Show Producers Win With Venue Boom

It's old news that the convention center industry remains in the middle of a building and expansion boom. The question still is why municipalities and private investors continue to build when so many venues are under-performing and the tourism industry has experienced so many challenges. Since 1999, exhibit space supply has increased by 5 percent per year, adding nearly 14 million square feet of new exhibit space in the United States and Canada.

It is true that the new venue and expansion boom has slowed from red-hot to merely hot. In 2003, Tradeshow Week counted 68 new venues and expansions in the development process, down from 96 in 2001 and 87 in 2002. Yet these 68 projects are expected to add over 9 million square feet of exhibit space and 3 million square feet of meeting space. Major new building and expansion projects are underway in Boston, Chicago, Denver, New Orleans, Palm Springs, Vancouver and Virginia Beach.

In short, the global economic downturn hasn't impacted the venue boom one bit. In fact, the challenges that have forced cities to compete so fiercely with one another for bookings have in turn fueled the expansion and building boom. The main response to event booking competition remains to build a new venue or add more space. Most venue developments are sold to stakeholders by promising to increase event bookings, but realistically the focus is on holding market share or slowing the rate of decline. Today most new venue projects are defensive moves.

All this is very positive news for show producers. Over one-quarter of show producers – typically those running the largest shows with the greatest economic impact – have been offered free exhibit space by at least one venue in the last two years, according to Tradeshow Week research. And a recent survey of CVB and convention center executives found that 41 percent acknowledge they are offering more exhibit hall rate discounts than they were in 2001.

How many industries offer their products and services for free to more than a quarter of their client base? It is well known that convention centers are loss leaders for cities that want to fill hotel rooms and restaurants. But venue expansions have also increased the amount of incentive funds that CVBs and venues need to make available to key events that drive significant hotel room nights. Look for these funds to increase even more over the next 10 years. Show producers receive the benefit of these funds most often in the form of free or discounted exhibit and meeting space and shuttle busing services. The trend of show producers receiving marketing support or rebates is also becoming more common.

The extra exhibit space is also benefiting consumer show producers and forcing convention centers to get creative and open their venues to a wider array of events and uses. Today's convention centers hold the most eclectic mix of gatherings of any facilities in the world, all in an effort to improve facility gross revenues.

There is no question that convention centers provide a significant positive economic and cultural impact on their cities and regions. But going forward, the average new venue's return on investment will take longer than originally planned. If the original feasibility study for a new venue forecasts a return in 15 years, it is now safer to expect that return in 25 to 30 years.

In this environment, show producers win. But if exhibit supply continues to grow faster than demand, it is not out of the question that a second- or third-tier city may opt out of the national convention and tradeshow market altogether. The pressure to build coupled with the need to offer more incentives and giveaways may simply become too expensive to justify.