Pittsburgh’s growing tourism industry still misses the big ones
Within three blocks on Pittsburgh’s North Shore stand PNC Park, the Pirates’ gem of a ballpark; The Warhol, the largest museum dedicated to artist and native son Andy Warhol; and the aluminum and glass corporate headquarters of Alcoa, employer of 61,000 people worldwide. A better snapshot of the engines driving the region’s surging tourism industry would be hard to find.
Southwestern Pennsylvania as atravel destination has never been more popular. The evidence includes record amounts spent by visitors on everything from lodging to entertainment, a spike in new hotels on the books, and steady five-year growth in hospitality and leisure industry jobs.
The business traveler has long been the chief driver of the region’s tourism economy and still is. But recent year shave seen Pittsburgh mature to something more than a strong Monday through-Thursday market.
“It has now become a regional destination for a lot of social venues, whether it’s sports, the arts, education, history,”says Kevin Kilkeary, president of Prospera Hospitality, a Pittsburgh-based hospitality management company.
“If you look at the most dominant hotel markets—Manhattan, Boston,Miami, San Francisco—they have a strong combination of corporate and related business and they have strong social venues that attract people. That’s what is happening here.”
What Pittsburgh isn’t, however, is a destination that consistently attracts big-ticket conventions drawing upwards of 10,000 visitors who pour tens of millions of dollars into the local economy per event.
The city has the venue to do so in the David L. Lawrence Convention Center, with its distinctive sweeping roof, environmentally conscious design and convenience to sports stadiums,riverfront parks and the Downtown cultural district. But it lacks the kind of hotel-room density near the convention center that those who stage large national conventions seek.
That has proven to be a decided disadvantage when bidding against a highly competitive field of cities built to host such events. And finding ways to tap the latent potential of the convention business is one of the region’s challenges as it looks to continue to grow its tourism economy.
Booming Business
Whether they are corporate clients,sports fans, consultants, convention goers,casual vacationers or Marcellus Shale land men, visitors mean money to the region’s retailers, hotels, restaurants,bars, entertainment venues and others.And visitors have spent a lot of money recently.
They added more than $8.5 billion to the economy of the seven-county Pittsburgh Metropolitan Statistical Area (MSA) in 2012, according to the most recent economic impact data reported by Tourism Economics. That was the best year to date, up 5.8 percent over the previous record of $8.1 billion set the year before. The region’s top travel destination is Allegheny County, where visitors spent $5.5 billion in 2012.
Whether the region can sustain such trends depends on a host of factors,not the least of which will be the strength of the local economy. Its resilience during the recent recession and sluggish recovery was widely noted,particularly within the hospitality industry,which appears confident it will remain healthy.
Two new hotels opened their doors in 2013 and another nine are planning to open in the city and nearby suburbs in the next few years, solidifying the region’s standing as one of the hottest hotel real estate markets in the country.
That’s an encouraging sign for the future prospects of regional tourism.Unless visitors plan to bunk with friends or relatives, they need a place to stay.And the more available rooms and hotel options a region has to offer them, the more widely attractive it becomes as a destination.
Hotel development decisions tend to be based less on indicators such as demographics than on primary industry metrics, such as occupancy rates, average daily room rates and revenue per available room. And southwestern Pennsylvania’s numbers have impressed in recent years.
Key hospitality rates have risen in Pittsburgh over the past five years while they’ve stagnated or fallen in several major cities in the Northeast. The revenue per available room in the region stood at more than $75.50 late in 2013,up nearly 15 percent since 2008. The average daily room rate rose 11 percent to $112.40 during those five years. And the Pittsburgh MSA’s 67.2 percent occupancy rate is the highest among 15 benchmark regions tracked by Pittsburgh Today.
Those closely watched rates are projected to continue to rise in the southwestern Pennsylvania market through 2017 —even with the arrival of new hotels and hundreds of additional rooms. Revenue per available room, for example, is expected to reach $89, and occupancy rates could reach 69 percent,according to a recent forecast published by hospitality research firm PKF.
“Demand is very high right now.Rooms are at a premium,” says Craig Davis, president and CEO of VisitPittsburgh. “As new inventory comes into the marketplace, it’s always been the case that it is absorbed.”
As the hotel market grows in number,the options available to accommodate the various lodging preferences of visitors and the prices they are willing to pay are expanding, which strengthens the region’s appeal. Even the boutique market is being explored. The Klimpton chain, for instance, chose Downtown Pittsburgh as the site of its latest Hotel Monaco, with eclectic décor, wine hour and yoga mats in rooms. And the YMCA in East Liberty is being remodeled as a new Ace Hotel by the hip,Portland-based boutique chain that describes its hotel offerings as a “collection of individuals—multiple and inclusive, held together by an affinity for the soulful.”
Missing from the list of new arrivals soon to open or proposed is the long coveted,high-capacity convention center hotel that event planners believe would make the region a stronger candidate when bidding for the large national conventions that too often elude it.
Latent Potential
When looking for sectors of the tourism trade with the potential to sustain or improve the growth trend of recent years, one that stands out is the convention business, which has recently been less than robust.
Whether it’s been dismal or simply lackluster is a matter of debate that depends on the metrics used to measure it. Attendance and the total number of events held each year at the David L.Lawrence Convention Center were lower in 2012 than in 2004, the first full year it was open, according to the latest data available from SMG, which manages the center.
On the other hand, the most recent VisitPittsburgh data available suggest direct spending from major events totaled $118.2 million in 2012. That’s about 32 percent more than what event goers contributed to the local economy eight years earlier. The number of hotel“room nights” filled by those attending major events also rose in the same period from 108,000 to 134,014.
It’s clear from the numbers, however,that business generated by the convention center has ample room to grow. One of the reasons it hasn’t is that large conventions staged in the city have been few and far between. A big reason why is the lack of sufficient peak-night hotel rooms close enough to the convention center to win those events for which the competition is fierce.
And that’s been costly. VisitPittsburgh, which tracks missed business opportunities, estimates that 610,227 hotel room nights have been lost since 2004 primarily due to the lack of a mega-hotel or ample peak-night room density near the convention center.
The kind of large event the city can optimally accommodate is one that requires up to 2,400 rooms on peak nights. Larger gatherings require more creative plans, which can mean scattering convention goers across the city and perhaps the suburbs, as well as having to negotiate with more than a dozen hotels. “The convenience factor is big,”says Davis. “It may not be a deal-breaker,but that’s where you’re at a competitive disadvantage.”
Some organizations have been willing to work around such inconveniences.Many have not. When the National Association of Black Engineers held its convention in Pittsburgh in 2012, it needed to negotiate contracts with 18 hotels to accommodate the 8,500 members who attended. They ended up contributing$15.2 million into the local economy and consuming 14,270 room nights, according to VisitPittsburgh data.
The American Legion needs a minimum of 3,000 peak-night rooms for its national convention, which draws about 10,000 members and their families. The Pittsburgh area, which has one of the largest veteran populations in the nation, last hosted the convention in 1993. “It was a good convention, but they did have us spread all over the place,” says Mike Walton, chairman of the American Legion National Convention Commission.
Pittsburgh has since failed to win a bid to have the Legion return, and inadequate peak-night hotel rooms near the convention center has been an issue when bidding against cities like Indianapolis, which hosted the convention in 2012 and has four convention center hotels. “A big plus for a city is having a major hotel attached to the convention center,” Walton says. “It’s more convenient. Our delegates wouldn’t have to go as far and it makes our job easier.”
The David L. Lawrence Convention Center was designed to accommodate such a hotel, which was to be built on plots straddling the 10th Street Bypass. But the demand of developers for up to $50 million in government subsidies is the chief reason those plots are used as parking lots today.
New hotel development in Downtown has also given pause to the notion of building a major convention center hotel. “We need to see what the effect of the new rooms will have on the marketplace,” says Davis.“Measuring that, we’ll go from there.But we have to keep growing.”
For some, cities such as Austin,Texas, offer hope that a convention center hotel in Pittsburgh is not a question of if, but when. Austin has two 1,000-room convention hotels in development after years of having lost bids for major events due to the lack of rooms near its convention center. Those hotels are largely being developed with private dollars and tax incentives.
Among the key factors that convincedprivate money to back theprojects were the steep growth thatAustin’s tourism economy has experiencedand upbeat projections thatrevenue per available hotel room anddemand for those rooms will continueto rise. Although Pittsburgh’s indicators haven’t risen as sharply as Austin’s in recent years, Pittsburgh is also seen as an up-and-coming travel destination. Moreover, its revenue per available room is currently greater than Austin’s and is expected to rise along with occupancy and average daily room rates. “It’s happening for us,” says Prospera’s Kilkeary. “Sooner or later that convention center hotel will happen here.”