Pack your bags

NoVa hotels anticipate business travel rebound

Published April 27, 2023 by Laura Anders Lee

Although hospitality in Northern Virginia is taking its time toward a full comeback, there are a few signs that the industry is bouncing back — chiefly midweek hotel bookings.

Business travelers, the bread and butter of Washington, D.C.’s hospitality industry, are more likely to purchase last-minute plane tickets that cost more, spend more on meals they can expense, and book meeting space. They also tend to book rooms during the workweek.

For companies like Bethesda, Maryland-based Donohoe Hospitality Services, which operates five hotels in Northern Virginia, including the Homewood Suites by Hilton in Reston, midweek revenue stream is key.

“Looking at the largest hotel in our portfolio, as of March we’re at 92% of what we were in 2019 with government business,” says Donohoe’s president, Thomas Penny. “Things are starting to change in D.C. People are tired of working in their PJs at the kitchen table and want some human interaction.”

He also notes that since COVID-testing requirements have been lifted, Donohoe properties have seen more international business and leisure travelers.

In late February and early March, occupancy in Arlington County was about 65%, compared to the mid-40% range for the same period last year, and the average daily room rate was in the mid-$170s — up about 25% from a year earlier.

“We are also seeing occupancies well above that figure on Tuesday and Wednesday nights, which are core nights for business and group travel,” says Dan Roberts, vice president of research and strategy for the Virginia Tourism Corp.

A ways to go

Despite the signs of good news, the D.C. region is still lagging behind the rest of the state’s hotel business.

“When looking at the current numbers, Northern Virginia was the only major market in the state that had not fully recovered since 2019,” says Vinod Agarwal, director of Old Dominion University’s Dragas Center for Economic Analysis and Policy.

January and February data compiled by STR indicates Northern Virginia hotel revenue was down 4.3% over the same months in 2019. By comparison, hotel revenue in Hampton Roads was up 38%, and hotel revenue statewide was up 14.9%. However, Agarwal says the increases are likely due to higher room rates rather than more occupancy.

Northern Virginia’s hospitality industry leaders attribute the slow recovery to a lag in business travel, trade shows and meetings.

“Government and corporate employees are the driving force to our industry in Northern Virginia,” says Eric Terry, president of the Virginia Restaurant, Lodging & Travel Association. “While we’re starting to see a return of larger trade shows and associations, as well as groups coming to D.C. for their day on the Hill, we’re still digging our way out a little bit.”

In 2022, Washington, D.C., was the third lowest performing major hotel market in the nation. Terry says this is directly related to the number of employees working from home, noting that remote workers aren’t hosting meetings or traveling much.

In 2021, 48.3% of D.C.-area workers continued to work from home — the highest percentage of any U.S. city, according to the Census Bureau. The 2022 Census numbers haven’t yet been released, but according to Fairfax-based property management company Kastle Systems, the district’s office occupancy was between 30% and 47% last year.

As more federal employees and other workers return to the office, Terry expects more business travel and meetings to follow.

Expense account travel

While destination marketing organizations and hoteliers say leisure travelers to Northern Virginia are back, they’re eager to book more meetings and business trips.

“In February, our tourism numbers were down 6% to 8% from 2019, and this shortage is indicative of business travel,” says Visit Fairfax President and CEO Barry Biggar. “My humble prediction is we’ll see an increase in 2023 in business and international travel, but it will take until 2024 to get back to pre-COVID numbers.”

While leisure trips account for 80% of travel, recreational tourists spend less than business travelers, according to the U.S. Travel Association. In 2019, domestic business travelers spent $719 on average per trip compared with $344 for domestic leisure travelers.

Pete Madigan, vice president of Falls Church-based Uniwest Hospitality, which operates six Hilton-branded properties in Northern Virginia, says that while other hotels in the state have increased room rates to compensate for lower occupancy, hotels that cater to government employees are limited because of the federal government’s per diem rates, which vary by time of year and location. The D.C. area’s lodging per diem rate ranges between $172 and $258. 

“This puts a real strain on the hotels,” Madigan says.

Northern Virginia hotel occupancy rates in February were just under 58%, with an average daily rate of $126.13. This is a significant increase from 47.9% occupancy at $106.62 per night for February 2022.  

Roberts says that even though February revenue is down in Northern Virginia, occupancy rates are approaching levels from February 2019, which were around 58%.

“These are lower-volume months, so that might not seem like much,” Roberts says, “but this is a great sign that Northern Virginia is recovering nicely, because winter travel is going to lean more business versus leisure.”

Northern Virginia’s hotel occupancy rates for Sunday through Thursday are another important indicator of business travel, Roberts adds. “Business travel is a core strength of the Arlington market, in particular, and is one of the major milestones to the commonwealth’s full recovery.” 

Penny notes that “bleisure travel” — combined business and leisure travel — is helping boost stays at Donohoe properties from Thursday to Sunday, which have recovered better than Monday through Wednesday occupancy. 

Confident in the area’s comeback, Donohoe is opening two hotels with a combined meeting space of 14,000 square feet. The Bingham Hotel will break ground in Arlington this year, and the dual-branded AC Hotel and Residence Inn opens in Reston next year.

“Reston has more Fortune 500 companies than anywhere in the state, and our hotels are positioned right at their front door,” Penny says.

Northern Virginia is home to 13 Fortune 500 companies, including Freddie Mac, Northrop Grumman Corp., General Dynamics Corp. and Capital One Financial Corp. Amazon.com Inc. is set to open the first phase of its $2.5 billion HQ2 East Coast headquarters in Arlington in June, and Raytheon Technologies Corp. and Boeing Co. moved their respective corporate headquarters to Arlington last year.

As the hospitality industry narrows the gap on government and corporate bookings, it’s working collectively to rebuild the industry’s workforce and fill 10,400 jobs lost statewide since March 2020.

“The pandemic gave us a deeper understanding we have to work together, whether that’s recruiting or retaining workers or bringing in as much business as we can,” Penny says. “Our industry is critical to the vitality of this country.”  

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