By Chelsey Leffet
Richmond’s economy is diverse compared to the greater region. The city has long been a hub for a number of industries, including financial, medical, biotechnology, manufacturing, and transportation. Moreover, the presence of federal and state agencies is a stabilizing factor for the area’s economy. The city’s economic base is supported by major colleges and universities, Dominion Energy, a Federal Reserve Bank, Virginia Commonwealth University Health System, and the VA Bio+Tech Park businesses, just to name a few. Local hotels benefit from the strength of these employers.
The Richmond region’s lodging metrics have been bouncing back following the pandemic given the significant tourism and leisure demand. A big part of the increase in tourism can be attributed to sports tourism. This past year, sports tourism represented 68% of the region’s bookings, according to an analysis by Richmond Region Tourism. Three hotels are under construction in the city of Richmond, with expected openings in 2024 and 2025, and more than ten projects are in the development pipeline throughout the Greater Richmond area.
The Greater Richmond region has become the first in Virginia to establish a Tourism Improvement District (TID) that will allow regional tourism organizations to collect funds via a new tax on hotel stays. This change took effect July 1, 2023, and hotels with greater than 40 rooms added a 2% fee to their nightly rates. According to Richmond Region Tourism, the fee has the potential to generate up to $8.2 million each year, which will be used to promote visitation and hotel occupancy.
As illustrated in the chart below, the Central Business District/Airport submarket of Richmond outperforms the greater regional market in terms of RevPAR, which can be expected given its concentration of demand drivers and offering of more upscale-to-luxury hotel products. However, this advantage largely comes from ADR strength, as occupancies remain lower within the urban area given the focus on maintaining higher rates.
Source: STR
Richmond is expected to continue to benefit from low corporate taxes, government business incentives, and a highly educated workforce. Given the presence of several Fortune 500 and 1000 companies, growing corporate and business demand, and the collaboration of the region’s localities to strengthen the area’s tourism drivers, the outlook for this market is positive.
