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Is Lancaster County's hotel building boom too much of a good thing?

Hotel Rock Lititz 1

This November photo shows the exterior of Hotel Rock Lititz.

Nobody in Lancaster County’s hotel industry will dispute that 2019 has been a challenging year so far, compared to 2018.

When the occupancy rate slumps 11.0% — from 61.6% in the first eight months of 2018 to 54.8% in the same period this year — it’s hard to say otherwise.

But while there’s a consensus on the kind of year the local hotel industry is facing now, there’s no agreement on what that means for the future.

On one hand, the 2019 occupancy rate is the weakest since 2011. And with 3,500 jobs and millions of dollars of investments riding on the health of the hotel industry, a rate that low is hardly comforting.

“It’s very alarming, very frightening,” said Michelle Gehman, president of the Greater Lancaster Hotel & Motel Association. “It’s going to signify really hard times for the hoteliers for years to come.”

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On the other hand, the 2019 rate looks anemic mostly because it’s being measured against a near-record 2018, a time that was inflated by some unusual and some unique factors. These included major entertainment events that attracted visitors and large construction projects that drew workers.

“Clearly, (2018) was an outsized year,” said Joel Cliff, spokesman for the county’s tourism-promotion organization, Discover Lancaster.

Here’s a look at why the occupancy rate tumbled, what it means for the long-term health of the hotel industry here — a key part of the county economy — and what might fix it.


Tough comparison

Let’s start with some perspective.

The lodging industry analytics firm STR, formerly Smith Travel Research, points out that the occupancy rate for the first eight months of 2018 was a rarity.

Going back to 1987, when STR began tracking Lancaster County’s hotel industry, only the first eight months of 1993 had a higher occupancy rate, at 63.2%.

Cliff, director of communications and advocacy, noted that the hotel occupancy rate in 2018 benefited from several simultaneous events.

Sight & Sound Theatres, the county’s biggest tourist attraction, unveiled a new production, “Jesus.” New productions at Sight & Sound always give tourism here a lift.

Another major local attraction, Dutch Wonderland, had a new rollercoaster, Merlin’s Mayhem, for the full season in 2018, buoying the number of visitors the park drew.

On top of those special draws, a robust economy gave leisure travelers the peace of mind to hit the road and come here.

But leisure travelers weren’t the only kind of hotel visitors, according to Cliff. Hotels also hosted hundreds of guests who came here to work, not play.

Among them were out-of-town construction workers building the Atlantic Sunrise gas pipeline through western and southern Lancaster County, as well as white-collar workers helping to open stores and restaurants at the Shoppes at Belmont and Crossings at Conestoga Creek developments in suburban Manheim Township.

As a result of those factors, the county’s 103 hotels, motels and sizable bed-and-breakfast inns booked a record 1.12 million room-nights during the first eight months of 2018, according to Smith Travel Research.


Nice while they lasted

What’s changed since then? Well, pretty much everything.

Attractions that were new a year ago now are creating a little less buzz. Economic forecasts in recent months have predicted a slowdown ahead, if not worse.

Pipeline construction here ended in October 2018. Belmont, anchored by Whole Foods, is open. The Crossings, anchored by Wegmans, is mostly complete.

Even the arithmetic needed to increase the occupancy rate here got more daunting, as hundreds of new hotel rooms were added to Lancaster County in the past 12 months, Cliff pointed out.

Among them are the Hotel Rock Lititz (139 rooms, opened in November), the Residence Inn at The Crossings at Conestoga Creek (127 rooms, April) and the Lancaster Marriott at Penn Square expansion (110 rooms, beginning in June).

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(The September opening of the 74-room Wilbur Hotel in Lititz happened outside the time period being examined.)

Those three openings were responsible for most of the 482-room rise in Lancaster County hotel-room inventory, which boosted the total to a record 8,101, according to STR’s figures.

That’s a 6.3% jump in supply — far greater than the 10-year average annual growth in supply of 0.9%, as calculated by Discover Lancaster.

Having more rooms available means the county’s hotels in the aggregate have to attract more guests just to keep the occupancy rate the same.

That didn’t happen in the 2019 period.

Lancaster County hotels sold 1.04 million room-nights in the opening eight months of the year, down 7.2% — a much milder dip than the occupancy rate’s slump.

The rooms that were booked during those eight months carried an average rate of about $118 per night, generating $122.3 million in revenue.

Although room demand waned, the volume still was the second most ever here and nearly identical to the same periods in 2016 and 2017.

The occupancy-rate challenge soon will get even steeper, as the 165-room Cartoon Network Hotel on Lincoln Highway East opens this fall, making that arithmetic even more daunting.

Like Cliff, several hoteliers interviewed for this story — Gehman, Diane Poillon of Willow Valley Associates, Steve Sikking of the Eden Resort & Suites and Fulton Steamboat Inn, and Russ Urban of High Hotels — noted that new hotels depressed the occupancy rate in 2019.


Future expectations

The unanimity dissolved, though, when they spoke about the industry’s outlook.

“It’s going to take some time for our market to digest that (new) supply,” Cliff said.

Have too many new rooms been added to the county’s inventory or too many of a certain type?

“It’s too early to tell in either regard,” Cliff said. “Clearly, new properties will have an impact on existing properties. We hope it will inspire some that have the financial wherewithal to raise their game and do some investment on their own.”

Heidi Milley, general manager of the Warehouse Hotel at Spooky Nook Sports, has her fingers crossed that Discover Lancaster is mistaken about 2018 being an aberration.

“I hope that’s not the case. I would hope that this would be the fluke year and next year we’re seeing more growth like we did in 2018,” she said.

Gehman, who leads both the 35-property hotel association and is general manager of the Hilton Garden Inn in Granite Run, said she believes the spate of new properties in the past two years has left the market overbuilt.

She’s worried that rougher times are on the horizon.

“This is occurring when the economy, locally and nationally, is flourishing. If the economic forecasts are correct, and the economy slows, this could get even worse for us.”

But Urban, president and CEO of High Hotels, with three hotels in the county, is much more bullish about the future of the lodging industry here.

Urban sees the Lancaster market as “healthy, stable and becoming very well balanced,” with the new rooms adding to the market’s inventory of better quality accommodations.

He described the 2019 slip in the occupancy rate as “a little bumpiness as all of that new supply gets absorbed” by gradual growth in demand, a process that will take “a couple years.”

That didn’t dampen Urban’s enthusiasm for the big picture, though.

“I think what’s happening here is frankly very exciting,” Urban said. “This is ultimately a great thing for this county.”

Urban wasn’t the only lodging executive here who believes the local hotel market could use additional upscale rooms.

Oak Tree Development created The Wilbur Hotel after coming to the same conclusion.

“There is still a healthy demand within the luxury/lifestyle category of hotels in the region, and The Wilbur ... is reaping the benefit of that pent-up demand,” said Jennifer Buchter, its general manager.


Accelerating absorption

Neither hoteliers nor Discover Lancaster has a magic wand that will instantly bring more hotel guests to Lancaster County.

Discover Lancaster has been spending a steady $2 million annually on marketing in recent years, Cliff said. The money comes from a county excise tax paid by hotel guests.

A couple of years ago, though, Discover Lancaster thought it came up with something that would help.

In 2017, Discover Lancaster asked Lancaster County Commissioners to boost the excise tax from 1.1% to 3.0%.

The hike, Discover Lancaster said, would give it roughly $3 million more a year to spend on marketing — a hike that the organization said it needed to compete with other destinations.

But the proposal never got far.

Some hoteliers opposed the idea, saying their businesses would unfairly bear the risk of a higher tax deterring guests from coming here.

Those hoteliers, who own roughly a dozen hotels, dropped out of the organization, saying Discover Lancaster was not representing their views.

Since these hoteliers were no longer members, Discover Lancaster stopped including their properties in its marketing.

Rather than take sides, the commissioners urged the hoteliers and Discover Lancaster to work out their differences and come back with an agreement supported by both sides.

It never happened.

Meanwhile, the hoteliers had gone to Lancaster County Court. They asked the court to order the commissioners to force Discover Lancaster to include their properties in its marketing.

That didn’t happen either.

In June 2018, Lancaster County Court of Common Pleas Judge Leonard Brown III dismissed the hoteliers’ complaint.

Discover Lancaster recently went back to the proverbial square one.

“Earlier this year, the (Discover Lancaster) board decided that we would no longer pursue the proposal and just continue focusing on effectively using the resources we do have,” Cliff said.

Sikking, a leader of the disgruntled hoteliers and an owner of the Eden Resort and Fulton Steamboat Inn, disagreed that Discover Lancaster is getting the most out of the dollars at its disposal.

Sikking said Discover Lancaster’s marketing punch is being diminished by internal “dysfunction.”

Cliff declined to respond directly, pointing instead to the near-record room demand for Lancaster County hotels so far this year as evidence of the organization’s effectiveness.

Poillon had a more positive view of Discover Lancaster’s performance.

“It’s not that they’re doing an insufficient job,” she said. “I just think that, as an industry, we all need to work together to make sure we’re using our funds the best way possible.”

But she acknowledged that recent turnover in Discover Lancaster’s leadership has caused the organization to “lose a little traction.”

Sikking, Gehman and Poillon all called for the restoration of a working relationship between Discover Lancaster and the disgruntled hoteliers.

(Sikking’s two hotels and Gehman’s hotel remain nonmembers of Discover Lancaster. Willow Valley’s DoubleTree has rejoined the organization but its two Hampton Inns have not.)

The hoteliers say both Discover Lancaster and the disgruntled hoteliers can do a better job with marketing by deploying a unified approach rather than a separate one. Whether that can be achieved remains to be seen.

But since spring, there have been signs of progress toward mending the relationship.