Room to Spare?
The ongoing boom in convention center construction and expansion may create a surplus in some markets.
If you thought the construction of new and expanded convention centers was tapering off, you haven’t seen anything yet. North American exhibit space is expected to increase to 81.9 million square feet by 2005, up from 65.5 million square feet in 2000 and 61 million square feet in 1995, according to Tradeshow Week’s 2001 Major Exhibit Hall Directory.
“North America has 397 facilities with more than 25,000 square feet, and 27 more are under development or expansion,” reports Michael Hughes, director of research services for Tradeshow Week. Hughes sees the anticipated growth as a kind of double-edged sword–great for top-tier cities that are doing well; less auspicious for smaller markets.
In some of the leading cities, San Francisco and Chicago, for example, many of these venues are booked solid, and there are very few open dates. “[But] I think that in some second-, third-, and fourth-tier markets, there may be overbuilding going on,” he adds.
Why So Much Space?
Even with the slowing economy, it is easy to see why cities have a love affair with the centers. According to the International Association of Convention & Visitor Bureaus, meeting and trade show delegates each generate an economic impact of approximately $1,200 per visit.
And there are other factors behind the expansion boom. When one venue expands in a region, Its competitors follow. The many new venues and expansions tied to downtown redevelopment projects are a contributing factor, as has been the remarkably steady growth in trade show and meetings business, at least until the recent downturn.
Douglas Ducate, president and CEO of the Center for Exhibition Industry Research, Chicago, says that cities do what is politically possible, not necessarily what the market immediately demands. “Convention centers are usually built with tax dollars, and for the last 20 years the strategy has been to do a center that is financially reachable today, and which can be expanded in the future. So a tremendous number of the convention center expansions seen today are totally predictable. In many cases, when phase one opened, phase two began, and cities like Las Vegas, Chicago, Dallas, New Orleans, and Orlando went on to phase three and beyond.”
It’s good business sense to take the longer view of these convention centers, agrees Steve Morris, CEO, Seattle King County CVB. “Even where there is a glut or over-expansion, these facilities have a very long-term horizon,” he says. “Since they’re built with 20 year bonds and have a life cycle of that length, if there is a brief window of two or three years, but over the life of the facility they expect to be booked, then the glut may be short-term…. Each community needs to look at what they expect out of that facility in the long term.”
One city where a second convention center is heating up civic temperament is Boston. The new Boston Convention & Exhibition Center is expected to have 515,000 square feet of space and is under construction just a mile and a half from the 192,000-square-foot Hynes Convention Center. In Boston, the question is not whether the new center is adding too much space, but whether it will have enough to attract sufficient business to both facilities.
“By building a facility that can only serve the middle of the market, Boston is severely limiting its future prospects,” said Charles Greco, president of Farmingham, Mass.-based IDG World Expo, in a Boston Globe newspaper article earlier this year. “They may be able to move some shows out of the Hynes and into the new building, but they won’t ever be able to attract the megashows, which is where the real growth opportunity is.”
Currently, 45 percent of North American exhibit hall venues have between 100,000 and 499,000 square feet of space, with the second-largest percentage of venues having between 50,000 and 99,000 square feet of space, according to the Exhibit Hall Directory. Hughes sees the major growth in demand to be in venues with more than 500,000 square feet. These venues now account for about 6 percent of facilities in North America.
The large increase in space is giving event managers new opportunities for deal-making. “From an association meeting point of view, having a glut of space is a wonderful thing,” says Chris Vranas, associate executive director, American Association of Orthodontists in St. Louis, Mo. Vranas, whose annual meeting draws 18,000 participants, thinks it’s a buyer’s market. As a result, he says he’s getting concessions in rental space, promotional assistance, and planning trips leading up to his conventions. Added Convention space in Philadelphia, where his convention is booked for 2002, and in Orlando (booked for 2004), and in New Orleans (2006) is also helping drive hotel rates down, he says.
One center that doesn’t give concessions now, but might if the economic downturn continues, is the Donald E. Stephens Convention Center in Rosemont, Ill., a suburb of Chicago. This summer the center completed another expansion, growing from 705,000 square feet to 845,000 square feet of exhibit space.
“Our biggest concern is that the larger exhibiting companies will downsize in terms of space they will take. It’s hard to tell how the economy, which is delayed in its effects will work out. It’s not a problem now, but going into our heavy fall period it may change by Thanksgiving,” explains Peter Lombardi, executive director of the Rosemont CVB. “If a slowdown occurs, we might think about concessions concerning hall rentals, We have to live in the marketplace and would reluctantly look at that,” he says.
In the case of Savannah, Ga., the 330,000-squarefoot convention center, which opened in May 2000, was (developed to fuel growth beyond the city’s traditional tourist base. “We knew that we had our challenges ahead of us. We’re making the transition from being a tourism destination with some, meetings business to being a serious contender in the national [meeting] market,” says Claudia Arguelles, director of marketing.
Arguelles acknowledges that regional competition from the Carolinas and Florida led the new center to create an introductory promotion package. For the first year, as long as the event is booked before June 2002, groups can take advantage of the “Twelve Bucks A Head” package, which includes exhibit space, morning coffee break, audiovisual, pads and pens, and free parking.
Even in some top-tier markets there may be some new flexibility, given the boost in exhibit hall space.The Las Vegas Com ention Center will open an adclitional 1.3 million square feet in December for a total of 3.2 million square feet. Next summer the Mandalay Bay Resort & Casino will debut the largest convention center on the Las Vegas Strip-with 1.8 million square feet of exhibit space.
“The availability of so much space is making date availability much more flexible,” notes Brian McNamara, vice president of expositions, International Sign Association, Alexandria, Va.
But many convention authorities feel they’re right on target with their increased growth in facilities. Minneapolis is expanding its convention center from 800,000 to 1.4 million square feet. “When it opens in April 2002, we see a record year for additional group business,” predicts Peter 1-ledlund, vice president, sales, Minneapolis Convention Center.
How will the sluggish economy affect convention center business over the next 24 months? Michael Hughes of Tradeshow Week believes that “it’s all up to corporations. Will they allocate more money for shows? It’s tied to corporate marketing budgets, as well as business travel and employee training. In a downturn when marketing, travel, and training are reduced, these cutbacks affect the lifeblood of the trade show.”
Hughes says major centers will continue to expand, but centers in a number of midsize and smaller cities “have seen their last growth for the current decade.”
Editor’s Note: This article was reported prior to the events for September II.
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