An End to the Building Boom?

Last year, convention center exhibit space supply expanded by 1 percent, the slowest since 1999.

Does this signal the end of a building boom, or was this a one-year blip?

The nature of convention center development is changing, but the slowdown last year was just a blip.

In 2008, the building boom is expected to continue with nearly 3-percent growth in new exhibit space forecast. While this is below the 20-year average annual growth rate of 3.4 percent, there's more than 7 million square feet of new space in the U.S. development pipeline, according to the Tradeshow Week Major Exhibit Hall Directory.

Another factor that may drive more development is that demand growth, as measured by the Tradeshow Week Quarterly Reports, has been closer to the supply expansion growth rate than it's been in years. In fact, since 2005, average annual convention and exhibition growth has been about 2.5 percent, growing faster than exhibit space supply, which has expanded by 2.2 percent annually.

What's changing is that there is more development activity in second- and third-tier cities and smaller venues than in the large and mega categories. Of 15 new venues in development today, the average exhibit space will only be 167,845 sq. ft. The migration of people and businesses to suburbs continues to fuel venue and hotel development outside of large cities.

Another development trend is a focus on adding more meeting space. The growth of meeting space has been close to 7 percent annually over the past five years, reflecting the trend of event producers adding more educational and networking opportunities. This will only continue. Consider that 88 percent of convention center general managers say that high-tech meeting rooms will become more important to the industry over the next 10 years.

Few new mega convention centers (those with 500,000 sq. ft. or more of exhibit space) will be built in the next 10 years. Currently, there are no new venue projects of this size that have been officially announced. Often the largest, most ambitious exhibit and meeting space developments are part of hotels, such as Echelon in Las Vegas or Gaylord Natl. in Maryland.

A number of large venues are studying expansion options, but the era of major new developments and expansions, while not over, may be taking a breather. A modest slowdown after the industry added nearly 22 million sq. ft. of exhibit space in the last 10 years (and a total of 42 million since 1987) is no surprise.

The next trend for large and mega venues will be to refurbish and update technology more frequently. This will also include more hotel and mixed-use development to turn convention districts into “destinations.”

But these large and mega venues will also continue to expand eventually because in certain markets, during peak periods of January to May and September to mid-November, there's simply not enough space. Many leading venues are maxed out, especially during these prime dates.

There will be more mega venues developed and expanded, but it may take the next economic boom to spur this wave.

Hotel projects make up nearly half of the new convention centers and exhibition halls with more than 25,000 sq. ft. of exhibit space in development today. That hotel companies and investors continue to develop exhibit and meeting space is just one sign that power continues to shift to the hotel industry. A key trend driving the influence of hotels is that show producers mainly select cities based on the hotel package, once they develop a short list based on exhibit space and open dates.

This power shift to hotels and competitive issues has forced convention center and CVB executives to work more closely with them. In fact, 80 percent of CVB and convention center executives have recently communicated the competitive issues related to convention, tradeshow and major event bookings to their hotel partners, according to a survey conducted by Tradeshow Week and the Assn. for Convention Marketing Executives in January.

The same survey found 51 percent of CVB and convention center executives have worked with hotel owners, managers and investors to make the case for the need for more hotel properties or rooms.

Related to this increased communication with hotel managers is that nearly every venue and destination executive, and show producer (not to mention attendee), feels that hotel rates are too high. On this issue, TSW and ACME found that 44 percent of city and venue marketers have recently asked hotels for room rate decreases and 35 percent have asked for more information about their pricing.

Of course, a slowing economy is starting to cool the corporate meetings market, which primarily impacts hotels. We may see some hotel rates softening in 2008, but there's still not enough convention hotel supply in many major markets.

For clues to what may be in store for convention center development in the future, TSW Research analyzed design, development and service trends at airports. Interestingly, the trends in convention centers and airports are strikingly similar. They include significant expansions and building, enhanced security concerns, more focus on issues such as traffic flow (both pedestrian and automotive), as well as more easily understood directions and signage.

In terms of design, similar trends include promoting aesthetics that fit with the surroundings and a focus on green, sustainable development. Two other trends shared by both convention centers and airports are enhanced food service and considerable hotel development.

One difference is that airports are further along in becoming destinations in their own right with amenities such as shopping and higher-quality restaurants, as well as offices and even apartment development on the premises or nearby. Most municipal convention centers are not quite stand-alone destinations yet.

Michael Hughes is associate publisher and director of research services for Tradeshow Week. He can be reached at mhughes@reedbusiness.com.