Oversupply Driving Occupancy Down

<B>Oversupply Driving Occupancy Down</B>

By Carolyn Green

While occupancy rates in the greater Vancouver area have plummeted in recent years and are projected to continue their descent for at least another year, hoteliers are optimistic about the future.

"We're trying to fill a niche that hasn't been addressed," said Viola Midegs, director of sales and marketing for the $44 million Fairmont Vancouver Airport, which opened in October 1999 and anticipates occupancy rates in the high 60s after its first year in operation and in the low 70s the following year. "We feel we're really in a unique position because we compete with hotels that are about a five- to eight-minute drive from the airport. They're good quality, but there's really been no new entrant that's a luxury product like we are."

In addition to its luxury status and convenient location, Midegs said the 392-room property's recent name change--the result of the merged hotel management company comprised of Canadian Pacific Hotels & Resorts and Fairmont Hotels & Resorts--to Fairmont Vancouver Airport could boost occupancy because the Fairmont name is widely recognized, particularly among American travelers. Within a year, she said the hotel expects that more than 50 percent of business travelers, which could represent 45 percent to 55 percent of total sales, will be American.

Other properties may not fare so well, according to hotel consultants Pannell Kerr Forster. Occupancy dropped to 69 percent in 1998 from 74 percent a year earlier, and fell to about 67 percent in 1999. Projections call for a 63 percent citywide occupancy rate this year. Said Dan Hill, a PKF director based in Vancouver, "It's a combination of additional supply and the softening of the corporate market. This province has been in recession for more than 18 months."

The supply of hotel accommodation in the greater Vancouver area has and will continue to grow substantially. In 1998, about 800 new rooms were added with the opening of a variety of hotels, including the Delta Vancouver Suites, the Vancouver Airport Marriott, the Sheraton Four Points and the Ramada Inn Vancouver Airport. At the beginning of 1999, total inventory was about 20,000 hotel rooms.

In addition to the Fairmont Vancouver Airport, seven other new hotels opened in 1999, including the 122-room Sheraton Suites Le Soleil, the 207-room Westin Grand and the 237-room Hilton Airport. In total, 1,500 new rooms were added last year.

This year, with the opening of the 446-room Delta Pinnacle, the 170-room Hilton, a 70-room Days Inn and the 283-room Hilton Vancouver Metrotown, an additional 970 rooms will come into the market. And in 2001, a 347-room tower will augment the Sheraton Wall Center's existing 454 rooms and suites.

"This is a tough market out here," said Phil Barnes, general manager of the Delta Pinnacle, a first-class building located in downtown Vancouver. Despite the oversupply, Barnes is optimistic the Pinnacle will fare well because Delta is a well-respected and recognized brand in Canada. As well, the amenities--such as in-room safes large enough for laptop computers, plus large working desks and ergonomic office chairs--should help bolster its competitive position.

Carol Millar, general manager of the Sheraton Wall Center, which will open a new 48-story tower in January 2001, also concedes that new supply has presented local hoteliers with significant challenges. She said another factor that will make it tougher on hoteliers is the recent cancellation of a $663 million waterfront development project, which included a major expansion to the existing convention center.

However, Millar, like others, believes that despite the challenges, room rates will not take a nosedive. "I don't think rates have gone down in Vancouver and I don't see it happening," she said.

The Delta Pinnacle's Barnes agreed. "Rates are very competitive in the marketplace and I don't see any signs of anyone doing anything silly. Nobody wins. As soon as rates go below a certain point, then services have got to go."

According to PKF forecasts, the average daily room rate last year inched up to $83.64 from $82.96 in 1998. This year, it is projected to remain flat at $83.64.