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Hotels Hurting, Fear State Tax Hike

By Greg Bordonaro

April 12, 2010

The Greater Hartford hotel market fared slightly better than the national average in 2009, but still saw steep declines in occupancy, room rates and overall revenues.

And the future likely holds slow recovery and new market dangers.

In recent months, industry experts say, Hartford hotels have seen increased demand for rooms, including a return of some group business, which could signal a modest recovery.

Those positive feelings, however, are being tempered by the possibility of an increase in the state’s hotel occupancy tax. Last week, the Legislature’s Democratic-controlled finance committee voted to raise the levy from 12 to 15 percent in order to generate more revenue for municipalities.

“It’s a major concern because it has the potential to take the air out of a hotel industry recovery,” said Chuck Moran, general manager of the Courtyard by Marriott in Cromwell, and president of the Connecticut Lodging Association.

Moran said the economy played a big role in 2009’s poor results, as major revenue sources — group and corporate business, meetings and conventions, transient and leisure business — all declined.

He said hotel profits were down, on average, about 35 percent last year and the state saw hotel tax revenue decline by $18 million from 2008 to 2009 because of the downturn in the industry.

A tax increase would cut into profitability further, Moran said. “If we see demand increase slightly, but we get hit with a 3 percent tax increase, it’s going to reverse any gains we see,” Moran said.

On average, Greater Hartford hotels filled 50.4 percent of their available rooms in 2009, an 11 percent decrease from 2008. Nationally, occupancy rates stood at 55.1 percent in 2009, off 8 percent from the previous year.

The average daily room rate stood at $95.66 at the end of 2009, a 5 percent decline from the prior year, according to data provided by PKF Hospitality Research, a national consulting firm specializing in the lodging industry. That’s better than the 8.8 percent decline in the average national room rate, PKF data shows.

PKF Hospitality Research is forecasting that hotels in the Hartford area will see a slight increase in demand this year — to 51.7 percent average occupancy. At the same time, the firm forecasts room rates won’t begin increasing until 2011.

Reed Woodworth, vice president of PKF Consulting, said Hartford has been a tough market for the hotel industry for a number of years, especially since insurance companies have gradually lessened their footprint in the region.

He also said Greater Hartford has been overdeveloped in recent years, which has caused supply to increase while demand has remained steady.

“Fifty percent occupancy is not healthy for a hotel market,” Woodworth said. Moran said hotels have responded to tough times by cutting expenses and downsizing their workforce.

Some hotels have fared worse than others.

The city of Hartford recently reached an agreement on a financial-aid package to keep downtown’s ailing Hilton Hotel from closing. That action will preserve 140 jobs.

The city council passed a resolution last month that includes providing the hotel, owned by The Waterford Group in Waterford, tax breaks and a new $7 million loan from the federal Department of Housing and Urban Development.

“Currently, the Hartford Hilton is not a viable business enterprise,” the Feb. 22 resolution said. “Absent a dramatic restructure of financing, air lease and collective bargain agreement, the hotel will in all likelihood be forced to close.”

In late 2008, downtown Hartford’s Goodwin Hotel shut its doors because its owners, Northland Investment Corp., said it was unprofitable.

Moran said tough times also forced hotels to cut rates, in order to preserve the business clients they already had.

Woodworth said lowering rates is a risky proposition for hotel managers because “once you give your rate up, it takes a long time to get it back.”

“Demand is coming back, but customers are not paying the rates they used too,” Woodworth said. “That creates a slow recovery.”

Hartford Top Hotel Brands Total room supply: 12.967 Upper-Priced % Brands Properties Rooms Market Marriott 4 1,336 10.3% Crowne Plaza 3 739 5.7% Residence Inn 6 602 4.6% Homewood Suites 4 505 3.9% Courtyard by Marriott 4 503 3.9% Lower-Priced % Brands Properties Rooms Market Holiday Inn Express 6 633 4.9% Comfort Inn 6 505 3.9% Motel 6 4 487 3.8% Super 8 6 456 3.5% Hampton Inn 3 317 2.4% Source: Smith Travel Research