BOSTON—Since its founding in 1630, Boston has been host to many key moments in American history. But those interested in history aren’t the only visitors to the city named the 2018 best summer vacation spot by U.S. News & World Report.
“At the end of the day, what makes Boston and Cambridge so attractive is the scale of our city,” said Patrick Moscaritolo, president/CEO of the Greater Boston Convention & Visitors Bureau. “It’s without doubt a global city, but it is a distinctively American city that has successfully blended with its architecture, streetscape and buildings the historical with the contemporary.”
Boston’s hotel market has been on the rise. “In 2017, CBD Boston hotels achieved an average occupancy of 81.5%, the second highest occupancy level achieved over the past five years,” said Jenna Finkelstein, senior consultant with CBRE Hotels. “In addition, occupancy increased year-over-year in the first quarter of 2018 by 0.7%. More people are traveling to Boston than ever before, which has stimulated new hotel construction. The increases in supply, however, have softened ADR growth. Although occupancies are at their hypothetical peak and rate growth is decelerating, Boston hotels continually perform strong against the nation overall, and the Boston market is one of the top hotel markets in the U.S.”
Finkelstein said that the city has seen a supply surge in recent years. “Over the past two years, Boston CBD has seen supply increases of 5.4% and 2.2%, and more than 7,400 rooms, or approximately 35% of total supply, are in various stages of the development pipeline,” she said. “Much of this new supply is in emerging areas such as the Seaport District, where the growth in other asset classes help support this new development. Boston has always been a market with high barriers to entry, and thus has seen limited supply growth in the past, especially in the limited-service segment, where Boston is currently underserved.”
Moscaritolo said that there are some hoteliers in the community who are nervous about all the new projects that have broken ground recently. “I fully understand their concerns and the concerns of their ownership groups. At the Boston CVB we have a number of initiatives underway to position us as a destination to absorb the new supply and to benefit from it,” he said.
He pointed to the new 1,055-room Omni Hotel in Boston’s Seaport district, set to open in late 2021. “This property sits across from our major convention center, and will play a major role in supporting what I expect to be a proposed convention center expansion plan that should win support from our elected officials in 2019,” he said. “Also, this new hotel will be Omni’s flagship property in Boston and dovetail perfectly with the historical Omni Parker House hotel on Boston’s Freedom Trail. The trained economist in me likes to say the 1,055-room Omni will prove to be a textbook example of the concept of ‘supply-induced demand’ for Boston’s visitor industry. Omni will be unleashing its global sales teams to sell this new property, and by extension they will be selling our destination.”
One of the drivers for the Boston tourism economy, according to Moscaritolo, is the increase in the number of international visitors, especially from China. “There are a number of reasons for this growth, starting with the new airlines flying nonstop to Boston from China and the Middle East… What propelled international visitor activity for Boston was new foreign flag carriers serving Boston for Beijing, Shanghai, Hong Kong, Tokyo, the Middle East through Dubai, from Sao Paulo on LATAM Airlines and, next year, from another city in China and likely South Korea. The most remarkable growth is from China where today we see more than 250,000 Chinese visitors a year and have launched a plan to grow the number of visitors to 500,000 by 2021.”
Strong marketing efforts are also underway to attract international travelers. “We have partnered with our state tourism office, Brand USA and with the other New England states through their organization Discover New England to do joint sales calls in Europe and Asia, and to attend tradeshows with our hotel partners,” he said. “These marketing and sales partnerships are key to our successes in growing our international base. Last year, we led the first-ever weeklong Boston & Massachusetts tourism sales mission to China. We had nine CVB member hotels and attractions join us along with the tourism director of Massachusetts. We also organized three sales missions/tradeshows to reach out to the international MICE market segment, which is very important to our hotel community.”
Along with international and domestic tourism, he said that other economic drivers in the area are its educational and university research facilities, biotech and bio pharmaceuticals, healthcare and healthcare research activity and financial services.
Boston has been called by some the best college town in America. “Education [is a big driver], and not only our great universities, but their world-renowned research institutes that all generate hotel business, as researchers and world leaders come to meetings that take place on campus or at hotels across the city,” said Moscaritolo. “Our universities and our hotels are connected at the hip. College visits by prospective students and their families, to starting at a Boston college in September to Freshmen Parents weekends throughout the fall, to college graduations every May, onto business travelers visiting the colleges and institutes, all these events/activities result in visitors spending and hotel occupancy.”
For the near future, Boston hotels are forecast to see a RevPAR increase of 2.3% by year-end, according to CBRE. This is the result of an estimated increase in occupancy of 1.3% and a 1% gain in ADR. The 2.3% advance in Boston RevPAR is less than the national projection of a 2.8% increase.
Leading the way in 2018 RevPAR growth is the lower-priced segment of Boston. The properties in this category are forecast to attain a 2% gain in ADR and see a 1.4% increase in occupancy, resulting in a 3.4% RevPAR increase. Upper-priced hotels are projected to experience an ADR growth rate of 0.8%, along with a 1.3% gain in occupancy, resulting in a 2.1% RevPAR increase.
Looking toward 2019, Boston RevPAR is expected to grow 0.9%. This is less than the rate of growth in 2018. Prospects for RevPAR growth in the upper-priced segment (positive 0.7%) are better than in the lower-priced segment (0%). Boston market occupancy levels are expected to range from 74.1% to 75.2% during the five-year forecast period.
“The Boston hotel market is a relatively balanced market between corporate, transient and leisure demand,” said Finkelstein. “Key demand generators, such as the educational institutions of Harvard and MIT, world-class hospitals, historic leisure attractions, and key corporate businesses will help maintain Boston’s status as one of the top U.S. hotel markets. In the short term, Boston will be affected by the new supply entering the market, but the city is poised for long-term success in the future.” HB