Impacts of COVID-19 on the Boston and Cambridge Hotel Industry – By RKG Associates and Pinnacle Advisory Group
For 2019, Pinnacle Advisory Group estimated that Boston and Cambridge hotels generated nearly $2 billion in rooms revenue, based on a total supply of nearly 25,700 rooms, an average occupancy of 81.4 percent and an average daily rate (ADR) of $259. Over 13,300 people are employed in the hotel industry sector in Boston and Cambridge. Due to the pandemic and the stay-at-home requirements starting in March of this year, demand for hotel rooms has dropped precipitously, with many hotels closing completely and others only renting rooms to essential workers, often at discounted rates.
According to the Pinnacle Perspective, Revenue Per Available Room (RevPar) declined 66% for March 2020 as compared to the prior year. Hotel occupancy for March 2020 dropped to 30%, and when compared to March 2019 is a decrease of over 50%. Hotels in the Back Bay recorded the lowest average occupancy in the Boston/Cambridge market at 24% for March 2020. We anticipate further declines in occupancy and RevPar in April and May while business and leisure travelers stay at home and most hotel remain closed.
To estimate the economic impacts, Pinnacle and RKG Associates assumed a worst-case scenario where the annual occupancy rate for 2020 drops to 45 percent and the average daily rate to $200. This assumes that the economy begins to recover this summer and fall but does not regain its former strength, including a severe cutback in tourism, conventions, and international visitation – a mainstay of the city’s hotel industry. These impacts were analyzed using EMSI, a leading econometric modeling tool, to determine the direct, indirect, and induced impacts on the two cities and the region’s economy.
Under this scenario, hotel revenues decline by over $1.1 billion and 6,000 hotel jobs would be lost. Additionally, we estimate another 2,200 jobs in industries that support the hotel sector would also be impacted, resulting in a total of $538 million in lost wages. This in turn would result in a loss of over $27 million in state income taxes. Massachusetts room excise taxes would decline by $64 million, while Boston and Cambridge would lose nearly $71 million in local option rooms tax. The rooms tax comprises 2.8% of Boston’s annual budget and 2.3% of Cambridge, a shortfall that will need to be made up somewhere else. The Convention Center tax, which at 2.75 percent of room sales goes to support the Massachusetts Convention Center Authority, would lose $27 million.
While a 45 percent drop in occupancy levels over last year may seem extreme, it is not out of the question, given the length of time it is taking to get the economy back on track, and the longer term impacts the pandemic will have on business and tourism.
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Working closely with Pinnacle Advisory Group, a leading hospitality industry consulting firm, RKG Associates analyzed the potential impacts of the current pandemic on the hotel industry in Boston and Cambridge.
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About our authors:
Craig Seymour and Eric Halvorsen, AICP are Principals with RKG Associates. RKG is an economic, planning, and real estate consultancy with offices in Washington, DC, Boston, Atlanta, Dallas, and Durham, NH. Since its founding in 1981, RKG has built a track record of sound planning advice rooted in data, creativity, and realistic, implementable strategies. RKG’s strength is in a diverse range of experiences that have helped hundreds of cities, towns and private firms make the most of spaces that matter to them. RKG specializes in economic analyses, market studies, financial forecasting, strategic planning, feasibility analyses, real property valuations, and housing strategies. www.rkgassociates.com
Rachel Roginsky, ISHC, is the Owner and Principal of Pinnacle Advisory Group. Ms. Roginsky has more than 35 years of experience in hospitality consulting. Since 1991, Pinnacle Advisory Group has provided advice and analysis on the full spectrum of hospitality properties throughout the US and Caribbean: hotels, resorts, conference centers, mixed use projects, convention centers and exhibition centers. Pinnacle’s services include development counseling, appraisals, acquisition due diligence, asset management, workouts, and litigation support. Our clients include leading lenders/investors, hotel companies, universities, and municipalities. We specialize in providing personalized advice on complex projects, carefully tailoring our services to each client’s individualized needs.