2006 Trends in the Conference Center Industry
Impact of Institutional Ownership Evident
Conference centers in the United States enjoyed a year of tremendous growth in revenues and profits in 2005. For the year, total revenue for these specialized lodging facilities increased 13.7 percent, while profits grew 39.2 percent. A healthy economy, combined with disciplined management, contributed to the strong performance of this segment. These observations come from an analysis of data collected in connection with the 2006 edition of Trends in the Conference Center Industry, published by PKF Consulting (PKF-C) in conjunction with the International Association of Conference Centers (IACC).
One element of the industry’s success in recent years has been the increase in institutional ownership of conference center facilities. Conference centers have been increasingly viewed as stable, relatively high revenue-per-guest yielding assets with potential upside given professional management.
While the increase in institutional ownership can be viewed as a positive indicator, it also presents some challenges for the industry. Institutional owners are not like the traditional owners of the past. For most of this segment’s history, ownership has been vested in individuals or entities that had an attraction to the conference center business, such as universities, corporations, or large-scale real estate developers. Today’s institutional owners view conference centers as profit centers that must produce a return with much less appreciation of the corollary benefits associated with the conference center concept.
Non-Conference Business Up
True conference centers are designed to accommodate groups that appreciate the benefits of a specially designed facility. The primary purpose of conference centers is to provide an environment that is exceptionally conducive to recreation, relaxation, and learning. In general, conference centers are most successful when they accommodate conference demand, as opposed to transient demand.
In 2005, however, a growing contribution of the increase in revenue for conference centers has come from non-conference demand sources. In 2004, 68.9 percent of all guest rooms occupied in conference centers were booked as part of a conference package. In 2005, this share dropped to 67.0 percent. Clearly, much of the 6.1 percent increase in rooms occupied in 2005 can be attributed to the accommodation of transient demand sources such as leisure travelers or individual business people. The fact that total revenue grew 13.7 percent on a per-available-room basis, but only 7.0 percent on a per-occupied-room basis, is partially indicative of management’s willingness to unbundle the complete meeting package (CMP) rate in order to accommodate some non-traditional group demand.
The desire to produce a higher short-term return by accommodating transient and leisure business could also be indicative of the impact of institutional owners. However, care should be taken by these owners not to jeopardize the golden goose of conference business specialization for the sake of short-term gains.
Better Bottom Lines
Conference center managers were able to turn the 13.7 percent increase in revenue into a 39.2 percent increase in profits. This was accomplished despite the fact that expenses grew at 8.7 percent, nearly three times the pace of inflation. Exhibiting the greatest gains in profitability were resort and corporate conference centers, which saw their profits grow 108 percent and 45 percent respectively. Historically, corporations viewed their in-house conference center operating expenses as an investment in training. These days, there is increasing pressure on corporate conference center managers to make a profit at their facility.
An interesting dilemma is brewing within the conference center segment of the lodging industry. The pressure is on to produce short-term profits in order to meet the needs of institutional owners with five-year exit strategies. This differs from the industry traditionalists who prefer to stick to their strict principles over the long run in order to preserve the unique competitive advantages of being an IACC-certified conference center.
Overall, the industry can be thankful for a good year in 2005, with another occurring so far in 2006. Our studies continue to show that, with change being inevitable, managing the process, rather than being managed by it, is the key to success for owners, operators, and customers.
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David Arnold is C.E.O. East of PKF Consulting and an industry advisor to the IACC Board of Directors. He is located in the firm’s Philadelphia office. This article first appeared in the October issue of Lodging Magazine. To purchase a copy of the 2006 Trends in the Conference Center, visit PKF’s online store at www.pkfc.com/store.