Atlanta’s Hotel Market Struggles Amid Hybrid Work Model and Falling Occupancy Rates

Atlanta’s Hotel Market Faces Challenges in 2024

Atlanta, known for its vibrant culture and booming economy, is currently feeling the effects of changing times, particularly in its hotel market. The bustling area of Central Perimeter, which is a significant corporate hub, has faced some gale-force winds that have left hoteliers struggling to keep their heads above water.

Home to over 25 million square feet of office space, Central Perimeter boasts the headquarters of several Fortune 500 companies, including UPS, WestRock, Newell Brands, and the Intercontinental Exchange. Just this week, Asbury Automotive, yet another Fortune 500 company, announced its plans to buy an office building in the area for its headquarters. Sounds promising, right? But not exactly for local hotels.

The Empty Hotels Dilemma

At the recent Bisnow Atlanta Retail and Hospitality Conference, it was revealed that the local hotels have been experiencing a serious drought in business. Hunter Hotel Advisors CEO Teague Hunter didn’t mince his words when he said, “All the hotels are empty. The mall is empty. Everything’s empty.” Yikes! This stark statement illustrates the current crisis affecting hotels that have long relied on business travelers. Office attendance, while on a slow rebound post-pandemic, has remained inconsistent. According to CBRE Senior Vice President Amy Fingerhut, only about 60% of office buildings see daily occupancy these days.

One of Central Perimeter’s largest employers, State Farm, has adopted a hybrid work model since 2021, resulting in fewer employees showing up at the office. The infrequent office commuting has put a significant dent in hotel revenue and has also contributed to declining property values, with Hunter noting, “You can all see and touch and feel a giant billion-dollar new office building. It’s empty.” Wow, that hits hard.

The Numbers Tell the Story

Let’s get into some numbers. Hotels in Buckhead, Midtown, and Downtown charge an average daily rate of about $193 per night, while those in Central Perimeter sit much lower at an average of $115. This is a stark drop from pre-pandemic times when Central Perimeter hotels were averaging $123 nightly in 2019, as reported by CoStar.

For example, the Hyatt Regency Atlanta, valued at $48 million, has taken a hit and “tanked” according to Legacy Ventures CEO David Marvin. While the Hyatt Place Atlanta Perimeter, also owned by Legacy, is faring slightly better, it’s still feeling the pressure. Marvin states, “We’re not doing great, but we’re buoyed by the fact that we have the additional demand generator of being within walking distance of local hospitals.”

The Value Decline

Now, let’s talk about how all this stress is affecting hotel values. The Le Méridien Atlanta Perimeter hotel, purchased pre-pandemic for $50 million, had to be sold this year for just $22 million. It’s a trend that seems to be repeating across the area, according to Hunter, who says this kind of value drop is common in Central Perimeter. Talk about a rough ride!

Despite the gloom, there’s a glimmer of hope on the horizon. Metropolis Atlanta’s overall hotel market has remained relatively stagnant over the past year, with occupancy rates down nearly 2% compared to last year, and a 3.4% dip in revenues per available room. While business travel may still be sluggish, a rise in convention activities is predicted to boost hotel occupancy, especially with Atlanta set to host eight World Cup games in 2026!

Looking Ahead

Some areas are seeing more success than others. Buckhead hotels are expected to continue facing intense competition, while some hotels in suburban areas like Lawrenceville and Kennesaw are performing surprisingly well. Peachtree Group’s Chief Investment Officer Brian Waldman mentioned, “Those hotels are performing really well. I think it’s having the right product in the right location.” Sounds like strategy is key in these turbulent times!

As Atlanta and its resilient spirit carry on, only time will tell if the hotel market will bounce back. For now, it’s all about riding the waves of change and keeping the hopes for brighter days alive!