Expansions Pressure Occupancy Rates

With competition fierce and a surplus of exhibit space on the market, only venues in metropolitan areas or with more than 500,000 square feet are managing to maintain efficient occupancy levels, according to the latest PricewaterhouseCoopers convention center report.

Furthermore, the survey found that occupancy levels in "gateway" destinations – defined as those in metro areas offering more than 30,000 hotel rooms – have fallen 10 percentage points from the 61 percent recorded in PwC's 2001 survey.

Although war and terrorism threats, a national recession, the technology downturn and tighter meeting budgets all contributed to the occupancy decline, the biggest factor was the space increase resulting from new and expanded convention centers.

"Certainly we expected that there was going to be a decline, primarily because of the significant increase in the supply of space," said Robert Canton, director of convention and tourism services for PwC.

Considering that a 70-percent occupancy rate is about the maximum venues can attain once move-in, move-out and maintenance days are factored in, convention centers are operating efficiently at occupancy levels of 50-55 percent, Canton said.

In fact, it was the high occupancy rates gateway centers were reporting several years ago that provided the trigger for so many convention center expansions in recent years. Part of the difficulty in planning an expansion, Canton noted, is being able to predict demand when that expanded venue opens. "These are projects that take in quick cases, three years, but in more typical cases are five- to seven-year projects," he said.

Gateway centers in 2003 recorded an overall occupancy rate of 50.7 percent, and exhibit halls with more than 500,000 sq. ft. of space reported a 53.9-percent occupancy rate, both within the efficient range.

But "national" destinations – defined as those offering from 15,000 to 30,000 hotel rooms – managed to maintain only a 31.9-percent occupancy rate, down from 47 percent in 2001. "Regional" destinations – those with less than 15,000 hotel rooms – registered an occupancy rate of 26.1 percent. Similarly, exhibit halls with 100,000 to 500,000 sq. ft. reported a 34.8-percent occupancy level. And those with less than 100,000 sq. ft. had a rate of 26 percent, slightly below the 27 percent reported in 2001.

Although results of PwC's 19th annual convention center report might indicate that smaller cities have less chance of filling expanded exhibit halls, Canton said that's not always so. "I hope that they don't react to this report in a vacuum. You can look at destinations like San Diego or Indianapolis that even in these periods of significant industry impact will continue to be attractive to the meetings industry."

In the past, top-tier destinations like Las Vegas or Chicago or Orlando may not have competed for smaller association events. But in today's competitive environment, with pressure greater to fill exhibit halls, big players are often trying to lure those same events.

In years past, when occupancy levels were higher, it was often enough to simply have available exhibit space. But today, the PwC report noted, event planners and associations expect venues to offer quality meeting rooms and services, an adjacent hotel and be located in attractive communities with convenient transportation and entertainment options.

The PwC report, conducted in association with the Intl. Assn. of Assembly Managers, was compiled from about 100 responses. Beginning this year, the annual report will be included with the Chicago Convention & Tourism Bureau's annual Competitive Analysis Report, which assesses North American tradeshow destinations as well as the industry overall. PwC's annual lodging industry forecast will also become part of the Chicago report.