Hotel occupancy rates have dropped dramatically in recent years, but construction of new hotels continues to be fueled by tax incentives, readily available, low-cost financing and a belief by developers that "the competition will melt away" by the time their facilities open, participants at a symposium on the industry's problems said this week.
The rise in the number of hotel rooms has outpaced population growth in the last 35 years, but the total number of rooms occupied each night has fallen, according to William Kaven, professor of marketing and economics at Cornell University's School of Hotel Administration.
Meanwhile, room prices have soared, as expenses, including the cost of marketing in the highly competitive industry, had to be covered by fewer paying customers, Kaven and other panelists said at the discussion sponsored by Best Western International Inc., a not-for-profit association with 3,100 hotels and motels worldwide as members.
Occupancy rates have languished in the mid-60-percent range for several years, endangering many older, smaller hotels and motels, especially those that are in poor locations or have not been well maintained, several of the symposium participants said.
The oversupply of hotel rooms now is rivaled only by the glut of office space across the country, national surveys show. The Real Estate Research Corp. said last week in its forecast of national real estate trends that "1986 will be remembered as the 'year of living dangerously' in the hotel industry." Despite the "mediocre" occupancy rates of the last three years, "tens of thousands of new rooms were added in '85 and more are in the pipeline for '86."
As a result of the overbuilding and low occupancy rates, hotels now are rated last in a list of real estate investment opportunities by 85 investors, lenders and developers surveyed by the research company, according to M. Leanne Lachman, its president and chief executive officer.
Overbuilding in the office market, which has been occurring across the nation for several years, will slow but not stop, with construction starting in most cases when 30 percent of the space in a building is leased, Lachman said.
As is the case with hotels, "money, not tenant demand, is the driving force" behind much office building construction, she said. "The real estate industry ignores the fact that buildings are created for tenants."
The national office vacancy rate was 18.7 percent in mid-1985. The downtown Washington office vacancy rate at mid-year was 10.4 percent, and the surburban rate was 15.3 percent.
Participants in this week's symposium here on the hotel industry said many factors have contributed to its hard times.
One measure of the problem is the number of rooms occupied each night -- 1.57 million in 1981, a drop of 5,000 from 1948 sales of 1.575 million a night, Kaven said. During the same period, the U.S. population increased by 50 percent.
Among the causes for the decline in U.S. hotel occupancy rates are faster jet travel, which permits more single-day trips, the increase in such substitutes as second homes, time-sharing units, recreational vehicles and campgrounds and a rise in the number of Americans vacationing abroad rather than at home, he said.
Meanwhile, the number of people looking for lodging worldwide is growing rapidly, according to Donald E. Hawkins, a professor in the travel and tourism program at George Washington University. The boom is fed in part by the growth in the number of workers worldwide -- nearly a billion -- who have paid vacations of varying lengths, he said.
Many U.S. travelers, staggered by today's hotel and motel costs that often start at about $80 a night and rise into the hundreds at luxury hotels, are looking for bargains. In response, campgrounds and bed-and-breakfast lodgings increasingly are using sophisticated and centralized reservation services to lure customers, Hawkins said.
Such competition falls most heavily on small, independent hotels that lack the advantages, such as centralized reservation systems, marketing and lower-cost supplies, provided by hotel chains and franchises to their members.
The diversity independent hotels add to the tourism industry is important, but their future is in jeopardy, several hotel industry officials said.
For owners of individual hotels, survival "is a harder job, but it can be done. . . . They must learn how to market" their services, said Thomas W. Staed, president of Best Western International.
Although the outlook for much of the lodging industry is dismal, suite-only hotels, which represent 2 percent of the total supply of hotel rooms, are reporting respectable occupancy rates and higher profits than competitors, according to the symposium panelists and the Real Estate Research forecast.
The occupancy rate for all-suite hotels averages 8 percentage points higher and the average daily room rent is more than $10 above that of other hotels and motels, a Best Western official said. Real Estate Research said it surveyed Holiday Inn all-suite hotels in six cities and found occupancy rates 10 to 15 percentage points higher than citywide averages.
"Suite hotels appeal to business travelers who are in town for more than a day. Families like these facilities for weekend stays, which helps keep occupancy high," Real Estate Research said.
After the symposium, Best Western International signed long-term agreements with representatives of 1,200 hotels in 31 countries, in Europe and the Middle East, as well as Mexico and Australia. The new agreements formalize marketing, sales and reservations accords and provide for "standardized quality controls and uniform adoption of the Best Western name," according to a Best Western announcement.
Staed said the organization allows its member institutions more individuality than most chains, and in Europe "we will have many different types of hotels. . . representative of the nations where they are located. They will not be typically American hotels, but the kind I like to stay in to experience the country."