All across the United States, and around the world, convention centers are vastly overbuilt. Supply exceeds demand. So municipalities that own the centers resort to price-slashing. They often lose money on their centers and have trouble servicing their debts. Nonetheless, new centers keep being built while existing centers undergo expansion.
What is the source of this disquieting information? None other than two trade associations representing the convention and meetings industry: the Destination Marketing Association International and the International Association of Assembly Managers. On August 25, 2007, they put out a report that underscored the industry dilemma. “Supply of available exhibit and meeting space across the nation currently exceeds demand, resulting in a buyer’s market,” laments the report. This buyer’s market “has exacerbated an already competitive environment, resulting in the need to discount rental rates or increase services that can create a competitive advantage.” As margins shrink, problems meeting debt service escalate, says the paper.
Carol Wallace, president and chief executive of the San Diego Convention Center Corporation, is a former president of the International Association of Assembly Managers, which copublished that paper noting the surfeit of convention center space and the resulting profit-and-debt squeeze.
The paper was published before the travel and tourism industry collapsed, points out Heywood Sanders, professor of public administration at the University of Texas at San Antonio and a recognized expert in the convention center business. In 2005, the Brookings Institution published a Sanders study that became a bombshell. He pointed out that attendance at major trade shows was no higher then than in 1993. Nonetheless, localities were engaged in a “type of arms race,” spending more and more to build and expand convention centers, despite the glut. This 2005 paper is in the process of being updated, says Sanders.
Now, in a recession that could possibly become a depression, the convention and meetings business is “manifestly down,” says Sanders. U.S. numbers have declined sharply, and 62 percent of show organizers around the world experienced a business decline last year, with 70 percent predicting a drop through the first half of this year, according to UFI (Union des Foires Internationales), the Global Association of the Exhibition Industry.
“The dynamic is exemplified by San Diego. The worse it gets, the greater demand to build more,” says Sanders. As I interview him, he goes to Google and learns that the Oklahoma City Chamber of Commerce is touting a consultant study that calls for a bigger convention center. There are others: Cleveland is pushing a medical mart, San Antonio wants a bigger center. A number of cities are considering or proceeding with plans for publicly financed hotels next to convention centers: Portland (Oregon), Dallas, Fort Lauderdale, Tucson, Kansas City, and Columbus (Ohio) are telling taxpayers that their convention centers will begin to thrive if there could just be a taxpayer-financed hotel next door. Columbus is claiming that a new hotel will lift convention center occupancy from 60 percent to 70 to 75 percent. San Diego has already subsidized a convention center hotel.
The race to build new convention centers, expand existing ones, and construct taxpayer-subsidized hotels “represents a remarkably narrow and uninformed view of larger market realities,” says Sanders. “In almost every case, a city will commission a consultant study that argues in part, based on inadequate or misinterpreted data, that the national demand for convention center space is steadily increasing and that their city will be able to attract a larger number of events and get a larger economic impact” if it would expand available space. “The reality is that this rarely happens.” And the same consultants keep getting hired over and over by competing cities.
A similar herd mentality has almost run the global economy into the ground. In recent years, economists and executives genuflected at the altar of a number of myths: that housing prices would always rise and people would always pay their mortgages; that gambling on derivatives distributed risk, rather than increased risk, ad nauseam.
San Diego is considering a 500,000-square-foot convention center expansion, along with a hotel that could bring the cost to $1 billion. The expansion would double capacity. The convention center claims it is running at full capacity. Sanders and others, including me, doubt that. “Both the Convention & Visitors Bureau and the convention center tend to count bookings whether or not the people actually show up,” says Sanders.
But even inflated numbers are sagging. ConVis reports that delegate attendance last year was down 3.3 percent. For January of this year, total San Diego hotel occupancy was down 13.7 percent, according to Smith Travel Research, which is not known for pumping up its numbers. Revenue per available room was down 20.9 percent. That last figure was worse than Anaheim, Los Angeles, San Francisco, and Orlando, according to Smith figures. In February, occupancy was down 11.5 percent, and the trend continued in the last week of that month.
In any downturn, commercial travel plummets earlier and faster than leisure travel. “In bad times, corporations immediately start to limit their travel, cancel conferences, cancel meetings, take a planned three-day meeting and make it a one-day meeting. The leisure traveler takes a little longer to react,” says Jerry Morrison, La Jolla–based hotel specialist. Thus, the big downturn in San Diego is fundamentally from the commercial side, he says.
The weakness will persist through this year “and maybe into 2010,” says Morrison. After that, economic growth will probably be anemic for several years. That will hurt commercial travel, including the convention and meetings business.
Typically for San Diego, the mayor has named a 17-person task force to report back on the feasibility of the expansion project. Even more typically for San Diego, almost all of those 17 task-force members are quintessential establishment boosters who have regularly supported corporate-welfare projects, or socialization of the risk and privatization of the gain. The task force includes both the new vice chairman of the Convention Center Corporation and the outgoing chairwoman. It includes four executives from the hotel-motel industry, two from real estate, two associated with the Regional Economic Development Corporation, and one from the San Diego County Taxpayers Association, a group that represents only a handful of taxpayers — super-rich mendicants fishing for fat government handouts.
Since this project would not be up and running for about five years, Morrison, who is not an establishment cheerleader, thinks it is probably a good idea.
But Heywood Sanders, who has an idea of how many new centers may be built and old centers expanded by 2014, says, “Can [San Diego] build an expanded convention center if they can find the dollars to pay for it? Sure. Does it make any sense? Are they going to get any persistent increase in new business? The answer is very clear: no. The bar for dealing with reality in San Diego has never been set very high.”
Even Las Vegas is considering delaying its convention center expansion. But in San Diego, do you think for one minute that the establishment-packed task force will look at the question analytically, taking the market glut into account? Remember, they will be playing with other people’s (taxpayers’) money.