Economic and Market Assessment: Niagara Falls, New York
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ECONOMIC AND MARKET ASSESSMENT: NIAGARA FALLS, NEW YORK SUBMITTED TO: PR OPOSED PREPARED BY: Christopher Schoepflin HVS Consulting and Valuation Services USA Niagara Development Corporation C. J. Law & Associates 222 First Street, 7th Floor RES Associates Niagara Falls, NY 14303 RAS Associates 716-284-2556 [email protected] Date: June 15, 2011 Funded in part through a generous grant from: June-2011 Technical Memorandum #2 Hotel Analysis Technical Memorandum #2 Hotel Analysis Niagara Falls, New York Prepared by: HVS Consulting and Valuation Services Carolyn J. Law & Associates RES Associates RAS Associates Submitted to: Christopher Schoepflin USA Niagara Development Corporation 222 First Street, 7th Floor Niagara Falls, NY 14303 716-284-2556 [email protected] Date: January 23, 2011 Funded in part through a generous grant from: Technical Memorandum – Hotel Analysis 1 Technical Memorandum #2 Introduction This memorandum evaluates the current inventory of hotel supply in the downtown area of Niagara Falls, New York and provides strategic recommendations for future development priorities. This memorandum is the fourth in a series that focuses on various economic and statistical characteristics pertaining to the Niagara Falls, New York market area. Additional studies related to visitor statistics, retail development, housing development, and restaurant / entertainment development are included in our broader scope of work performed as part of this engagement. Overview of the Niagara Falls Hotel Industry & Strategic Recommendations Niagara Falls, New York currently features 44 hotels and motels, representing a total inventory of 3,241 guestrooms. These hotels primarily target price-sensitive tourists visiting the two greatest lodging demand generators in the City, namely, Niagara Falls State Park and the Seneca Niagara Casino. Although the hotels located in Niagara Falls, New York are currently targeting highly price-sensitive customers, there clearly exists a broader range of less-price-sensitive potential customers visiting the greater Buffalo- Niagara region from which higher quality hotels could potentially draw business. However, several important barriers to entry have prevented the development of higher-quality hotel properties in downtown Niagara Falls. This memorandum will identify these barriers, or obstacles, and suggest measures that would encourage an upward shift in quality and economic impact potential for the overall lodging industry in downtown Niagara Falls. This technical memorandum will discuss, in more quantitative measures, the following topics: 1. Quality of Existing Hotels 2. Branding of Existing Hotels 3. Potential Target Market for an Upper-Upscale, Full-Service Hotel (competitive set) 4. Competitive Advantages & Disadvantages (need for district/amenities) 5. Penetration Analysis 6. Metrics of Comparable Hotels 7. Financial Operating Potential for an Upper-Upscale, Full-Service Hotel 8. Obstacles to Development (low-end supply glut; seasonality; lack of available financing) 9. Development Incentives (for full-service and more generally upgrading quality/branding citywide) The following analysis is intended as (1) a market research tool for evaluating potential hotel development opportunities in the downtown Niagara Falls market area and (2) a discussion of potential policy options to transform the landscape of the downtown Niagara Falls hotel industry. We will discuss each of the preceding topics in turn. HVS Consulting & Valuation Services Technical Memorandum – Hotel Analysis 2 Quality of Existing Hotels There are several quantitative methods for measuring the quality of hotels. The materials used for a hotel’s structure, furnishings, fixtures, and equipment can constitute one guide to determining the quality of individual hotels. The average daily rate (ADR) of hotels can sometimes be used as a proxy for quality; assuming markets are efficient, guests will tend to bid up the ADRs of higher quality hotels and lower quality hotels will need to compete by reducing their rates. In many instances, branding can also serve as a proxy for quality; however, some brands have stricter quality control measures than others and the quality range within a national portfolio of a single brand can often vary widely. Perhaps the most widely known and accepted form of quickly ranking the relative quality of hotels is a tier system published by Smith Travel Research (STR); these quality tiers are referred to as “chain scales” by most industry participants. STR has assigned every national and global brand to one of six chain scales, as follows: Luxury – 0 Upper-Upscale – 0 Upscale – 1 Upper-Midscale – 4 Midscale – 3 Economy – 14 The number of properties located in Niagara Falls, New York, within each branded chain scale, is shown by the number following each of the preceding categories. Luxury is the highest-quality chain scale and includes some of the world’s most iconic brands. Examples include Four Season, Ritz-Carlton, W Hotels, and Waldorf=Astoria. Luxury hotels tend to be located in high-end resort destinations or dense, urban downtown areas of large metropolitan centers. We did not identify any hotels within the luxury chain scale located in Niagara Falls, New York or Niagara Falls, Ontario, although several casino hotels claim to feature luxury amenities similar to hotel brands in this chain scale. Recommendation – We recommend not allocated scarce public resources to targeting development within the luxury chain scale. The economic impacts to be derived by luxury hotel developments are likely to be significant, but would likely require more public incentives relative to its economic impact potential than other prospective hotel types. However, we recommend being open to consideration of requested public incentives if such a development is proposed by a private-sector sponsor in the future. Upper-upscale is the second-highest chain scale and includes many of the namesake brands of the largest hotel companies in the world and represent among the highest-quality properties available in most major metropolitan areas. Examples include Hilton, Hyatt Regency, Marriott, Sheraton, and Westin. These properties tend to be located in densely populated urban centers near tourism amenities, such as restaurants, shopping centers, and entertainment or cultural attractions. These properties also typically feature a substantial amount of meeting and banquet space that can be utilized to target group business during non-peak demand seasons. There are five upper-upscale hotels located in Niagara Falls, Ontario. These include the Embassy Suites and Hilton under the Hilton family of brands; the Marriott under the Marriott family of brands; and the Sheraton On-The-Falls and Sheraton Fallsview Conference Center under the Starwood family of brands. There are no upper-upscale hotels located in Niagara Falls, New York. Recommendation – We recommend actively pursuing the development of one upper-upscale hotel to serve as an anchor for a densely planned dining, conference, and entertainment district located between HVS Consulting & Valuation Services Technical Memorandum – Hotel Analysis 3 the State Park and the casino. The proposed hotel should include a minimum of 60 square feet of meeting and banquet space per guestroom and we recommend consideration of a hotel with between 200 and 400 guestrooms, branded by a major national chain. The economic impacts to be derived by an upper-upscale hotel are likely to be significant and represent the greatest opportunity for positive impacts relative to the likely cost of public incentives. Upscale is a relatively broad category of hotels that can include both full-service and select-service hotel types that feature roughly similar construction quality, design features, and price points. Examples of brands in the upscale chain scale include aloft, Cambria Suites, Crowne Plaza, Courtyard by Marriott, Doubletree, Four-Points by Sheraton, Hilton Garden Inn, Hyatt Place, Indigo, Radisson, and Wyndham. Five of these upscale brands are represented in Niagara Falls, Ontario, namely, Courtyard by Marriott, Crowne Plaza, Doubletree, Four Points by Sheraton, and Radisson. A Hilton Garden Inn is located in nearby Niagara-On-The-Lake, Ontario. One upscale brand, namely, the Crowne Plaza is located in downtown Niagara Falls, New York. Several of the brands in this chain scale are currently looking for opportunities to expand their presence in the Niagara Falls region. Examples include Cambria Suites, Four Points by Sheraton, and Hyatt Place. Recommendation – We recommend actively encouraging the private sector to construct new properties in the upscale chain scale or making investments in existing properties of a lower chain scale in order to convert them into upscale hotels. Because hotels in this category will have much less potential for economic impact than a full-service, upper-upscale hotel, we recommend only limited use of public incentives to encourage development in this chain scale. A loan guarantee program for existing owners who want to upgrade existing hotels is one example of an incentive that might be particularly effective in today’s financing environment. Upper-Midscale is a relatively new category created to distinguish between different tiers of primarily limited-service hotel brands that were previously all classified within the “midscale” chain scale. Examples of brands in the upper-midscale chain scale include Comfort Suites, Fairfield Inn, Hampton Inn, Holiday