An Abundance Of Options Lowers Occupancy In Phoenix

<B>An Abundance Of Options Lowers Occupancy In Phoenix</B>

By Frank Rosci

The hotel industry in Greater Phoenix, which is home to more five-star/diamond resorts than any other location in the United States, has long been one of the area's great strengths. While it offers business travelers and meeting planners a wealth of hotel and resort options, in recent years supply has outstripped demand, resulting in lower occupancy rates and lower revenue per available room.

"Room occupancy was 62 percent in 1999, an increase of 4 percent over 1998," said Brent DeRaad, communications director of the Greater Phoenix Convention & Visitors Bureau. "The main reason for the rise was the large jump in room supply over the past three years. There were 40,000 rooms in 1996, and by the end of 1999 there were 51,500. Those additional 11,500 rooms translated to about 8 to 9 percent more in supply and only about 3 to 4 percent more in demand. Still, while demand hasn't been stellar, it has been steady."

All-time occupancy highs in Phoenix in 1994 and 1995 attracted developers who built new hotels at a rapid rate, helping to create the current surplus, said Sandra Morrill Esparza, president of the Valley Hotel & Resort Association and vice president of the Shell Hospitality Group Inc.

Revenue per available room in Phoenix has fallen nearly $10 in the past three years, DeRaad said, from $72.21 in 1997 to $63.82 in 1999. In conjunction, the average room rate in the city went from $105 per night in 1997 to $103 in 1999. And more hotels are in the planning stages.

Proposed new properties include a 950-room Marriott, which would be built 15 miles from downtown in north Phoenix in about two years. Another new hotel that was approved by the Phoenix city council last year, but whose construction is being held up by a legal challenge from within the city's hospitality community, is another Marriott: a 700-room, full-service convention hotel that would be built downtown opposite the Phoenix Civic Plaza, the city's convention center complex. (Expansion of the convention center from 221,000 to 500,000 square feet also is being discussed.)

"The introduction of limited service hotels in Phoenix--part of the current glut of rooms--cut into business hotels somewhat," Morrill Esparza said. "But 2000 and 2001 will be stabilizing years in the local hotel market as the industry absorbs the extra rooms inventory we now have. It may be relatively difficult for some hoteliers, those used to nothing but good times, to adjust."

Katherine Christensen, president of PRA Destination Management in Phoenix-Scottsdale, said, "Overall, Greater Phoenix has so many housing options that meeting planners can feel somewhat overwhelmed at times with all the choices." But the diversity ensures that a planner or business traveler always will find a suitable hotel, she added.

Hotel industry growth in the city as a whole is not a fashionable trend, not a flash-in-the-pan kind of phenomenon, not for leisure travel and certainly not for business travel, Morrill Esparza said. It will continue, related as it is to the growth of the business arena.

Though one glaring deficiency in the city's rooms inventory is the lack of enough downtown hotel rooms, DeRaad said. "We need more full-service hotels, especially downtown," he said. "Currently there are 1,500 hotel rooms downtown, within walking distance of the Phoenix Civic Plaza. A much better number, one that would mean getting meeting and convention business the city is now losing, is 3,000 rooms and ideally there should be 4,000."

A particular strength of the Greater Phoenix hotel industry, DeRaad added, is the small corporate meeting that averages between 50 and 100 attendees: "Board and sales meetings from Washington, D.C., Chicago, Southern California and New York are a major part of the market that is strongest for us.