DEL.ICIO.USAtlanta bracing for tough tourism year
Luxury hotels, restaurants expected to take biggest hit
The Atlanta Journal-Constitution
Sunday, December 21, 2008
The swanky Palomar Hotel hasn’t even opened yet, and Beau King is already cutting expenses.
King, who is developing Palomar — the first lodging in Atlanta by boutique giant Kimpton Hotels — says he’s reducing the costs he’s sketched out on paper — including staffing numbers — to make sure he can operate in the black.
CURTIS COMPTON / ccompton@ajc.com
The Hotel Palomar is 21 stories and will feature 304 guest rooms.
CURTIS COMPTON / ccompton@ajc.com
Construction workers climb a staircase that adds flair to the Hotel Palomar, which is under construction in Midtown. Even before it opens, hotel management is looking for ways to cut costs.
King is not alone. Everyone in Atlanta’s hospitality industry — from top restaurateurs to heads of major attractions to general managers at $500-a-night hotels — is bracing for a drubbing in 2009. Hospitality revenue is expected to drop anywhere from 5 percent to 15 percent next year as the prolonged recession worsens and travelers — especially business people — pull back in droves.
That will be a tough pill to swallow for Atlanta because hospitality is an $11.4 billion business in the metro area — one of its top revenue generators. When hotels, restaurants and attractions hurt, Atlanta suffers.
Some hotels and restaurants won’t make it, hospitality leaders said.
“I think we’ll see hotels close,” said Euan McGlashin, who was hired recently by developer John Dewberry to head the Dewberry Collection, the luxury hotel Dewberry is creating. “We’ll see massive layoffs.”
Tom Colicchio, the man behind high-end restaurant Craft in Buckhead, agreed.
“I saw this in the ’80s and it’s going to get tough,” he said. “Some restaurants will have to go, no doubt about it.”
David Marvin, whose Legacy Property Group operates downtown’s Embassy Suites, Hilton Garden Inn and the Glenn, said the luxury market will probably have the toughest time because it’s where Atlanta has concentrated a lot of its construction over the past few years, with new hotels like St. Regis, Rosewood and several new W hotels.
“We’re firing people before we even hire them,” Palomar’s King said of staffing plans for his hotel, which is targeted to open May 1.
The challenges are an about-face for Atlanta’s hospitality community, which just two years ago was riding high.
New luxury hotels were on the drawing boards or under construction, foodies had their choices of restaurants featuring top New York chefs and conventioneers were flocking to the Georgia World Congress Center — the nation’s fourth largest convention facility.
Boosters used the excitement to sell the city to conventioneers, international travelers seeking cheap getaways because of the weak American dollar and sports organizations looking for venue sites.
That all changed in big way in September, industry executives said. Business travelers, the bread and butter of Atlanta’s hotel community, started slowing to a trickle. Diners started trading down from swank eateries costing $50 a person to more meat-and-potatoes diners charging $10.
“People have not given up the lifestyle of eating out, they are just buying down,” said restaurant analyst Harold Shumacher of the Shumacher Group. “People are very value-oriented. People who pooh-poohed coupons when they had money are now saying, ‘Why not?’ “
Even Zoo Atlanta announced this month that the economy was forcing it to pull its popular panda cam at year’s end, just months after its newest cub, Xi Lan, was born.
Come on 2010
Walking through the shell of the 304-room Palomar, it’s clear King has a lot of hope for the hotel.
He points out the space for two outdoor fire pits and a waterfall on the terrace level that he expects will set the property apart.
Inside, workers were installing curtains in rooms, lighting in the hallway and carpeting throughout.
He thinks there is room in Midtown for a boutique that will attract lawyers, arts lovers in town for the High Museum of Art and Georgia Tech fans.
“We’re the newest hotel in Midtown and hopefully that will help us a little until things begin to turn,” he said.
But that could be awhile. Of the hospitality community, hotels will be hit the hardest, experts said.
PKF Hospitality Research predicted in a report released earlier in the month that demand for lodging will fall 2.5 percent next year, a drop that follows a 1 percent decline in 2008. Revenue per available room — an industry indicator of room sales — is predicted to fall 7.8 percent.
Locally, PKF said Atlanta occupancy will drop from an estimated 59.8 percent in 2008 to an estimated 57 percent in 2009. The average daily rate for rooms in the city will fall from $93.34 to $91.43.
“U.S. hotels have entered the initial stages of one of the deepest and longest recessions in the history of the domestic lodging industry,” the report said.
An oversupply of rooms is partly to blame, as is the loss of some business travelers. And it may hit the high-end hotels hardest because top executives will find it harder to justify spending hundreds of dollars for a room at the same time they are laying off staff.
Mark Woodworth, president of PKF hospitality research, calls it the “AIG effect,” a reference to the insurance giant whose executives were caught living it up in October at a luxury resort after receiving federal bailout help.
Dewberry’s McGlashin, however, thinks luxury properties will quietly work with the executives to lower room rates to keep their business while allowing them to save face with shareholders.
Luigi Romaniello, managing director of the luxury Rosewood hotel at the Mansion on Peachtree, said hotels will show more flexibility in pricing if they want to be competitive. The challenge — especially in the top tier — will be to keep service standards high.
“We have to impress service more because that is what is going to bring customers back,” he said.
Measures of success
Despite the challenges, some said that it is possible for hotels and others in the hospitality community to be successful in this downturn or to make it work in their favor.
Hospitality experts said hotels with cash reserves can take the slowdown in occupancy as an opportunity to shut down entire floors and renovate.
Others said if a hotelier can find the financing, now would be the time to build because of cheaper land, construction materials and available labor.
Scott Leventhal, chief executive officer of Tivilo Properties, has said that could be an advantage for his company as it seeks to build a Mandarin Oriental Hotel in Midtown over the next few years.
And Georgia Aquarium officials saw attendance climb in November over the same period a year ago, spokesman Dave Santucci said. In addition to benefitting from more families taking a “staycation” — vacationing close to home — the world’s largest fish tank has added the Titanic exhibit and more “wow factor” animals over the last few months to bring in visitors.
In addition, Santucci said the aquarium has partnered with several attractions like the “Tutankhamun: The Golden King and the Great Pharaohs” exhibit at the Boisfeuillet Jones Atlanta Civic Center.
Legacy’s Marvin said he hopes his proximity to downtown attractions will help his chains break even by getting a bigger share of those who stay close to home.
“I’m not expecting a great year,” Marvin said.
What works in the Atlanta area’s favor in the downturn is what has been a weakness in the local market during better times: its traditional inability to get the super high room rates like Washington, New York and San Francisco. While a handful of luxury properties commanded high daily rates, most metro hotels were more modest in price.
“Atlanta has never had that challenge because it has been a very affordable town,” he said.
Services »
