Study: Danville has market for downtown hotel, but it could harm AirBNBs

Published 7:32 am Saturday, November 18, 2017

Danville could theoretically support a downtown hotel, which could attract many people currently staying outside Boyle County or using AirBNBs when they visit, according to preliminary results of a feasibility study. But there are many caveats and execution would need to be perfect to make it a success, consultant Kyle Talente told members of the public and the Convention and Visitors Bureau board Thursday evening.

“If you do it wrong and you don’t deliver the right product, it’s going to be a disaster for that hotel,” Talente said. “… All things being equal, using the assumptions I came up with, a downtown hotel is feasible. There is additional capacity here. It’s not unrelenting capacity — you have to be very smart about it, but (it) is there.

“And a downtown location will expand market offerings for folks that  want to be able to walk to the restaurants and bars and the shops here. It’s an experience they can’t get today.”

Talente’s firm RKG Associates is being paid $15,000 by the CVB to conduct the feasibility study, which is expected to be complete before the end of the year.

For his presentation Thursday evening, Talente combed through data about Danville’s hotel market he acquired from the private data vendor Smith Travel Research. The data show that Danville currently has a very healthy market, in terms of occupancy rates and “RevPAR,” a technical measure in the hotel industry that indicates how efficiently hotels are making money off the rooms they have available.

The RevPAR and occupancy rates dipped this year because the new Holiday Inn Express opened, growing the number of hotel rooms available by 20 percent, Talente said. But occupancy remains above the 60-percent level that is considered healthy, he explained.

Talente said his research shows Danville could add a downtown hotel with 20, 35 or even 50 rooms without threatening the livelihoods of the area’s six big hotels.

“The faster you want to do it, the smaller I would encourage you to do it to protect the market,” he said. “… Right now, all things being equal in Kyle’s perfect little linear-regression world, if you wanted to do a 30-room or 40-room facility, you’re probably looking 18 to 36 months (out) to minimize potential impact”

Talente said if Danville does not add another hotel and there are no significant changes to current trends, the local hotel market will be back above 75-percent occupancy by 2022.

“You need to be careful about the size of hotel you try to bring into your downtown. If I put a 50-room hotel in (two years from now), your occupancy would drop down to about 60 percent — still within the healthy marketplace, but definitely not the type of success that we have been experiencing in the past,” he said. “For me, the takeaway from this is 50 would be my absolute upper limit of what I would try to recruit to this community if I was going to try to do it over the next two to four years. I would not want to go any bigger than that.”

Talente said a downtown hotel would need to be a “boutique,” “upper-midscale” business, offering a different kind of experience than what is already offered by the hotels on Danville’s bypass.

There would be some “cannibalization” by a downtown hotel — it would take some customers away from the other hotels, Talente said. But such a facility would also attract visitors who are currently staying at places like the Beaumont Inn in Harrodsburg and in AirBNB units — typically private homes and apartments rented out via websites.

“We’re going to probably be taking a whole lot more away from” AirBNBs than from full-size hotels, he said. “It could put some of them out of business. There is a potential for that.”

Talente said “the beauty of” AirBNBs is that they are mostly converted residences, and could easily be converted back into permanent residences if the daily rental market dries up. The same cannot be said for massive hotel buildings if something were to harm hotels’ profitability.

Because a new hotel would have to be so small to be viable, it would almost certainly have to be an independent business, not part of a national chain. That prevents it from taking advantage of “brand loyalty” travelers; and it would have to be funded by someone with deep enough pockets to do it on their own, Talente said.

Other obstacles identified by Talente include:

• AirBNBs could continue to proliferate and eat into the available market.

• Danville doesn’t have a lot of location options — the hotel would need to be located within walking distance of most downtown amenities.

• If a new hotel were opened in Mercer County or Lebanon, that would make the idea completely unsustainable.

• An unpredictable downturn in the economy could change the calculation.

“From this analysis, there is a market for a new downtown hotel,” Talente said. “It’s all about scale, timing and quality.”