Hotel performance is on a decline due to the fewer number of conventions coming to Philadelphia

Hotels in Philadelphia are seeing declining numbers this summer, and experts attribute it to a lack of large conventions coming to town.

“My hotels are not having a good summer. We had a very good first quarter, but our summer is abysmal,” said Ed Grose, executive director of the Greater Philadelphia Hotel Association.

This year, only 7,400 room nights were filled in May, an 89 percent decrease from the 67,000 room nights filled in the same time period last year. In addition, room supply in Center City increased 1.4 percent through the first five months of this year versus the same period in 2013, while room demand decreased 3.8 percent. Thus, hotel occupancy decreased 4.9 percent “because you had more rooms available and less people to fill them, so occupancy drops,” said Peter Tyson, vice president at PKF Consulting.

Furthermore, average room rates decreased 6 percent; room revenues decreased 9.6 percent; and hotel occupancy was down 5 percent to 83 percent.

And June hasn’t fared any better.

In the first 28 days of June, hotel occupancy was down 5 percent to 81 percent; average room rate was down 5.4 percent ($174.83 this year and $184.72 last year); and the overall room revenue was down 9.7 percent.

“We had a very good first quarter [but] all the gains we made in the first quarter, we’re losing in the summer,” Grose said. “We know it’s going to be a tight summer because of the lack of conventions.”

The Pennsylvania Convention Center lost large convention groups between 2014 and 2017 due to its antiquated work rules, which put the city at a competitive disadvantage, resulting in the loss of 925,000 hotel room nights and $1.3 billion in economic impact over that time period, according to the Philadelphia Convention & Visitors Bureau (PHLCVB). (The work rules have since been changed.)

And, although PKF Consulting doesn't have the final numbers for June, July or August, numbers will most likely be down for the remaining months of summer as well.

"I'm not sure if it will be quite that steep, 5 percent (decrease in hotel occupancy) or not," Tyson said, "but from what I hear, and without having Convention & Visitors Bureau data, it will be down from last year."

Tyson also said that lower numbers were just "what was in the cards for this year," because each year will have different conventions coming into town.

In 2013, the city's tourism industry took a huge hit with the government shut down, financial sequester and a rain-soaked June. Leaders are now looking for a better summer this year.

“But how that translates into room pick-up, we don’t know until people decide to come,” said Meryl Levitz, president and CEO of Visit Philadelphia. “Because unlike conventions, we just have to keep putting it out there and keep working on them until they come.”

Furthermore, Levitz said: "The hotels rely on the certainty of conventions," emphasizing the importance of those citywide conventions coming into the city, which are booked years in advance.

Summer is typically defined as the time between June 25 and Sept. 5, said Jack Ferguson, president and CEO of the PHLCVB. And, over the past 12 years, six groups holding their expos in the Convention Center generated nearly 850,000 room nights during that time period.

And, while it's not the greatest summer for Philadelphia, "it's an OK summer," Ferguson said.

And, since the Convention Center has fewer conventions on schedule, it will have to rely on the market mix. That is, a mixture of domestic leisure (handled by Visit Philadelphia), and conventions and international leisure visitors (handled by the PHLCVB).

"We really have to depend on leisure replacing what traditionally would be groups. Leisure, domestic or international traveling is a critical component," Ferguson said. "We really have to be open to sell to whatever we can."

Furthermore, Grose said: "The way we see it, the Convention Center is there to sell room nights, but at the same time, we recognize that gate shows are also important to Philadelphia. Our view is that our hotel tax goes toward the Convention Center, and for a return on investment, we need the Convention Center to sell room nights.”

Work rules at the Convention Center changed dramatically in recent months, when four of the six unions signed onto the new customer satisfaction agreement. Two groups — the National Black MBA and the American Industrial Hygiene associations — said they brought their conventions back into the city because of the new rules.

And, although the Convention Center has had a battle with the Carpenters Local 8 and the Teamsters Local 107, Grose said it's not about that.

"The real celebration here is the customer satisfaction agreement. It’s not who’s doing the work in the building [but] the agreement that our partners in labor have agreed to," Grose said.

The PHLCVB will release its Fourth of July hotel statistics later this week.

Source: Philadelphia Business Journal