This proposed convention-center expansion is being discussed, despite a global surplus in convention space and falling rents.
Late last year, the Port of San Diego put out a so-called fact sheet touting the proposed $520 million expansion of the convention center. The port listed reasons why the expansion should be important to San Diegans. Last on that list was the claim that the project is expected to “meet the global demand for convention center space.”
Oh? Are the port and convention center sure that there is a big demand for convention center space? In fact, there is a huge glut of convention center space, and the port and the convention center know it.
The Center for Exhibition Industry Research, which is allied with the convention industry, has put out an analysis of the 2012 exhibition industry and the future outlook. The center studies international as well as domestic convention center business.
“Even the industry says how bad the convention and trade-show market is,” says professor of public policy Heywood Sanders.
Says the center’s chairman, Greg Ortale, in his message to the industry: “In the current buyer’s market, unrealistic concessions [price slashes] are being made to book business. That practice cannot continue over time…the current excess supply [emphasis mine] is more likely to come into balance through a reduction in inventory [closure of convention center facilities] rather than an increase in demand [emphasis mine] as destinations accept that they no longer can keep investing in a facility if they cannot market it at a fair price.”
In short, convention centers are slashing prices because there is far more supply than demand. That demand [attendance] won’t rise significantly, so some centers have to close.
“Even the industry says how bad the convention and trade show market is,” says Heywood Sanders, professor of public policy at the University of Texas at San Antonio and the nation’s expert on convention centers. His 2005 report for the Brookings Institution remains the seminal work on the industry glut. He will be updating that study. Next year, he is coming out with a book, Convention Center Follies, to be published by University of Pennsylvania Press.
The industry admits business will remain lousy, but new centers continue to be built while existing centers are expanded. “There is nothing about this business that makes economic sense,” says Sanders. “This has never been more apparent than on the West Coast, where all the [major] centers are expanding at the same time while they are obliged to give away their space for free.”
The market is so glutted that San Jose has resorted to offering convention space for free.
San Jose has expanded and renovated its center. Its promotions shout, “FREE Convention Center Rental. That’s right, FREE!” To celebrate its expansion, it is slashing center rentals to zero while giving away many services: tables, chairs, linens, wireless in public areas, telephone, coffee availability, and much more — all FREE! San Francisco, which plans to expand its Moscone Center, is putting together a Convention Incentive Fund to provide “rental offsets in order to attract meetings,” the city says in one document.
Anaheim plans another expansion of its center. Los Angeles wants to tie an expansion to a subsidized football stadium, but if that kinky deal doesn’t go through, it wants to expand its current center.
San Diego wants a half-billion-dollar expansion but is slashing prices aggressively. A center document from this year outlines how rental discounts can be more than 40 percent of gross rents. Says the center, “The use of rental credits has grown over the last decade as competition increased and the economic downturn reduced event attendance.”
A recent story in U-T San Diego shows how rent for Comic-Con, San Diego’s major attraction, has been sliced in half from $300,000 to $150,000. But the deep slash is worth it, according to Joe Terzi, president of the San Diego Tourism Authority, because the hotels and restaurants benefit.
This is a classic example of downtown corporate welfare. The taxpayer-supported center takes it on the chin, but that’s okay because privately owned hotels and related businesses are reaping the harvest. It’s proposed that the center’s expansion be financed by $30 million a year from hotel taxes, $3.5 million from the City, and $3 million from the Port of San Diego. The fact that citizens could not vote on the hotel tax — although extremely dubious — was upheld by a court.
But this money could be used to do something for the public, such as helping close the $1 billion infrastructure deficit, tackling the homeless and affordable-housing crises, and helping run-down neighborhoods.
The questionable method by which hoteliers — not the public — voted on the room tax is in practice elsewhere, notes Sanders. Downtown boosters in various cities “don’t have to sell it to the public — there is never a public vote — they only have to sell it to a handful of elected officials, and [those officials] have to sell it to the hotel owners,” says Sanders. The hoteliers will rake in the bucks if the project succeeds only moderately, although those prospects are ever shakier.
If the publicly financed and money-losing project brings in even a few more conventioneers, “effectively, taxpayers pay for hoteliers to get rich. Is the City of San Diego spending that money on other things that might be more beneficial?” asks Sanders.
San Francisco is trying to develop a fund to subsidize large-scale conventions.
I emailed Terzi and asked whether he has shared information on the glut with San Diegans. He did not reply.
I emailed two communications officials, Michelle Ganon at the port and Marit Hill at the convention center, and asked them where I could find information on the purported “global demand for convention center space.” I told them I could only find references to the glut-caused, self-destructive price slashing, with no expectation of an increase in demand. They did not reply.
“You create a fantasy and everybody in town buys into it,” explains Sanders, noting how business, labor, and other constituencies conspire to make an economic boondoggle gather unstoppable political momentum.
Meanwhile, across the country, convention center space continues to mushroom into the glut, as prices fall. Cleveland has just opened a $465 million government-financed convention and health center. Now politicians say the public should subsidize a 600- to 700-room convention hotel. Chicago, $1 billion in the red, has closed 50 schools and laid off 1000 teachers. But it thinks that plunking $100 million of public money into a basketball arena near its flagging McCormick Place convention center will pay off.
And then there is the promotion that touts the COBO Center, located “in the heart of vibrant downtown Detroit.” Huh? Indeed, that’s the word for all this convention center activity: Huh?