Visitor numbers not the whole story
Cheers went up in New Orleans’ hospitality industry a few months ago when word came that a record number of people had visited the city. Almost 11 million visitors came to town during 2017, according to data released by the University of New Orleans.
Though the primary local tourism organizations – the New Orleans Tourism Marketing Corp. and the Convention and Visitors Bureau – later said a private-sector analyst the groups had hired for the first time came up with a substantially higher total, all parties agreed that 2017 was a strong year for tourism. And activity during the first half of 2018, including rising numbers of passengers through the local airport, suggest that the growth will continue.
Surprisingly, though, the surging visitor number is not producing a uniformly rosy picture for the local hotel industry.
On some levels, the hotels have performed pretty well. Figures provided by Tennessee-based travel research firm STR show that average occupancy of area hotels rose about 3 percent during the past five years. That’s not a bad result considering that the city grew its hotel room inventory by about 10 percent during that period, to a current total of more than 41,000 rooms.
But the hotels’ financial performance is less impressive. STR data show that average daily room rates rose only about 6 percent between mid-2013 and mid-2018, to a recent average of about $159 a night.
Jan Frietag, a senior vice president and longtime hotel data analyst at STR, reported that during the past three years, local room rates rose only about $2 on average. “That’s not a lot given that the Consumer Price Index has grown at around 2 percent (annually),” he said.
He noted that New Orleans hotels’ price performance “is not typical” among the country’s top 25 hotel markets. What is weighing down local prices?
According to Frietag, it’s hard to pinpoint a cause. On one hand, the figures could reflect shifting preferences among travelers for other major tourist destinations rather than New Orleans, though it would be nearly impossible to document such a change.
It is also possible that the rising availability of short-term rentals in some popular neighborhoods is making it difficult for local hotels to raise their rates. Many owners of single-family homes or duplexes increasingly view their residences as income producers that can be rented to visitors for substantial chunks of time. In addition, some newly constructed condominium buildings are attracting buyers who intend to occupy their units only for short periods while renting them out for much of the rest of the year.
“It’s very hard to say whether short-term rentals are affecting hotel rates,” Frietag said. Noting that current hotel occupancies have remained at respectable, if not high, levels in recent years, he added: “You can’t really say what could have happened if no short-term rentals were available.”
Local hoteliers will no doubt keep a sharp eye on New Orleans’ expanding room inventory. Projects now under way or in the planning stage include a remake of the former World Trade Center building into a Four Seasons hotel with 300 rooms and 80 condos; a 350-room Hard Rock Hotel in the French Quarter; a 340-room hotel to be developed above the Harrah’s downtown casino; and a 230-room hotel adjacent to the National World War II Museum. In addition, a 1,200-room hotel has been proposed as part of a mixed-use development to complement the Ernest N. Morial Convention Center.
Can local hotels improve their revenue picture in the face of rising competition? According to Frietag,”we’ll have to wait and see.”