Philadelphia's Hotel Room Rates Remain Feather Soft; Regions Recovery Not Expected Until 2013

By Suzette Parmley, The Philadelphia InquirerMcClatchy-Tribune Regional News

July 17, 2011--Debra Cook of Denton, Texas, felt she scored a coup after booking her stay at the four-star Loews Philadelphia Hotel for $100 a night Sunday through Thursday last week, on Priceline.com.

"You can't beat that rate," said the 11th-grade English teacher, who was here for a five-day conference at the National Constitution Center.

But Cook's room savings are costing city hoteliers. While downtown hotels are benefiting from new business brought by the recently expanded Pennsylvania Convention Center, they are charging rates far below 2007 levels because of the sputtering economy and intense competition from other major U.S. cities, primarily New York, Washington and Boston.

"Hotels in the Philadelphia region have not recovered from the recession and are not projected to recover until 2013," said James Gratton, president of the 85-member Greater Philadelphia Hotel Association and general manager of the Courtyard by Marriott Philadelphia Downtown.

While hotel rates are slowly come back, he said, they aren't projected to return to 2007 and 2008 levels for at least another two years.

New business created by the Convention Center expansion still leaves rooms to fill.

"If the average convention lasts four days, and we host 20 citywide conventions a year (those requiring 2,000 or more rooms on peak nights), there are still 285 nights a year . . . the hotels will have to fill," Gratton said. "Currently, we are projecting 16 conventions in [both] 2012 and 2013."

Last year's revenue per available room, or RevPar -- the metric used by hotels to measure profitability -- was $104, the same as in 2004 and well below 2007's $122.46.

As of May 30, Center City's year-to-date average daily rate (ADR) was $158.21, compared to Boston's ADR of $179.71, and Washington's $215.59.

Several city hoteliers interviewed contend that if the lower ADR persists, it could cut into profits and hinder the ability of newer hotels to finance their mortgages.

"When you think about operating costs such as commodities and labor, they've all gone up while ADR has gone down," said Nick Gregory, director of operations for Kimpton Hotels Philadelphia and general manager of the 230-room Palomar at 117 S. 17th St. "With occupancy flat, you lose the ability to make a profit."

The result, added Gregory, is "ownership groups come down hard on management to lower amenities to keep costs low. If labor is the number-one expense. . . you have to cut labor."

That, in turn, can diminish the customer's experience, said Bill Fitzgerald, general manager of the 432-room DoubleTree Hotel Philadelphia. "We are having to do more with less."

There's another issue, a serious one for Philadelphia and the expanded Convention Center: Evan Evans, general manager of Le Meridien, which sits across from City Hall, said as profits are squeezed, capital improvement projects such as expansions or renovations are put on hold.

The lower ADR threatens several hotel projects that were intended to support the Convention Center's expansion, which debuted March 4. Four years ago, there were more than 20 such projects in the pipeline. The 268-room Monaco by Kimpton in Old City and the 136-unit Homewood Suites in University City are the only two hotels set to open next year.

"Lenders use ADR and RevPar to determine the health of our industry and make credit decisions," Evans said. "The city needs to add an additional 1,600 guest rooms to support the expansion of the Convention Center, but investors are waiting for ADR to return."

Philadelphia's chief rivals -- New York, Boston and Washington -- are commanding higher rates even though they have more rooms to sell.

With over 66,500 rooms in Manhattan, and as the nation's top tourism draw, New York holds top ranking as a given. Much of Washington's hotel clientele is government-related, which explains its No. 2 spot in ADR.

But Boston's higher room rate than Philadelphia's is puzzling, since both cities have similar historical attractions and walkability. Boston also has far more rooms to sell, 18,189, against 11,160 here.

C. Patrick Scholes, senior gaming and lodging analyst at FBR Capital Markets, said Boston was more of a financial capital and home to several mutual funds and hedge funds.

"This corporate travel segment tends to pay more for rooms," he said. "Whereas in a more leisure-tourism market like Philly, the rates that you can command for that group are less."

Having a smaller footprint also works to Boston's advantage.

"Downtown Boston is a little more congested and harder to build new properties," said Scholes. "It's harder to put up new supply in there and part of why it can command a higher rate."

Boston also has a strong summer convention market and the venue to support it, said Larry Meehan, vice president of tourism sales for the Greater Boston Convention and Tourism Bureau. The much bigger Boston Convention and Exhibition Center opened in 2004, and has a seven-year head start on Philadelphia's expanded center.

There is a silver lining for Philadelphia. The limited supply of new hotels will ultimately boost rates as the larger Convention Center draws customer traffic, say analysts and hoteliers.

For now, Angie and David Hein, of Cromwell, Conn., are taking advantage. The couple stayed one night in a $349-a-night suite with a complimentary upgrade at the Palomar last week after taking in the city's sights.

"Price, location, amenities. We got all three," said Angie Hein, 63, as she checked out last Thursday. Contact staff writer Suzette Parmley at 215-854-2594 or sparmley@phillynews.com.

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