Slow Road to Recovery for Ohio Cities

 by: Terry D. Pike, James A. Piwarun, and Laurel A. Keller

2002 was a difficult year for most U.S. cities, with Ohio’s three largest cities being no exception. Overall RevPAR levels for the Cleveland and Columbus MSA’s demonstrated losses for a second straight year, while Cincinnati rebounded slightly following significant declines the previous year.

The following table presents occupancy and average daily rate statistics for the metropolitan statistical areas encompassing each city. For comparative purposes, we have also included data for the State of Ohio and the United States during the same period of time. The figures were obtained from Smith Travel Research.

As presented, the only market that showed overall growth from 2001 to 2002 was the Cincinnati MSA, which realized a net RevPAR increase of 1.2%, primarily due to an occupancy increase of 3.2%. Columbus was the only market, which saw increases in ADR, although declines in occupancy resulted in an overall deterioration of 2.5% in RevPAR. Cleveland exhibited the largest drop in RevPAR of approximately 6.9%, far exceeding the other MSA’s, the State of Ohio, and the U.S.  Growth in rooms supply has impacted the Columbus market the most significantly as the market has seen an increase in overall supply of 15.3% for the two-year period. Cleveland and Cincinnati reported growth in supply of 10.0% and 4.1%, respectively, during the same period.

The following table indicates the projected new supply, which we are tracking in each city.  The table includes both hotels, which are under construction and those, which are proposed and have a significant development potential.

The table indicates that Columbus is projected to have a 5.0% increase in supply between 2002 and 2004, which is the highest percentage increase of all of the compared markets.  Development in Cleveland has declined significantly after several years of rapid expansion. Our forecast for the Cincinnati MSA for 2003 and 2004 show continued slow development following a decline in supply of 1.0% for year-end 2002.

 CINCINNATI, OHIO

 The Cincinnati MSA Market experienced a 1.0% decline in supply in 2002 while demand experienced an increase of 2.2%. We estimate that supply growth will continue to slow with nominal overall demand increases in 2003.

In September 2002, the Hamilton County Commissioners and the Cincinnati City Council approved a $160-million expansion of the Convention Center. Construction is expected to begin in 2004 and be completed by 2006 and will include a complete renovation, reconfiguration, and expansion of the center. Construction is expected to increase the exhibit space from 162,000 square feet to in excess of 200,000 square feet.

The growth of retail and commercial developments surrounding the Newport on The Levee across the river in Newport, KY may place negative pressures on room night demand within the CBD market. However, several projects in the downtown market are currently under development and include the mixed-use urban development project known as The Banks, the Lois & Richard Rosenthal Center for Contemporary Art, which is scheduled to open May 2003 and the National Underground Freedom Center, which is scheduled to open in the summer of 2004.

CLEVELAND, OHIO

During the period 2000 to 2001, overall demand decreased by 4.8% while new supply increased by 7.7%. Year-end 2002 results indicate total demand decline of 1.1%, with a total supply increase of 3.2%. We project occupancy levels to remain flat in 2003 as compared to 2002 based upon current economic conditions with a limited increase in average daily rate. New developments proposed for the Cleveland area have decreased as compared to previous years due to the lack of progress on the new convention center and economic concerns about the health of the local economy.

In order to increase the number of flights, Cleveland Hopkins International Airport recently completed the construction of a sixth runway (6L-24R), which opened on Dec 12, 2002. With the extended runway and its capability to accommodate wide-bodied planes, as well as the addition of new radar, the airport's overall capacity will increase from its present 80 takeoffs and landings per hour to approximately 120. The improvements as well as the proposal of a new state-of-the-art convention center for Cleveland should help to increase the amount of conventions hosted by Cleveland in years to come. 

The development and expansion of regional attractions defines Cleveland as a tourist destination and improves the quality of life for area residents. The poor performance of the Cleveland Indians baseball team and Cleveland Cavaliers basketball team, a 22.0% decrease in attendance at Six Flags Worlds of Adventure, and decreased convention attendance has negatively impacted tourism in the Cleveland MSA since 2000. On a positive note, attendance at Cedar Point increased from 3,100,000 visitors in 2001 to 3,250,000 for year-end 2002, an increase of 4.8%.

COLUMBUS, OHIO

The Columbus MSA showed an overall increase in rooms demand of 2.5% for the twelve-month period ending December 2002. A 5.5% increase in supply, however, outpaced the demand increases resulting in a decline in occupancy of 2.9%, or 1.7 occupancy points.

Passenger levels at Port Columbus increased steadily from 1993 until reaching its peak volume of 6.87 million passengers for year-end 2000 before declining slightly to 6.68 million for year-end 2001. Year-end 2002 saw an increase of approximately 1.0% as activity improved to 6.74 million passengers. Future near-term growth, however, is unlikely following a recent announcement by America West Airlines, which accounted for approximately 21% of all traffic at Port Columbus in 2002, that effective June of 2003 the airline will reduce its daily flights from 49 to 4. In addition to anticipated increased fares, market analysts fear that corporate decision makers may hesitate to relocate their offices to Columbus due to increased costs and fewer nonstop flights to major cities throughout the country.

Following the expansion of the Columbus Convention Center and renovations at Veterans Memorial in 2000, an anticipated growth in convention and meeting attendance was somewhat hampered due to the unexpected downturn in the economy and the events of September 11, 2001. Despite a national trend reflecting declines in convention attendance for major cities, Columbus has seen steady growth, albeit at minimal levels. From 2000 to 2002, the number of actual events held in the MSA has increased from 572 to 594, while the number of delegates has increased by 5.3% from 1,997,688 in 2000 to 2,104,300 for year-end 2002.