PROVIDENCE – While leisure travel has bounced back since the beginning of the pandemic, the return of the business traveler is still awaited by many in the hospitality sector, including hotel operators.
A national report released in April by the American Hospitality and Lodging Association and Kalibri Labs found the hotel industry will likely finish 2022 down more than $20 billion in business travel revenue from 2019, with Rhode Island, where business travel has declined 18%, accounting for $33 million of those losses.
Rhode Island’s 143 hotels, which employ approximately 5,000 people, make up just 0.32% of total businesses in the state, according to a recent industry study by Hotel Tech Report that ranked Rhode Island 48th in the nation – after Connecticut and Massachusetts – for the lowest number of hotels as a percentage of total businesses.
When business travelers do return, that ranking could make Rhode Island an attractive market for hotel developers.
Thomas Riel, senior vice president of the Providence Warwick Convention & Visitors Bureau, said revenue is up for hotels in the area. According to the bureau’s most recent data for 2022 encompassing January through August, the 3,031 hotel rooms in Providence alone have already generated $76 million, up 85% from 2021.
“The business traveler may not yet be [returning], but leisure is taking up the slack and paying a much higher rate,” he said, noting that average daily room rates are up 29% over the previous year.
The total number of hotels in Rhode Island and nationally should rise in the next few years, said Evan Smith, CEO of Discover Newport. The question, he says, is what specific market segments, such as business and corporate travel, will be targeted by would-be developers.
The American Hotel and Lodging Association breaks down these market segments into 15 categories, ranging from boutique to luxury to extended stay to conventions and meeting space.
On Aquidneck Island, there are multiple hotel developments being proposed in Middletown that are now undergoing the local review process. Smith said keeping an eye on the number of these proposals can give good insight into what developers think the market can bear.
According to the 2022 economic outlook report prepared by Boston-based Pinnacle Advisory Group sponsored by The Rhode Island Hospitality Association, Newport hotels saw a 14% increase in revenue per room over the previous year. In Middletown, revenue rose 21%.
With rising prices comes demand for new inventory.
“There is going to be a lot more construction over the next five years. Developers still see hotels as solid blue-chip investments,” said Smith. “A smart investor is not going to go into a market that is overbuilt.”
But there is a fiscal breaking point for the consumer related to supply and demand. The question is whether future development will keep pace with traveler needs, especially given the local battles that take place between developers and surrounding residents over perceived over saturation.
According to data from the research firm STR, Rhode Island hotel rooms’ average daily rate and occupancy levels consistently exceed the national average.
Developers do their homework, said Smith, who predicts a record pace of hotel development in the next five years. And as demand for meeting space continues to climb, more projects will be proposed as they look to get a piece of the action.
“Market segmentation is key,” he said. “All of this stuff is projected out by investors and hotel chains. They determine what type of hotel is likely to succeed in a certain area and what market segments are going to fit best in the various cities and towns in Rhode Island.”
(Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com)
