D.C. Hotel Industry Confident Market Is Rebounding
When the 237-room Sofitel Hotel at Lafayette Square opens in Washington, D.C., this spring, it will be the first new upper upscale property to come online in the nation's capital since the economy took a significant toll on business travel. Yet, the management at the Sofitel, along with the rest of the Washington, D.C., lodging community, last month expressed confidence that the worst of the recession is behind them and that the market for business travel will strengthen as they get further into 2002.
Along with New York, the Washington market felt the effect of Sept. 11 directly, when one of the hijacked airplanes struck the Pentagon. Washington's main airport, Reagan National, was closed in the aftermath of the attack and, while service gradually has resumed, it is not yet operating at pre-Sept. 11 levels. Complicating the recovery was the anthrax scare, which closed the Hart Senate Office Building until only recently.
The impact on the local hotel market was severe. In November, for example, which usually is a strong month for business travel, occupancy rates were down 16.1 percent, compared with November 2000, according to Smith Travel Research. Room revenues suffered badly as well, down 21.2 percent from the prior year.
The effect of the economic recession, compounded by the effect of Sept. 11, caused many hotels to cut rates, often drastically, in order to stimulate business. This accounted for the greater drop in room revenues than occupancies.
"The year actually started off quite strongly with the Bush inauguration," said Jan Chovanec, general manager of the 250-room Swissôtel Washington, the Watergate. The Watergate benefited, in particular, as many of Bush's business and political colleagues from Texas used it as their Washington base.
"But by the end of the first quarter," Chovanec said, "the effect of the recession was being felt here the same as in other gateway cities." Swissôtel is a unit of Raffles International Hotels.
Chovanec noted that occupancies now have started to rebound and increases in reservations call volume bode well for the next few months. "We're cautiously optimistic," he said. With Reagan National Airport shut down post-Sept. 11, the Watergate began complimentary limousine service for guests to and from the area's other airport, Dulles International. That service still is running through the end of February.
"There was considerable pent up demand from October and November that resulted in bookings in January," according to Rand Goodman, Marriott International area vice president for Washington.
The slowdown had affected both transient travel and group bookings equally, but the group side has been the first to recover. "Associations, in particular, have wanted to bring their people together to figure out their strategies going forward," Goodman said. "In addition to Dulles, we've seen a lot more traffic coming from Amtrak." Across all its brands, Marriott had 66 hotels and 17,500 rooms in the Washington metropolitan area by year-end 2001. Not coincidentally, Washington is the site of Marriott's corporate headquarters.
Dealing with the downturn, deluxe, upper upscale and upscale hotels faced the temptation of cutting guest services and amenities as a way of compensating for losses in revenue. "This is an area where you need to proceed very gingerly," Chovanec said. "Your repeat guests especially come to expect a certain level of service and it's harmful if they feel the hotel's commitment to quality is being compromised."
In opening its new hotel, Sofitel, which is a part of Accor North America, is emphasizing the property's prime location, a five-minute walk from the White House. According to Francis Cossutta, the general manager, this should be positive in attracting business travelers. "We're convenient to the Convention Center, Georgetown and Dupont Circle, which are all high-demand business destinations."
As the local hotel market struggles to rebound, Cossutta said a convenient location becomes more crucial than ever. "Business travelers have a variety of choices in the city, so the closer they can be to their business appointments, the better."
To Cossutta, another competitive advantage for the property is its historic past. "The structure is a conversion of a 1920s-era office building, so there are many Art Moderne touches that we were able to preserve, which make the design and layout special," he said.
Among the other recent additions to Washington's hotel inventory, Ritz-Carlton returned to the market in late-2000 after a three-year absence. Its 300-room property in the city's West End also includes condominium apartments and a 100,000-sq.-ft. fitness center. Ritz-Carlton has undertaken similar mix-use projects in Boston and New York.
In terms of inventory growth across all sectors, Lodging Econometrics, a consulting firm, estimated that Washington's number of hotel rooms in 2002 will grow 2.4 percent. Not surprisingly, given the economy and contractions in the capital markets for financing, this is down from 3.1 percent in 2001.