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Focus on Research: Study finds lodging demand more stable in university towns

The Atherton Hotel along Atherton Street is one of many lodging facilities in State College. A recent study conducted at Penn State found that the demand for hotel and motel rooms is consistent in university towns similar in size to State College.
The Atherton Hotel along Atherton Street is one of many lodging facilities in State College. A recent study conducted at Penn State found that the demand for hotel and motel rooms is consistent in university towns similar in size to State College. CDT file photo

Editor’s note: The Focus on Research column highlights different research projects being conducted at Penn State. Each column features the work of a different researcher from across all disciplines.

The demand for lodging is more consistent in university towns, including State College, compared to non-university towns of the same size, according to a recent study completed at Penn State.

The new International Council on Hotel, Restaurant and Institutional Education report, “University Lodging Demand: An Analysis of its Stability and Guidance for Estimating its Growth Potential at the Market Level,” reveals the demand for college and university lodging is more stable than the typical lodging demand.

“A number of State College-area hotel owners and operators told me they like developing and running hotels in university towns because of the relative stability of lodging demand generated by universities,” said School of Hospitality Management Director John O’Neill, who conducted the study. “However, until now, this proposition has never been empirically tested, and no empirical research has shown hotel developers what variables about universities they should study to determine the feasibility of hotel development in any given university marketplace.”

The study shows that the demand for lodging in university towns is more stable than typical lodging demand, and that university markets such as State College are more stable in terms of occupancy rates and average room rates.

O’Neill said the study also debunks the myth that lodging in college towns is seasonal.

“Although it is often assumed that a risk involved in developing or acquiring a hotel in a university town is that university lodging demand is seasonal, that is largely a misconception because universities tend to generate significant summer visitation as well as fall, winter and spring demand,” O’Neill said.

He added, “Universities tend to generate lodging demand both on weekdays and weekends. As a result, hotel development and acquisition proximate to universities has been reported to be relatively less risky than in nonuniversity locations. While universities are not completely immune to economic downturns, and may lay off employees, they continue to operate over the long term. Universities may create economic resilience and equilibrium.”

The study, which analyzed hotel performance data dating back to 1990, showed university-town occupancy rates increased while, overall, U.S. occupancy rates declined.

“These trends suggest that even though university-town occupancy rates are lower than overall U.S. averages, there appears to be a long-term narrowing of the gap between university town and U.S. occupancy rates,” O’Neill said.

Additionally, O’Neill found that during the recession between 2001 and 2003, the gap between university town occupancy and U.S. occupancy narrowed with college town occupancies averaging 97.8 percent of U.S. figures. Similarly, between 2011 and 2013, university town occupancies averaged 96.7 percent of U.S. figures, compared to 93.8 percent from 1990 to 1992, the first three years of the study.

The research focused on 27 university towns — including State College; Gainesville, Fla.; and Ann Arbor, Mich. — to isolate the dynamics of lodging supply and demand related to universities.

The sample was limited to towns and with populations between 10,000 and 150,000. Larger cities with major universities were excluded due to the inherent difficulty to isolate university-related demand. Smaller colleges also were excluded because of their tendency not to function as the primary demand generator in their communities. Universities included all were research-oriented with more than 10,000 students, more than 2,000 employees and more than $50 million in annual grant funding.

“Interestingly, university grant funding and graduate student populations, two factors that haven’t been previously studied, are also strong predictors of lodging demand,” O’Neill said. “Among the primary recommendations of the study are that hotel feasibility analysts should evaluate both grant funding and graduate student population trends when studying prospective markets.”

The 27 designated communities had between 548 and 4,126 available hotel rooms, with an average available rooms of 1,985. Citywide occupancy ranged between 52 and 69 percent with a 59 percent average; daily rate was between $77.11 and $144 with a $93.65 mean; and revenue per available room was between $40.46 and $85.21 for 2013....In State College, with 2,813 guest rooms, there was an occupancy rate of 59 percent, an average daily rate of $107.50 and a revenue per available room of $63.70.

The sample contained a total of 707 hotels with 57,388 guest rooms. The average hotel size was 81 guest rooms.

Hotel performance in university towns also was compared to performance in 30 similarly sized U.S. towns. The university towns had a mean population of roughly 64,000 and a population range of between 13,000 to 139,000, so O’Neill randomly selected 30 small U.S. towns representing all U.S. regions and with roughly the same mean population and population range as the university towns.

These 30 small towns had a total of 631 hotels with 53,520 guest rooms and an average size of 85 guest rooms each. The towns were similar to the university towns in size and in the overall number of hotels and size of hotels.

The translational research study showed that significant predictors of lodging demand growth in university markets like State College include city employment and population trends, as would be expected, O’Neill said.

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