|The conference center industry has benefited in many ways from the continued recovery in the hotel industry. According to a survey published in the 2012 edition of Trends in the Conference Center Industry, the average revenue for U.S. centers increased by 5.5 percent in 2011 and net operating income (NOI) grew by 8 percent.
While revenue growth is certainly welcome news, conference centers continue to be challenged by a number of factors. These include the scarcity of financing and investment capital for new development, the slow recovery of the group meetings market, and cutbacks in government spending. While signs of growth in corporate group meetings are in place, a general lack of confidence in the economy by traditional large corporate trainers has restricted the market from finding a firm footing sufficient to justify hiring and to establish traditional training programs.
PKF Consulting, in conjunction with the International Association of Conference Centers (IACC), put together a snapshot of the market as part of our annual Trends in the Conference Center Industry survey. The 2012 report aggregated the 2011 market and financial performance of 37 residential centers and 14 day centers. The following summarizes the 2011 performance of the residential centers.
Since the majority of conference center guests stay as part of a package plan, total conference center revenue is typically measured on a dollar-per-occupied-room basis (POR). In 2011, the centers in the Trends survey sample reported a slight 1.2 percent increase in total revenue POR. As mentioned before, total revenue grew by 5.5 percent, while rooms occupied increased by 4.1 percent.
Corporate centers enjoyed the greatest gain in total revenue POR (+3.3 percent) among all types of centers. On the other end of the spectrum, total revenue POR at resort centers remained flat from 2010 to 2011.
According to our survey, conference centers continue to rely heavily on transient demand. In 2011, non-conference guests rented nearly 40 percent of all occupied rooms. Resort and college/university centers were the most dependent on transient demand. While transient demand does help to buoy occupancy levels and boost average daily rates, conference centers do not gain the operating efficiencies and additional revenue benefits of accommodating conference related demand.
The survey results show an increase in local attendance at meetings held in conference center venues, notably at executive centers. This is not surprising given the tight travel budgets and cost conscious nature of corporate meeting planners in today’s environment. Training and continuing education, followed by management planning, continue to be the primary purposes for meetings held at conference centers.
Expenses and Profits
Consistent with history, the industry recovery is being led by gains in occupancy, as opposed to significant increases in daily or package rates. Accordingly, it is difficult to control costs as each additional occupied room carries with it the incremental variable costs required to service the room. With occupancy driving revenue growth, total operating expenses at the centers in the survey sample increased by 4.9 percent in 2011, more than twice the pace of inflation for the year.
Fortunately for conference center owners and operators, the 5.5 percent gain in revenue outpaced the rise in expenses, thus allowing for an 8.0 percent increase in NOI during the year. Leading the way in profit growth were executive centers with an increase in NOI of 10.6 percent. Lagging were college and university centers, which achieved just a 5.4 percent increase on the bottom line.
Looking At 2012
Entering 2012, conference center managers expected occupancy levels to continue to power ahead. On average, the managers in the survey budgeted for an 8.2 percent increase in occupancy during the year. Executive center managers were most optimistic, expecting a 13.5 percent rise in occupancy.
As for pricing, management’s expectations for CMP rate movement were for an increase of just 1.9 percent. Resort center operators believed they had the greatest opportunity to push conference package rates (+ 3.1 percent).
According to the September 2012 issue of Hotel Horizons, PKFC is forecasting a 2.4 percent increase in occupancy and a 4.2 percent gain in ADR for the overall hotel industry. Given what we have seen so far in 2012, it is reasonable to expect somewhat similar gains to be enjoyed by the conference center industry as well.
The exceptions are centers that rely heavily on government-related training and think tank meetings. The proposed cutbacks in government-related meetings will negatively impact the large number of centers built to service that segment.
Overall, sufficient optimism exists for a continued steady recovery. We are confident that the positive trends we have seen in this year’s IACC Trends survey will act as an additional building block for further success.
Dave Arnold is CEO East of PKF Consulting USA LLC. To buy a copy of the 2012 Trends in the Conference Center Industry report, visit www.pkfc.com/store.