New England Real Estate Journal August, 2000

Based on year-to-date statistics through April, the New England Lodging Market is headed toward another strong year and will likely outperform the nation as a whole for the third year in a row. While the region's occupancy for the first four months of this year was only 57.6 percent compared to 60.6 percent for the entire country, it is more than two points ahead of the same period last year. Average rates for the region are also up significantly at $93.03 compared to 87.05, an increase of 6.9 percent compared to an increase of 4.0 percent for the nation as a whole. A review of the individual states in the region indicates that all out performed the national average in revenue per available room (RevPAR) growth.

One of the major factors allowing occupancy levels to grow in New England relative to the rest of the country continues to be new supply. Surprisingly, (given the region's recent strong performance) the supply of available rooms in New England appears to be increasing at a lesser rate than last year (2.5 percent versus 2.9 percent). Compared to the country as a whole, the region's supply growth is minor (2.5 percent compared to 4.1 percent). At the same time, demand in the region is up a dramatic 7.1 percent compared to only 3.7 percent for the nation.

Not surprisingly, the state showing the greatest increase in demand was New Hampshire which saw an increase of 9.9 percent due in large part to the impact of the Presidential Primaries. Coupled with one of the smallest supply increases in the region, the state's occupancy increased by more than 4 points from 50.5 percent to 54.6 percent. The strong demand also allowed properties to increase average rates a significant 9.3 percent (compared to 6.9 percent for the region and 4.0 percent for the nation). The result of the increases in occupancy and average room rates was a dramatic 18.2 percent increase in revenues per available room (RevPAR).

Following closely behind New Hampshire was Rhode Island, which experienced an 8.6 percent increase in demand coupled with only a 1.5 percent increase in supply. As a result of the strong supply-demand relationship, the state's occupancy increased by more than 4 points from 60.1 to 64.3 percent during the first four months of the year. Rhode Island also experienced the largest increase in average daily rate for the region, growing from 85.32 to 94.03 an increase of 10.2 percent.

Within the six-state region, Massachusetts has seen the largest increase in supply but it has also seen one of the greatest increases in demand. Specifically, through the first four months of the year, supply had increased by 4.5 percent while demand has increased by 5.0 percent resulting in a 3.3-point increase in occupancy (57.0 percent to 60.3 percent). The state's hotels have also been able to increase average room rates significantly from an average of $102.36 to $109.71, an increase of 7.2 percent. According to The Pinnacle Perspective, the Boston Cambridge market remains the strongest in the state with occupancy level of 75.5 percent and average room rate of approximately $165.59.

In Vermont, where skier days declined slightly for the season, occupancy levels increased by less than one-half a point from 52.6 to 53.0 percent. Supply in the stat is up 1.7 percent while demand is up 2.5 percent. Corresponding to the minor increase in occupancy, the average rate for the state increased by only 3.7 percent. As a result of the minor increases in occupancy and average daily rate, Vermont has seen the smallest increase in RevPAR, growing from $42.68 to $44.61 an increase of 4.5 percent. We note, however, that Vermont's RevPAR increase still outpaces that of the nation as a whole, which only grew by 4.0 percent.

Maine appears to be headed toward another fairly good year despite only a 0.2-point increase in occupancy from 48.9 percent to 49.1 percent. The primary reason for the weak occupancy increase is weak demand growth of only 1.8 percent as supply growth in the region was the smallest at only 1.4 percent. The state has benefited from a decent 4.8 percent increase in average rate, which, while low compared to the other states in the region is well above the 4.0 percent increase seen by the nation as a whole. Connecticut, which had a very strong performance in 1999 appears to be headed for another strong year. While supply has increased by a significant 2.5 percent demand is up by 5.2 percent. As a result of the positive supply-demand relationship, the state's occupancy is up 1.5 points from 58.4 percent to 59.9 percent. The state's average room rate is also up a respectable 4.8 percent. As a result of the increases in occupancy and average room rate, RevPAR is up 7.5 percent.

In summary, the region's recent trend of strong demand coupled with moderate supply growth continues to result in increasing occupancy levels and average room rates. One of the most critical factors affecting the performance of the New England lodging market has been and is likely to remain supply growth. Due to it historic and projected minor growth in supply, the region appears to be better positioned than the rest of the country to weather any potential decline in demand over the next 18 months. Therefore, we remain optimistic that the region's hotel market will continue to out-perform the nation as a whole through 2001.

Matthew Arrants is Vice President of Pinnacle Advisory Group. For the firm, he specializes in market feasibility studies, asset management and operational reviews. Prior to joining Pinnacle Matthew worked in operations in various capacities with The Four Seasons Hotel in Boston, and Rock Resorts in Hawaii and Wyoming. He holds a Masters Degree in Hotel Administration from Cornell University and a BA in Political Science from Hartwick College.

Rachel Roginsky's bio is on file.

Except where noted, all statistics were gathered by Smith Travel Research.