Jones Lang LaSalle Assesses the Impact of Olympics on Salt Lake City’s Hotel Market

 

CHICAGO, December 18, 2002 – The circus has come and gone for Salt Lake City, but what effect has the winter Olympics had on the local hotel and resort market?  Jones Lang LaSalle has conducted extensive research into the ‘Olympic effect’ on a city’s hotel sector and identified legacies that benefit a city over the longer term.  Salt Lake City is no exception.    

 

“In only 17 days, the winter Olympics attracted close to 700,000 visitors and created a $56 million surplus for Salt Lake City Olympic organizers” said Melinda McKay, Senior Vice President and head of research for Jones Lang LaSalle Hotels.   The Olympics will provide a significant short-term economic boost to Salt Lake City, estimated to be as high as $4.5 billion, a much-needed injection in a recessionary environment. 

 

There is no doubt the Games were tremendously successful.  However some disappointment has been raised by local businesses that the Olympics did not provide the windfall they had hoped.  Security concerns following the terrorist attacks just five months earlier, and a rapidly deteriorating economic climate combined to freeze some people’s plans to visit the Winter Olympics.  The original estimate was a daily attendance of 70,000, however what transpired was a 40,000 daily attendance level.

 

“But what must be remembered is the real Olympic pay-off is not during the event itself, but in the longer term legacy effects that it imparts on a city” argued McKay.  Billions of dollars of Olympic-induced spending will have substantial long-term benefits for the city.  Projects such as a new freeway, new light rail line and a new convention center will all help to stimulate economic activity and provide invaluable resources for the local community.  This is in addition to the general revitalization and improvement of the downtown area, which has enhanced the aesthetics and usability of the city for residents and visitors alike. 

 

McKay continued “The key ‘win’ for Salt Lake City’s hotel industry is the massive international exposure, which will be felt long after the final gold medals are awarded.  The eyes of the world were glued to Salt Lake City for more than two weeks. Three billion people tuned in to the Salt Lake Games, making it the most watched Winter Olympics in history.  The 2002 Salt Lake Games had 50 percent more coverage than the 1998 Nagano Games and a massive 170 percent more than the 1994 Lillehammer Games.” 

 

 

“You simply cannot buy this type of publicity.  The potential implications for the region’s hotel industry are tremendous.”  And the city is already seeing the payback.  According to the Salt Lake City Convention Bureau, the city accommodated more convention delegates in the last ten months of 2002 than ever experienced in a single year.  Salt Lake is hosting more conventions and larger conventions, with several enjoying record-breaking attendances.  This is in contrast to many other cities, which have continued to experience waning convention attendances following 9/11/01.  It is even more impressive when you consider that the Olympics effectively ‘swallowed’ the first three months of the year.

 

The Olympics is widely recognized as a strong growth driver for a city’s convention market.  In addition to providing a legacy of sporting, tourism and municipal infrastructure, it also demonstrates the city’s ability to host major world-class events.  In particular, Salt Lake City demonstrated it could offer a safe destination, which is critical in today’s security conscious environment.

 

“The hotel sector is also sharing in the Olympic afterglow.  Despite inventory increasing by 64 percent since Salt Lake was awarded the Games, hotel occupancy and room rate has outperformed the national average.  This is impressive performance, as one would have expected at least a short-term glut of hotel rooms.  These new and refurbished rooms provide a strong anchor for the city’s tourism and convention industry” said McKay.

 

A review of revenue per available room (RevPAR) in 2002 indicates that in all but three months, Salt Lake’s RevPAR performance was considerably better than the U.S. average (as demonstrated in the graph below).  Year-to-date October 2002 performance illustrates the startling performance gap.  Salt Lake City’s RevPAR growth measured a massive 30.1 percent compared to the U.S. average of –3.6 percent.  Even in 2001, the lift in exposure and quality amenities, meant that Salt Lake City experienced only a 2.2 percent decline in RevPAR, compared to a 7.0 percent decline for the U.S. 

 

The performance of Salt Lake City’s hotel sector is no surprise.  A look at history demonstrates similar patterns of supply growth and RevPAR trends.  Hotel room supply gains precede the Olympics Games.  In the four past summer Olympic host cities, hotel room supply increased by 15 to 35 percent in the two years leading up to and including the Games.  Hotel performance levels also tend to peak during the Olympic year.  The previous winter Olympic host, Nagano, recorded similar highs in occupancy surrounding the Games period, in excess of 90 percent during February.

 

Peaks in RevPAR are experienced during the Olympic year.  RevPAR increased between 10 and 20 percent in the past four summer Olympic host cities.  “Experience suggests that hotel markets have tended to fall into a trough in the year following the Olympics, not surprising in view of the artificial peak created by the Games,” said McKay. “However, the markets tend to recover quickly, creating a strong growth position for the years following the Games in which general market cycle influences prevail.”

 

The Olympics acts as an international advertisement for the city.  “In addition to the influx of people attending the Games, this international exposure gives Salt Lake’s hotel and convention industry a much needed shot in the arm,” said McKay.  More than any other Winter Olympics, the 2002 Games has tremendous implications for the longer-term health, stability and growth of the city’s tourism and hotel industry.  “In one definitive stroke, the Olympics provided the opportunity to change the perception that Salt Lake City is not a fun, party town.  People did not know what to expect from Salt Lake City.  Now they do.  The results of such a colossal ‘branding’ campaign will be enjoyed for many years to come” concluded McKay.

 

 

Jones Lang LaSalle has produced an in-depth report on the impact of the summer Olympics Games on real estate markets.  The report, “Reaching Beyond the Gold: The Impact of the Olympic Games on Real Estate Markets,” examines the legacies of four recent summer Olympic hosts – Seoul (1988), Barcelona (1992), Atlanta (1996) and Sydney (2000). It also provides a guide on how cities hosting major world events, not just the Olympics, can capitalize on the experience and learn from the lessons of the past. The report is available online at www.joneslanglasalle.com.

 

Jones Lang LaSalle Hotels, the world’s leading hotel investment services group, provides clients with value-added investment opportunities and advice. In 2001, its success story includes the sale of 7,972 hotel rooms to the value of US$1.3 billion in 39 cities and advisory expertise on 100,550 rooms to the value of US$26.3 billion across 255 cities. Jones Lang LaSalle Hotels’ services include transactions, mergers and acquisitions, financial advice and capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection and industry research.  Jones Lang LaSalle (NYSE: JLL) is the world’s leading real estate services and investment management firm, operating across more than 100 key markets on five continents.