Conference Center Revenue, Profits Yielding Double-Digit Growth

Rapid growth in the conference center industry shows no signs of slowing, according to a report published in June. Consultants warned of a brewing fight between an influx of new investors, who see the segment as a short-term investment, and traditionalists, who maintain a niche mentality.

According to the "2006 Trends in the Conference Center Industry" report, published by San Francisco-based PKF Consulting in conjunction with the International Association of Conference Centers, the institutional ownership of conference center facilities has helped spur a year of "tremendous growth in revenues and profits in 2005," according to the report. Total revenue for the industry in 2005 increased 13.7 percent from 2004 levels, while profits grew 39.2 percent.

"Our property performance was outstanding, and that continues in 2006. We're seeing not only double-digit revenue growth but profit growth in the 30 percent range," said Steve Giblin, COO of Montvale, N.J.-based conference center chain Dolce International.

"The industry is in a great momentum right now," he said. "For us, we foresee our growth to continue unabated for the next three to four years."

Benchmark Hospitality International in March said training meetings and strategic planning sessions are back "big time," and called them one of the top 10 trends at its properties. In addition, the meeting venues that are seeing the most growth are those that offer more than meeting space. Customers have responded to a focus on individual service, restaurant offerings, high-quality amenities and luxury, officials said.

At the start of 2006, advance bookings for corporate conferences were up at Benchmark's properties 20 percent to 50 percent over last year.

In addition to "tremendous" growth in Europe, Dolce has seen organic growth in its new client base, Giblin said. Efforts to educate the meetings industry on conference centers seem to be paying off as many planners use centers for the first time.

New customers are bringing more management planning and board meetings to conference centers, while such standbys as training and education meetings continue to be strong.

"We have been in a new-customer acquisition mode for almost two years," Giblin said. "The hospitality industry is having a couple of good years. The only segment not is the smaller, full-service properties. We believe, and our customers have told us, if they're a corporate group looking for a place to house an important meeting, they like conference centers. We do meetings better than hotels."

Imitation is the sincerest form of flattery, Giblin said, and the number of hotel properties adding certified conference centers shows the value of dedicated meeting space. Conference centers have moved beyond being a niche and have developed into a proper segment of the hospitality industry, he said.

New types of investment are hitting the industry, according to PKF. Equity funds, limited partnerships and other institutional owners have funded large expansion initiatives, Giblin said.

"People that traditionally invested in hotel products are seeing conference centers as a better investment because the consistency of our business is very strong," he said. "Our ability to forecast our business is also very good." Conference center customers tend to book farther in advance than hotel meeting customers, he said.

However, institutional ownership can present challenges for the industry, said Dave Arnold, CEO-East of PKF.

"Institutional owners are not like the traditional owners of the past. For most of this segment's history, ownership has been vested in individuals or entities that had an attraction to the conference center business, such as universities, corporations or large-scale real estate developers. Today's institutional owners view conference centers as profit centers that must produce a return with much less appreciation of the corollary benefits associated with the conference center concept," he said in a release.

Investment companies may be good for short-term growth, but an "interesting dilemma" is brewing in the industry between the pressures to produce short-term profits for institutional owners with five-year exit strategies and industry traditionalists, who seek to preserve their market niche, Arnold said.

Dolce's development has been greatly impacted by the increase in investment. Giblin said. In addition to a new property in Boston, the company has three or four more properties opening that have not yet been announced.

An "unprecedented" number of mid-level, full-service hotel properties have approached Dolce this year, Giblin said, interested in converting their properties into conference centers.

"The desire to produce a higher short-term return by accommodating transient and leisure business also could be indicative of the impact of institutional owners," Arnold said, "but care should be taken by these owners not to jeopardize the golden goose of conference business specialization for the sake of short-term gains."

Giblin said the nature of conference centers makes it difficult to focus on short-term gains because many customers want long-term relationships with centers.

According to the PKF report, room rates generated the highest share of revenues—39 percent—for conference centers, food sales contributed 29 percent of revenues and conference services contributed 15 percent.

U.S. conference centers posted a 7 percent rise in total revenue per occupied room in 2005 over the previous year. Corporate centers saw the biggest jump, with 13 percent, and resort centers posted a 4 percent increase.

According to the report, training and education were the most common events held at residential conference centers. Management planning was the most common event at day centers.