at 66%, down from 67.9% in 2015.

Those figures reflect the challenge of the situation for hoteliers on a day-to-day basis when there is no big convention or event to liven things up.

“It’s going to be a price fight,” said George Kimson, chief operating officer of Heritage Development Co., the Moreland Hills-based owner of the Aloft hotel in downtown Cleveland and the Bertram in Aurora.

“The new supply has outpaced demand and we will be in a downturn for a few years,” he said. “Cleveland has to face where it’s at in terms of a new convention center and a lot of new hotel product.”

The amount of customers in the business travel segment is not enough to counter the rise in all the hotel rooms, he said.

However, there is a bright spot that will sustain hotelier hopes now and in the future.

The amount of revenue per available room downtown climbed 7% to $135.81 in 2016 from $126.89 in 2015. Meantime, in the Cleveland market as a whole, such revenue climbed to $109.24 in 2016 from $102.37 in 2015.

“This shows there is room in the market to grow, in the convention and meeting market with the new convention center,” Sangree said. “In many markets, this kind of expansion in supply is not accompanied by a rise in revenues per room.

To read the entire article, click here.