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Health of hotel industry in Pittsburgh region lags | TribLIVE.com
Allegheny

Health of hotel industry in Pittsburgh region lags

Bob Bauder
| Tuesday, January 24, 2017 8:06 p.m
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Andrew Russell | Tribune-Review
Patrons of the Wyndham Grand Pittsburgh Downtown stand at the window overlooking Point State Park on Sunday, Jan. 8, 2017.
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Nate Smallwood | Tribune-Review
Cars pass the William Penn Hotel in downtown Pittsburgh on Monday, Jan. 9, 2017.
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A rendering of the $51.5 million luxury hotel Rivers Casino wants to build on Pittsburgh's North Shore.

With the scaling back of drilling in the Marcellus shale and the rise of alternative accommodation sites such as Airbnb, demand for hotel rooms in Western Pennsylvania has cooled even as the region has seen an uptick in new hotel development.

Irvine, Calif.-based Ten-X Research, an online real estate marketplace, forecasts declines in occupancy rates in the Pittsburgh seven-county region for the near future, projecting rates could drop as low as 54 percent by 2020, according to its latest Quarterly Hotel Monitor report.

The average hotel occupancy rate in the Pittsburgh region as of November, the most recent period for which data was available, was 60.3 percent, down 9.6 percent year-over-year, according to STR Global, an industry group that tracks hotel occupancy. That marks the lowest November level since at least 2010, STR reported.

Nationwide, the occupancy rate was 65.3 percent.

“Things are probably going to get worse before they get better,” Ten-X quantitative strategist Matthew Schreck said of Pittsburgh’s hotel sector. “Since about 2012, there’s been too much supply and not enough demand.”

According to Ten-X, the hospitality sector nationwide “continues to face significant challenges, including a slowdown in international travel and an expansion in supply coming to market as demand slows.” In Pittsburgh, too much new supply coupled with challenging economic conditions have weakened the hospitality industry, Schreck said.

Pittsburgh has seen a boom in new hotels in the past three years: a 63-room Ace Hotel and 135-room Hotel Indigo opened in East Liberty; and a 225-room Embassy Suites and a 248-room, 12-suite Kimpton-branded Hotel Monaco opened in Downtown. There also is a 135-room Holiday Inn Express on the North Shore, a 150-room Homewood Suites in the Strip District and a 197-room Hilton Garden Inn just off Market Square. And Rivers Casino plans to erect a 221-room hotel near the Carnegie Science Center over the next year.

In the past two years, the region has added almost 3,000 hotel rooms, according to STR.

Pittsburgh’s year-over-year occupancy rate decline of 9.6 percent marked the biggest drop among medium-sized markets, according to STR. Cleveland was off 2.2 percent, Boston was down 2.8 percent and Buffalo was lower by 0.9 percent.

“We’re a victim of our own success,” said VisitPittsburgh president and CEO Craig Davis. “We had our strongest demand about five years ago and got a lot of developers’ attention. But we don’t deny that we are a little static at the moment.”

Several hotel managers contacted for this story declined to comment.

Allegheny County Executive Rich Fitzgerald said the growth has not been a result of the region trying to attract a single, notable event or convention.

“I’m more interested in having the entire industry around conventions be strong,” he said, while acknowledging, “We have built a lot of hotel rooms.

“We may be nearing a little bit of a saturation point or plateau.”

The lagging occupancy rate is affecting hotels’ bottom line.

Revenue per room — a standard by which the hotel industry determines a hotel’s financial health — in November declined 10 percent from the same period a year ago, although rates were down just slightly at 0.4 percent to about $119 per room, according to STR. The Ten-X report stands in contrast to other economic indicators that show growth, Davis said.

He pointed to the cracker facility Dutch Royal Shell plans to build in Beaver County and what he described as a rebound in the natural gas sector as two reasons to be optimistic about the Pittsburgh region’s hotel industry.

“We’re confident we can meet the supply (of hotels) and absorb it over the next couple of years,” Davis said. “We’re always looking for opportunities and welcome new hotels to the area.”

In addition to the rise of Airbnb accommodations, which allows homeowners to rent their properties to guests much the way Uber drivers use their cars to ferry passengers, other facets factored into the Ten X report, Schreck said.

Unemployment in the seven-county Pittsburgh region was 5.8 percent in November, up 0.9 percent year-over-year, and U.S. Census figures show continuing decline in the metro area’s overall population.

“Pittsburgh isn’t ranked poorly just in comparison to other cities,” Schreck said, referring to the hotel figures. “Even in a vacuum, the region’s economy just isn’t equipped to handle the glut of supply.”

Kim Lyons is a Tribune-Review contributing writer.

Bob Bauder is a Tribune-Review staff reporter. You can contact Bob at 412-765-2312, bbauder@tribweb.com or via Twitter .

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