Washington, DC’s hotel market has always been a safe bet for developers, as the nation’s capital can usually withstand any economic downturn or political upheaval.
This is still true to some extent. Still, the Washington market struggled through much of 2019, based on key industry metrics, making it a less lucrative business for hotel developers and investors. This leaves developers heading into the New Year a little uneasy about a potential oversupply issue in the nation’s capital.
Here is some of what they are up against. The occupancy rate fell from 1% from January to November 2019 to 72.1% in the Washington metro area, which includes the suburbs of Maryland and Virginia, according to research firm STR. RevPAR, or revenue per available room, has declined for six of the 11 months reported so far last year. It rebounded in late November to an average of $ 116.62, an increase of 1.3%.
The occupancy rate for the city of Washington, which STR defines as the central business district, was 78% from January to November, down 1.4% from the previous year.
RevPAR was down for six months of the year, but rebounded to $ 179.07 in November, a jump of 0.8%.
These lukewarm numbers come even as the number of domestic and international visitors to the city continues to rise steadily. The number of visits for 2019 is not yet available, but in 2018 the city had 23.8 million visitors, an increase of 4.4% from the previous year.
Why is Washington, DC such an important hotel market today? The city has evolved over the past two decades from a small corporate town with a population of around 800,000 which focuses on the federal government and the International Monetary Fund to a city that attracts celebrity chefs, entrepreneurs , nonprofits, artists and financial heavyweights. .
It has gone from one of the highest crime rates in the United States to one of the richest cities in the country, with new neighborhoods such as CityCenterDC, a luxury retail and restaurant complex located near the Convention Center and anchored by brands. like Bulgari, Dior, HermÃ¨s and Louis Vuitton.
Hotel companies have noticed this and count Washington among the American cities in which they must make themselves known.
âIf you want an exhibit on the East Coast, a lot of people talk about New York first. After that, Washington, Miami and Boston are the next level of major metropolitan areas where you want to be, âsaid Jan Freitag, senior vice president of STR. “If you’re a foreign brand or even a new brand, (Washington) is one of the markets you want to be in so people know you exist.”
Still, Washington had some challenges in 2019, and 2020 could prove to be difficult for the hospitality industry as well.
Analysts attribute it to a classic case of supply and demand. As of November, there were 19 hotels under construction in the Washington metro area and 22 in the final planning stages, which means construction will begin in 12 months, according to STR. 34 others are in the early stages of planning.
Some notable hotel openings that took place from November 2018 to November 2019 include the Courtyard Washington Downtown Convention Center, Residence Inn Washington Downtown Convention Center, Moxy Washington DC Downtown, Hilton National Mall, and Conrad Washington DC. from 147 to 367 in each hotel.
âThat’s a few large properties, over 350 rooms, to open in the space of a year,â said Elliott Ferguson, CEO of Destination DC tourism group.
This should ensure that hoteliers cannot significantly increase hotel rates, a phenomenon that has plagued the city for a few years now. The average daily rate hasn’t changed much since 2017, when it was $ 159.69. Until November 2019, the average daily rate was $ 161.75.
âWe’re basically where we were two years ago. It’s nothing to write home about, âsaid Freitag. âThe growth in rooms and in the supply exceeds the growth in demand for rooms, which mathematically means that the occupancy rate is declining. It’s been going down for a while. “
The political atmosphere has also taken its toll on the city’s hotel market. A partial federal government shutdown from December 22, 2018 to January 25, 2019 meant the Smithsonian Institution, a group of free museums, was closed during the holidays, a peak travel time.
âObviously what we’ve seen is that if the government shuts down, it really matters for tourism,â Freitag said.
The Smithsonian, he said, is “one of the biggest draws to come to DC. Bands stay away, school groups stay away and some of them never come back because for schools are your window “.
Another problem is that the number of Chinese tourists has declined in major American cities due to strained trade relations with China and the anti-immigration rhetoric of the presidential administration. Washington’s main overseas market is China, and visitor numbers have declined 25 percent to 226,000.
This year’s election is likely to result in an even greater drop in the occupancy rate.
âTraveling to Washington during an election year is complex. Hotels face the challenge of booking business in a different way, rather than a traditional booking model, âsaid Ferguson. “Hotels are open with the fact that travel directly related to Congress tends to slow down in the weeks leading up to an election, but national visits to DC continue to increase year on year, even in election years.”
That’s not to say hotel developers stay away from Washington. In the past, New York was the city where hoteliers had to plant their flags. Now they must also be present in small urban centers like Washington.
Washington has matured as a city over the past two decades with a booming restaurant scene and entire neighborhoods sprouting up. The demand for luxury hotels has increased.
Many hoteliers based abroad, in particular, are capitalizing on this need. Citizen, a Dutch hotel brand, plans to open a 252-room hotel in Washington this year.
âIt’s a small town but it has an international influence,â said Geoffrey Griffis, founder and managing member of CityPartners, which develops CitizenM. âHe’s growing and changing so fast.
The trendy hotel-hostel brand in Europe Generator will take over the 148-room Courtyard by Marriott. A German company is expected to introduce another hotel-hostel concept called the Meininger Hotel Washington DC Later this year. chain based in Paris Mob Hotels will open the first of its five planned North American hotels in Washington.
âDC has changed the landscape from more conservative to more trendy with the latest hotel, restaurant and bar openings,â said Cyril Aouizerate, CEO of Mob Hotels. âDC is becoming more than politics. The arts scene is changing, nationalities and tourists traveling to DC are changing, and it is becoming a destination for everyone.
That’s why it made sense to finally open Washington’s very first Conrad, located at CityCenterDC. In the world, there are only 39 Conrad hotels, which is one of the luxury brands of Hilton.
âIt has become an elite city,â said Andy Finn, the hotel’s director of sales and marketing. âIt has become a very cosmopolitan city. It was much more provincial in the 1980s.
Griffis said he had no qualms about investing in hotels in Washington despite the anemic numbers.
âHospitality is always that balance between wanting to fill rooms or getting a higher rate,â he said. “You have these kind of blips.”