Always Look on the Bright Side of Life
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I'll leave it to Sam to interpret the convention center hotel documents that went online Sunday in advance of the city council's Economic Development Committee's jam-packed meeting this morning. (Takeaway: Open by January 1, 2012; costs $346 million; contains 1,016 rooms.) In addition to the 113-page briefing titled Convention Center Hotel Project Update and Move Forward: Setting Parameters for Bond Sale, the long-awaited study from HVS has finally been released. (We recommend saving it to your desktop for easier reading.)
Turns out HVS handed in the updated market study one week ago, but council members got their first peek this weekend. It's a mammoth document whose optimism is predicated upon a "a primary acceleration of [economic] recovery in 2011 and 2012." As the thing's 225 pages, I've included most of the executive summary, sans tables, after the jump. Though I'll be honest: I stopped taking it seriously when I got this part:
Victory Park is a new crown jewel for the city, with its hip W Hotel and Residences representing a type of ultra-modern hotel product never before available in the city. Victory Park now boasts ABC's new television facility, featuring a highly visible configuration similar to that of NBC's Today Show in New York City's Rockefeller Center.
The subject of the market study is a 364,824-square-foot (8.38-acre) parcel to be improved with a convention-headquarters, full-service lodging facility. Our analysis assumes the property will open on January 1, 2012 and will feature 1,000 rooms, two restaurants, a lounge, a coffee kiosk, 80,000 square feet of meeting space, an outdoor pool, an outdoor whirlpool, a fitness center, a spa, a business center, retail outlets, and vending areas. The hotel will also feature all necessary back-of-the-house space. The overview of facilities is presented in greater detail in Chapter Seven. The Omni Convention Center Hotel will be an impressive addition to Downtown Dallas. Omni hotels are well known for their urban architecture, pacious guestrooms, and high-end finishes. Each Omni guestroom features the Sensation Bar, a personal sundries counter that offers more than just drinks and snacks. Omni hotels also feature signature restaurants, among them Noé, 676 Restaurant and Bar, and Bob's Steak & Chop House. Many Omni properties also house a spa or offer in-room spa services. The proposed Omni Convention Center Hotel is expected to be designed in the same manner. Initial renderings of the hotel provide for an impressive, two-winged structure that merges together in a "V" shape. The addition of a new, state-of-the-art, convention headquarters Omni Hotel in Dallas is expected to attract large groups, events, and meetings from throughout the U.S. The hotel could also be complemented by a new College Football Hall of Fame, for which the government and local community leaders are actively campaigning. The site for this attraction would be adjacent to the hotel, and if built, would further strengthen not only the neighborhood's appeal for tourism travel, but would also increase the hotel's appeal for capturing NCAA and other sports-oriented groups.
Spurred by several major capital investments, and a renewed Uptown district, Dallas is experiencing its strongest economic cycle in recent history. Visionaries and important Dallas developers have incited over $6 billion in new investments. Projects such as the Magnolia and Hamilton's Davis residential complex generated momentum in the mid- and late-90s, and major additional projects during the last several years show the force of change to be formidable. AT&T will move its headquarters to the CBD in 2009, and 7-Eleven recently relocated its corporate offices to Downtown Dallas, occupying 300,000 square feet in One Arts Plaza. Comerica relocated its headquarters from Detroit to the CBD in 2008, and Fireman's Fund Insurance Company leased an additional 130,000+ square feet for expanding operations. These activities reflect the type of evolution occurring in the local market.
The market remained resilient through 2008, despite the accelerating national recession. The amount of office space occupied in the Dallas CBD increased considerably in 2008, with just over 20,500,000 square feet occupied as of the fourth quarter 2008, representing an increase of over 1,100,000 square feet since the fourth quarter of 2007, according to CB Richard Ellis. This number will likely moderate in 2009 as companies streamline operations to survive the downturn; however, once the economy stabilizes, the market will return to a growth mode quickly and from a higher base level than other national markets that experienced a greater correction in 2008.
Along with this relatively strong office environment, the development of other complementary uses has expanded considerably in recent years, with multiple high-density residential projects, retail and restaurant additions, and entertainment venues throughout the downtown and uptown areas. The Ritz-Carlton celebrated its opening on August 15, 2007, representing the first Ritz-Carlton property in Texas, a market long-dominated by Four Seasons and several notable independent luxury properties. Nearby, Victory Park is a new crown jewel for the city, with its hip W Hotel and Residences representing a type of ultra-modern hotel product never before available in the city. Victory Park now boasts ABC's new television facility, featuring a highly visible configuration similar to that of NBC's Today Show in New York City's Rockefeller Center, and new music venues such as the House of Blues.
Room revenues for Dallas rose 2.7% in 2008 (versus the 0.7% growth rate for the nation as a whole), slowing from the 5.7% growth rate in 2007, according to Smith Travel Research. Although citywide occupancy declined by just over one point to 58.9% in 2008 (due in part to new supply), rates managed to increase by just over $2.00. Market conditions in the hotel sector began to deteriorate in the fourth quarter of 2008, and in January of 2009, occupancy levels fell just over seven points and rates fell by roughly $3.00, contributing to a RevPAR decline of 18.9% for the month.
The outlook for the industry and local hotel market is not favorable for the near term, with similar declines expected through at least the first two quarters of the year. While some normalization may occur in the second half of the year, net gains in RevPAR are not expected. The decline in travel is not only being impacted by general cutbacks in corporate spending and a propensity for personal savings over discretionary leisure travel spending, but also by the negative press put on the high-end corporate meetings industry in recent months. As the AHLA and industry leaders work with Washington to remedy the perspective being placed on the industry, as hotel companies proliferate advertising outlets with new campaigns targeted at changing the way people are viewing the meetings industry and travel in general, and corporations stabilize budgets and operations through 2009, we anticipate that the local hotel market will recover in the period of 2010 through 2012, with a primary acceleration of recovery in 2011 and 2012. This expectation is reflected in our forecasts.
This forecast recovery of the downtown Dallas hotel industry through the next decade will be dependent on the development of a headquarters hotel, which will enable the full salability of the Dallas Convention Center on the national stage. A vibrant, highly-utilized convention center typically serves as a vital component to a major city's downtown visitation and downtown hotel utilization levels. The Dallas center remains underutilized due largely to the lack of an adjacent headquarters hotel, a requirement high on the priority list of today's convention meeting planners.
Despite the current economic downturn that is impacting the hotel industry rather significantly in 2009, Dallas continues to transform. City leadership remains focused on maintaining growth and revitalization within the city. This leadership, together with a myriad of local developers and committed residents, deserves substantial credit for the city's rebirth. The current phase of evolution, anchored by such hotel projects as the W, the Joule, the Ritz-Carlton, and the anticipated convention headquarters hotel, will help redefine the city's position on the world stage by 2012. However, if the headquarters hotel is not added to the city's landscape, the success of the city's and downtown's hotel industry will likely remain far behind where it should be for a city of this size and overall economic performance. As of May 2009, 13 major conventions have been secured in the "definite" category contingent on the addition of the headquarters hotel. These groups represent over 360,000 room nights and over $532 million dollars of economic impact, according to the Dallas CVB.3 Over 600,000 additional room nights have been booked on a tentative basis. The current, troubled hospitality sector results should not deter development. The industry is cyclical, and by 2011 the sector's recovery should be well underway. The addition of the Omni in 2012 should help accelerate the recovery even further, contributing a new source of national convention demand (accustomed to paying higher room rates) not previously captured by the city.
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