For the third year in a row, the New England lodging market outperformed the nation as a whole. Specifically, the region finished the year with an occupancy level of 66.7 percent up from 65.9 percent in 1999 well above the national average of 63.5 percent. Average rates for the region also increased significantly by 8.5 percent, topping the one hundred dollar mark for the first time at $105.42, approximately $20.00 above the national average. A review of the individual states in the region indicates that all out performed the national average in revenue per available room (RevPAR) growth.
Limited growth in supply continues to be one of the major factors behind the region's increasing occupancy and average room rates. In 2000 the supply of new rooms in the region grew by only 2.5 percent compared to an increase of 3.1 percent for the nation as a whole. Interestingly, given the market's strong performance in recent years, supply increased at a slower rate than in 1999 when it grew by 3.1 percent. While it was likely hampered by the limited increase in supply and the strong seasonality of demand in the region, demand was still able to increase by a strong 4.8 percent compared to 4.7 percent in 1999.
New Hampshire experienced the second largest increase in demand growing by 6.4 percent due largely to the impact of the Presidential Primaries. Coupled with only a 2.5 percent increase in supply, New Hampshire saw the largest increase in occupancy in the region, growing by just over two points from 59.3 percent to 61.6 percent. The strong demand also allowed properties to increase average rates a significant 10.0 percent (compared to 8.5 percent for the region and 4.9 percent for the nation). The result of the increases in occupancy and average room rates was a dramatic 14.3 percent increase in revenues per available room (RevPAR).
Massachusetts experienced the largest increase in demand, growing by 6.6 percent which coupled with only a moderate increase in supply of 2.7 percent resulted in the greatest increase in occupancy for the region. Specifically, occupancy grew by 2.6 occupancy points from 68.1 percent to 70.7 percent making it second only to Rhode Island in this area. As a result of the strong supply-demand relationship, the state's lodging operators were able to increase average room rates by 9.1 percent over 1999. According to The Pinnacle Perspective, the Boston Cambridge market remains the strongest in the state with occupancy level of 79 percent and average room rate of approximately $200.00.
Within the six-state region, Rhode Island saw the largest increase in supply, however it ranked only fourth in demand growth. As a result, the state-wide occupancy declined by half an occupancy point from 72.8 to 72.3 percent. It should be noted, however, that the state's occupancy remains the highest in the region and its average room rates experienced the strongest growth of the six states, growing by 12.1 percent. Fueling the increase in supply in the state was a large new Courtyard by Marriott in downtown Providence as well as new hotels near the Airport in Warwick.
In Vermont, where skier days declined slightly for the 1999-2000 season, occupancy levels declined by one-tenth of a point from 61.3 to 61.2 percent. The decline in occupancy was fueled by only a modest 1.7 percent increase in demand coupled with a 1.8 percent increase in supply. Even with the decline in occupancy, the state's lodging operators were able to increase average rates by 5.8 percent, which while placing near the bottom of the states in the region is still well above the nation as a whole, which grew by 4.9 percent.
Maine was the only state in the region to experience a decline in demand in 2000. Specifically, demand declined by 0.3 percent, which combined with a 1.1 percent increase in supply, resulted in a decline in occupancy of 0.8 occupancy points. Given that 2000 was reportedly a very strong tourism year, it is difficult to identify any particular reason for the decline in demand; however, there was reportedly a decline in commercial demand at many of the larger properties in the Portland area. The state did not fair well in average rate growth in 2000 with an increase of only 4.3 percent, the lowest in the region and below the national average of 4.9 percent.
Connecticut, which had a very strong performance in 1999, had a decent year in 2000. Supply increased by a significant 3.0 percent and demand grew by 5.2 percent. As a result of the positive supply-demand relationship, the state's occupancy grew 1.4 points from 65.9 percent to 67.3 percent. The state's average room rate was also up a respectable 6.9 percent. As a result of the increases in occupancy and average room rate, RevPAR increased by 9.2 percent.
In summary, 2000 marked another strong year for the region, with continued strong demand coupled with only moderate growth in supply. While there are signs of an economic slow down, indicating the potential for a decline in demand for many areas in 2001, the region as a whole, is expected to benefit from its relatively limited increases in supply which will help to limit any decline in occupancy and allow for continued growth in average room rates. Therefore, we remain confident that the region's lodging market will continue to out-perform the nation as a whole in 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.
