Headquarters hotels prove their supply will be absorbed

It’s no longer enough for hoteliers to set targets for revenue in 2018, now hoteliers should be setting targets for the cost of making sales.
Headquarters hotels, such as the Gaylord National Harbor (Md.), serve as the primary hotels for conference attendees. Photo credit: Marriott International

When it comes to headquarters hotels, the narrative seems to be “build it and they will come.” HQ hotels are associated with operations of a convention center and serve as the primary hotels to host conference attendees. Typically, HQ hotels are comprised of 500+ rooms and developed with public subsidies or through a public-private partnership.

According to a 2019 report released by Oxford Economics, the Events Industry Council and The Meetings Mean Business Coalition, meetings supported $845 billion in business sales; $104 billion in federal, state and local taxes; and $446 billion of the country’s gross domestic product. Additionally, the industry supported nearly 6 million jobs.

Often, HQ hotels are developed alongside a convention center because an onsite hotel is crucial for helping these meeting spaces reach their full potential. However, it is not uncommon to hear concern around large-scale hotel developments: the cost to develop can be quite high and there is the question of whether demand will match—or surpass—the incoming hotel room supply.

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JLL Hotels & Hospitality analyzed supply and demand dynamics when HQ hotels opened across 18 U.S. markets, ranging from Austin, Texas, to Denver to Washington, D.C. The findings show that when HQ hotels open, demand increases and supply typically is absorbed in two years. Even in cases where an HQ hotel opened during the recession, such as Baltimore, San Antonio, San Diego and Orlando, supply was absorbed within three to five years.

This should bolster the case for cities on the fence about convention center and HQ hotel development or expansion. For non-HQ hotel owners in the market, this supply/demand story should offer relief—when the big box hotel opens next door, there may be some softening of average daily rate but it will be temporary and typically, the supply is absorbed within two years.

Thoughtful feasibility studies should be conducted to understand the merits of convention center and HQ hotel development—but we’re seeing proof that there is reason to have confidence in the investment.

Jeff Sachs is senior managing director at JLL's Hotels & Hospitality Group.

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