Local hotels struggle with low demand, high supply


The atrium of the new Marriott Marquis, which opened May 1 and added 1,175 hotel rooms to the District’s supply. (Jeffrey MacMillan/Capital Business)

Hotel occupancy rates and revenues are up across the country — but not in Washington, where factors including government cutbacks and the introduction of the Marriott Marquis near the Walter E. Washington Convention Center have had a dampening effect on the hospitality industry.

Business lagged in the Washington region during the second quarter, often one of the busiest times of the year for area hotels.

Average daily rates fell by 0.9 percent in the Washington area during the May through July period, compared with a 4.4 percent increase nationwide. Revenue-per-available room — a widely followed industry metric — grew 2.5 percent locally, compared with 8.2 percent nationally.

“It all boils down to supply and demand,” said David Loeb, a lodging analyst for Robert W. Baird & Co. “In D.C., you’ve got both a supply problem and a demand problem.”

LaSalle Hotel Properties,which owns the Sofitel Washington, DC Lafayette Square and Hotel George, last week singled out Washington as the weakest link in its portfolio.

LaSalle wasn’t alone. Marriott International and Host Hotels & Resorts, which own a dozen area hotels including JW Marriott Washington D.C. and Hyatt Regency Reston, said the region continued to trail the rest of the country in performance.

“D.C. was a laggard,” said Laura E. Paugh, senior vice president of investor relations for Bethesda-based Marriott. “It hasn’t had the same kind of economic growth that you have in other markets in the U.S., and government travel still hasn’t really come back” since the government imposed mandatory budget cuts as part of the sequestration process.

Government cutbacks, including those related to a 2012 mandate to reduce travel costs by 30 percent, have taken their toll on local hotels. Travel related to government association business, which analysts estimate accounts for as much as 20 percent of room bookings in Washington, also has been on the decline.

“The government, what’s going on in Congress and, frankly, the feeling among constituents that there’s no point going to Washington to talk to your congressional delegation because it’s not really going to influence policy — all of that plays into it,” Loeb said. “The government is still being run on a very, very tight budget.”

At the same time, the Marriott Marquis Washington D.C., which opened May 1, has added 1,175 rooms to the District’s supply, lifting the total by about 4 percent, to 29,500.

Local convention business remains stagnant, with 17 District-wide conventions planned for this year, the same number as in 2012. Next year isn’t looking much better, with 15 conventions on the books.

“Washington, D.C., was our weakest market overall . . . due to a weaker citywide calendar,” Bruce A. Riggins, chief financial officer and principal accounting officer for LaSalle Hotel Properties in Bethesda, told analysts in a recent conference call.

Overall, hotel companies have posted rising profits, strong occupancy rates and climbing revenue. Revenue-per-available room at LaSalle increased 10.3 percent overall to $207.94 as a result of a 6.6 percent increase in average daily rates, and a 3.4 percent rise in occupancy to 86.3 percent.

McLean-based Hilton Worldwide last week posted a 35 percent jump in second-quarter profit. At Marriott, earnings rose 7 percent, while revenue-per-available room was up 3.8 percent. (In Washington, by comparison, that statistic slipped by 2 percent.)

“Nationwide, demand is very strong and supply continues to be muted,” Loeb said.

Analysts are optimistic that the Washington region will catch up in the coming years. The 2016 presidential election — combined with inaugural festivities and the excitement of a new administration — are likely to boost travel to the District. Also, government travel restrictions, which went into effect in 2013, are set to expire in 2016.

Conferences are also expected to pick up now that the Marriott Marquis is open. Eighteen conventions have been booked for 2016.

“When you get into ’16 and ’17, the citywides are much stronger,” Michael D. Barnello, president and chief executive of LaSalle Hotel Properties, told analysts. “We expect that’s really when things should be much better.”

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section. She has written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg (Fla.) Times.
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