Spate Of Full-Service Development Could Dent High Boston Hotel Prices

Even as Boston's hotel pipeline expands, with new and renovated properties coming into the city, and more to follow fairly soon, hotels retain firm control of the corporate travel market, thanks to demand that exceeds supply.

Unlike some other major cities where hotel development has predominantly fallen in the midprice tier, a handful of major full-service hotels have opened in Boston in the past year and more are planned.

In 2006, both the $204 million, 793-room Westin Boston Waterfront Hotel—attached to the Boston Convention & Exhibition Center—and the $310 million, 424-room InterContinental Boston opened.

Meanwhile, the 300-room luxury Liberty Hotel, once the historic Charles Street Jail, is set to open next month, and the 471-room Renaissance Boston Waterfront Hotel is expected to open in December.

A pair of hotels are planned as parts of mixed-use developments: the 150-room Regent Boston at Battery Wharf Hotel, due to open next year, and the 149-room Mandarin Oriental Boston, planned to open its doors in June 2008.

"The hope is that demand and the new rooms will be absorbed into the market," said Thomas Dolan, Boston-based vice president of hospitality consulting firm HVS Hospitality Services.

"Of course, as occupancy goes up, so do rates, usually," HVS' Dolan said.

In 2006, according to Smith Travel Research, occupancy in Boston was 67.2 percent, up 2.9 percent over 2005; while the average daily rate was $141.41 in 2006, up 8.8 percent, year over year. Revenue per available room was $94.97 in 2006, up 11.9 percent over 2005, said Smith Travel Research vice president Duane Vinson.

"These numbers indicate very positive growth, with a fair amount of new supply," Vinson said.

Other Smith Travel Research statistics show that 1,400 new rooms came into Boston in 2006, a 2.2 percent increase over the previous year, and that 308,000 room nights were available for all of 2006, while room demand was up 5.1 percent last year.

Meanwhile, in Boston's downtown/airport hotel market, overall capacity was 76.3 percent in 2006, up 2.2 percent over 2005, and ADR was $189.26, up 10.6 percent over 2005. "The downtown market was very strong last year with a fair amount of new supply at 3.8 percent, but demand was 6 percent," Vinson said. "Downtown exhibited strong occupancies and correspondingly strong rates in 2006. Hotels there will strive to maintain demand that is stronger than supply to continue to achieve more positive growth."

"Everything's up in the city, and hotels are a little fat and happy, so to speak," said Karen King, independent meeting planner and principal of Meeting Strategists LLC in Boston. "Rates are back up to where they were in 1999 and 2000, when they were high and space was limited. Now availability also is limited, but a number of new properties are coming on line this year, so that should help to ease the situation at least somewhat," King said.

In the current atmosphere, corporate groups need to "be prepared to look more and negotiate more, since hotels basically control negotiations due to a lack of availability," the independent planner said.

King said she recommends that her clients adjust their schedules and their wants when possible, but some, she said, insist that "it has to be this pattern or nothing, so that makes it even more difficult to find the right setting and the right price."

Going outside the city, up to 45 minutes away in some cases, is an option, King said, but not a completely viable one, since it only adds the additional cost of ground transportation, so she advises groups to avoid it if possible.

As for the future, several meaningful trends may be developing, King said. "Since the hotel business is cyclical, some hotels are starting to see fewer bookings from high-tech companies heading into 2008 and 2009, so that should open up availability somewhat, but it all depends on the strength of the economy."

"The Boston corporate scene is incredibly strong, with the likes of financial services offices, for which the city is well-known, traditionally meaning corporate groups and individual business travelers are coming and will continue to come," said Larry Meehan, vice president of media relations and tourism sales for the Boston Convention & Visitors Bureau.

"Even though a number of high-end hotels are coming, including the Renaissance Boston this December, the Regent Battery Wharf next April, the Mandarin Oriental next June and the Boston W Theatre District in June 2009, business travelers and corporate groups will still find deals through corporate loyalty programs and through competitive bargains within the hotel market. But other properties in the midprice range are coming, too, such as Courtyard by Marriott," Meehan said.

By the end of 2007, he said, Boston is expected to have 20,410 hotel rooms, up from 19,193 in 2006; while 21,354 rooms are anticipated in 2008 and 21,494 in 2009.

"The Boston hotel market, especially the downtown market and the Cambridge area, remains strong and airport hotels are doing well also," said HVS' Dolan. The sale of the Ritz-Carlton, for example, brought more than $600,000 per room, while the Marriott in Burlington, near Boston, sold for more than $400,000 per room, so the strength of the market is obvious."

At hotels in the area around the Route 128 corridor—a technology hotbed that loops around Boston around 10 to 12 miles from downtown—the market is "still soft with occupancies still relatively low and rates a bit lower than they are downtown," Dolan said.

The primary reason, he continued, is that the high-tech companies there aren't producing the same number of room nights they once did.