By Rachel Roginsky
After spending the last 32 years tracking and analyzing the Boston/Cambridge (“the City”) lodging market, Pinnacle Advisory Group (“Pinnacle”) is quite comfortable forecasting top line (occupancy and ADR) revenue for the City. But projecting the future with precision can be complicated. Here’s our perspective on the City’s lodging market for 2024:
• Convention and Group Demand – This segment of demand comprises approximately 23% of total demand in the City. According to Signature Boston, the Boston Convention and Exhibition Center will generate approximately 500,000 room nights in 2024, which will be a record year for this venue. However, the Hynes Convention Center may only generate around 120,000 room nights, potentially only ½ of the room nights generated in 2023. This anticipated poor performance is due to the combination of a stop-sell order that was in place for 5 years, coupled with extensive, on-going renovation plans which will keep this Center dark during certain periods of the year.
• Corporate Transient Demand – We believe that corporate transient demand will continue its slow and steady recovery from the pandemic, based on our research into local demand trends. The local office brokerage community believes that moderately increasing demand for office space in the city provides a reason for cautious optimism for 2024, although nearly 1.5 million s.f. of occupancy losses in Q3 2023 drove vacancy rates to 20-year highs. However, although employment in traditional office jobs increased over the last twelve months across all sectors in Greater Boston, we don’t yet know what specific companies will do in 2024 as it relates to their in-office attendance policies and/or their travel budgets.
• Leisure Demand – Leisure demand is softening as the pent-up travel demand that resulted from the pandemic has waned, and as leisure travelers opt to visit new locations or travel abroad. We believe that 2022/2023 was the time frame when leisure demand peaked in the City following the recovery from the pandemic.
• Average Daily Room Rate (ADR) – We know that the pace of room rate growth is slowing as compared to the significant ADR rate growth experienced in 2021 (up 32% from prior year), 2022 (up 31% from prior year) and 2023 (up an estimated 4% from 2022). For example, for the first three months of 2023, ADR increased an average of 13% over 2022, while during the three months of July, August and September of 2023, the ADR increased 2.9% compared to the same three months of 2022.
• New Supply – We know that new supply growth in Boston/Cambridge will remain low in 2024 with supply increasing less than 1% over 2023; and that in 2023 the city’s supply of hotel rooms declined from 2022.
Of course, no one can be 100% certain of all the factors that will influence the Boston lodging market’s ultimate performance. Providing projections is a risky business.
• Risks – A number of national and global issues will impact the lodging market, including the local Boston market. Examples of issues that present risk to the 2024 projections include rising global geopolitical concerns, inflation, a persistent skittish economic environment, challenging consumer confidence, labor shortages, and continued supply chain constraints.
With these factors in mind, Pinnacle believes that demand will improve in the Boston/Cambridge lodging market, and room rates will increase. Our expectations for demand growth, coupled with limited new supply in 2024, results in a projection of 78% for year end 2024 occupancy.
Presented below is Pinnacle’s 2024 forecast for Boston/Cambridge:
There is much to be optimistic about as we move into 2024 although the hospitality industry has become accustomed to surprises. In addition to projections that have risk, local hotel owners and operators will continue to operate in a challenging labor market which has created wage pressures and increased operating costs. Nevertheless, all signs point to a healthier lodging market in 2024.
