Spokane Journal of Business

Too much room at the inns?

Hotel, tourism executives say lodging is overbuilt here, but they remain optimistic

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By the end of this year, Spokane County is expected to have 5,800 hotel roomsabout double the number it had 10 years agobut room receipts arent growing as rapidly as rooms are being added, and occupancy rates are down.

Put simply, the lodging industry here is overbuilt, say Spokane hotel and tourism executives.

In particular, many new limited-service hotels have sprung up in the last several years, mirroring a national trend toward more economy-oriented hotel properties.

The executives point out, however, that many hotels here continue to do well, although the proliferation of new hotels has fragmented the business in more ways than ever.

Limited-service hotels have cut into the corporate pie and are cutting into the leisure market, too, says Lori Farnell, a vice president at Cavanaughs Hospitality Corp., of Spokane, which operates four Spokane-area hotels. We dont need any more (hotels) right now.

Terry Wynia, president of Hospitality Associates, of Spokane, which operates more than 50 hotels in the West, including five in the Spokane-Coeur dAlene area, has a slightly different take on the Spokane hotel market.

Instead of being overbuilt, he says, I think were underdemolished. There is product here that shouldnt be here anymore.

Hartly Kruger, president and general manager of the Spokane Area Convention and Visitors Bureau, says that Spokane already has enough hotel rooms in the downtown core to serve the larger conventions and meetings that are expected to be attracted here if Spokanes convention facilities are expanded, which has been proposed.

I think because of the increase in hotel-room inventory, (the hotel industry here) is going to struggle unless we have a convention-center expansion, Kruger says.

The city of Spokane is expected to seek money from the Washington Legislature in 1999 for an expansion of its downtown complex of convention facilities thats estimated to cost $70 million and likely would be constructed on the block just to the south of the Opera House, Convention Center, and Ag Trade Center. If funding were secured quickly, the expansion could open in three or four years.

Without such an expansion, its harder to attract new convention and meeting business, and its possible the Spokane area could lose conventions that its had for years, Kruger contends. Some groups, such as the Northwest Mining Association, which have held conventions here many times, are outgrowing the available meeting and exhibit space.

That wouldnt bode well for the hotel industry here, which also has had to contend with a significant drop in tourists from Canada in recent years, due to the weakened Canadian dollar. Overnight visitorship also has been hurt by improved air service that allows corporate travelers to fly in and fly out in the same day, he contends.

Farnell and Wynia say that expanded convention facilities would benefit the entire hotel industry here, not just hotels downtown. As downtown hotels fill up with conventioneers, other business is bumped out to hotels in outlying areas, they say. Its just that ripple-out effect, Farnell says.

Carl Naccarato, general manager at the new boutique Hotel Lusso downtown and former longtime general manager of whats now Cavanaughs Ridpath Hotel, says the lodging industry here is at a critical juncture.

Were kind of at a turning point. We could become a primary (convention) market overnight, Naccarato says.

A primary convention market readily can attract higher-budget national conventions that can fill a block of around 900 rooms a night, versus regional meetings that fill 250 rooms a night and make up much of the convention business that comes here now, Naccarato says. Becoming a primary convention market would put Spokane in direct competition with places such as Seattle and Portland and likely would improve Spokanes status among tourists as well, he adds.

Expanded convention facilities, combined with improved downtown shopping and attractions through the $110 million renovation of River Park Square, the Steamplant Square project, and others, could propel Spokane from being a secondary convention destination to a primary one, Naccarato says. He believes that hotel developers in recent years have been banking on such a changewhich obviously would fill more rooms and could allow for even more hotel expansion.

If Spokane doesnt evolve to become a primary market, Naccarato contends that the proposed Davenport Hotel renovationwhich would add close to 400 more roomscould kill you.

Cavanaughs Farnell echoes that: Right now, I dont know that theres room for the Davenport. I dont think the city can handle another 300 rooms on the market. She says that much of Cavanaughs success in the marketplace has come from its ability to serve a variety of different clients at various price points through its four hotels in the downtown area and believes that the cost of the planned Davenport renovation would force that historic hotel to charge high prices.

Ralph Tasman, a Washington, D.C.-based consultant who is working on the Davenport Hotel project, says that while its true that the Spokane hotel market for the most part is overbuilt, its lacking in one important segmentvery upscale, full-service hotels. Thats the market the Davenport will aim to fill, he says.

His own market study, plus market studies done by independent consultants, including one hired by the hotels potential lenders, have shown theres room here for a four-star hotel that will cater to the business market, Tasman says. He contends much of that business is going across the Washington-Idaho line to the Coeur dAlene Resort now.

Nobody will have under one roof what we have, Tasman asserts. We will have the most luxurious hotel at realistic pricesperiod.

He says he cant speculate on exactly when construction will get under way on the Davenport renovation project, but says that the hotels owners are intimately involved in negotiations with lenders and a national hotel-management company. They also have selected a top designer to design the hotels interior, he says.Higher revenue, lower occupancyOverall, Spokanes lodging revenues are growing at a fairly good clip.

In 1997, the city of Spokane and Spokane County collected about $1.3 million in room taxes, up about 7.5 percent from 1996, says Kruger. In both the city and county, a room tax of 2 percent is levied on the amount charged for a room at establishments that have more than 40 rooms. Kruger predicts that in 1998, room-tax revenues will rise about 5 percent.

We will have a good spring, summer, and fall, based on what we know is booked in terms of convention and meeting business, he says. Plus, the CVB has launched a $200,000 advertising campaign to attract leisure travelers, mostly within a 200- to 300-mile radius of Spokane.

Still, even though hotel revenues are growing, theyre not growing fast enough to keep up with lodging-industry expansion, Kruger asserts.

Thats reflected in lower occupancy rates. Gordon/Rood Hospitality Consulting, of Bellevue, which tracks hotel occupancy rates here and elsewhere, says that in 1997, occupancy rates here averaged about 57.9 percent, down from 60.2 percent in 1996. Through the first four months of 1998, occupancy rates here averaged 51.2 percent, down from 53.6 percent for the same period in 1997.

Wolfgang Rood, a principal at Gordon/Rood, says the Bellevue company uses data from 13 hotels in Spokane, one in Cheney, two in Pullman, and one in Clarkston to calculate those occupancy figures. Overall, he says, the market here is posting relatively low occupancy figures. A hot hotel market will post annual average occupancy rates of 70 percent and higher, he says. Through the first four months of 1998, downtown Seattle had an occupancy rate of 70.8 percent.

Obviously, relatively few Spokane hotels are included in Gordon/Roods survey. Cavanaughs properties here, for instance, are notably absent from the survey. The prospectus for that companys recent initial public offering, however, said that Cavanaughs River Inn posted a robust occupancy rate of 74.2 percent for the 12 months ended Oct. 31, 1997. Cavanaughs Inn at the Park, Cavanaughs Fourth Avenue, and the newly added Cavanaughs Ridpath Hotel posted occupancy rates of 61.1 percent, 51.7 percent, and 57.3 percent, respectively.Finding an angleIf Spokanes hotel market is overbuiltor underdemolishedwhy are developers continuing to add hotels here?

At least five new properties are expected to open this year and bring another 400 rooms to the market. One of them, the Lusso, opened in January, and another, a Country Inns & Suites by Carlson outlet, being developed by Hospitality Associates for a limited liability company here of which Hospitality Associates is part owner is expected to open shortly in the Crown Centre commercial development near the main entrance to the Spokane Business & Industrial Park. Wynia and Naccarato say hotel development in the Spokane market now boils down to finding a nichein location, service, ambience, or some other attribute.

Naccarato says the Lusso, which opened in January, has tapped into a clientele thats looking for luxury and quality in a unique setting. Were running at a better occupancy than I expected at this time, he says. He claims some corporate travelers have decided to spend an additional night in Spokane so they could stay at the Lusso.

Wynia says that Hospitality Associates decided to build the new Country Inns & Suites by Carlson because the company believed the Sullivan corridor was underserved.

The city can absorb more roomsit depends on what type of rooms, he says. Certain neighborhoods or segments may offer opportunities. We feel confident that the Spokane market is good.

  • Marlene Mehlhaff

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