Salt Lake City 2002: Lessons From Past Olympic Hosts

Salt Lake City 2002: Lessons From Past Olympic Host Jones Lang LaSalle Assesses Potential Impact of Olympics on Salt Lake City's Real Estate Markets CHICAGO, February 22, 2002 - Salt Lake City's real estate sector should enjoy lasting benefits from hosting the 2002 Olympic Winter Games, according to research conducted by Jones Lang LaSalle Hotels. "While the Winter Olympics may last only 17 days, the effects on the real estate markets of the host city are felt long after the final gold medals are awarded," said Melinda McKay, Senior Vice President, Jones Lang LaSalle Hotels. "By looking at the experiences of past winter and summer Olympic host cities, we can make some well-informed predictions about the impact the Olympics will have on Salt Lake City." The eyes of the world are on Salt Lake City. "Massive domestic and international exposure are one of the key windfalls for Salt Lake City," noted McKay. "It is estimated that three billion people will tune in to the Salt Lake Games, making it the most watched Winter Olympics in history. It will have 50 percent more coverage than the 1998 Nagano Games and a massive 170 percent more than the 1994 Lillehammer Games. You simply cannot buy this type of publicity. The potential implications for the region's real estate industry are tremendous, particularly in the hotel sector." The Olympics acts as a virtual advertisement for the city. "In addition to the influx of people attending the Games, this international exposure gives Salt Lake's hotel and convention industry a much needed shot in the arm," said McKay. "In the case of the Sydney Olympic Games, the 3.7 billion pairs of eyes that followed the Games generated a massive US$2.4 billion worth of publicity for Sydney between 1997-2000." More than any other Winter Olympics, the 2002 Games has tremendous implications for the longer-term health, stability and growth of the city's tourism and hotel industry. In one definitive stroke, the Olympics provides the opportunity to change the perception that Salt Lake City is not a 'fun place' to visit. -- more -- Salt Lake City 2002 - Lessons From Past Olympic Hosts - Add One As the following graph demonstrates, international visitor growth to host cities increased by an average of almost 25 percent in the second year after the Games. In Salt Lake City, however, the threat of terrorism has arguably acted as a deterrent to Olympic visitation (as evidenced by the recent reduction in ticket and hotel room demand), despite the fact that organizers have spent $300 million on security. Safety concerns, combined with the deteriorating economic climate, might result in Salt Lake not achieving its anticipated 70,000 daily visitors. International Visitor Growth Pre, During & Post Summer Olympic Games [REMOVED GRAPHICS] Hotel Market The hotel industry is clearly the most affected by an Olympic Games, due to the direct impact of Olympic-related visitors and the resulting demand for short-term accommodations. Once the Olympics are over, however, the impact has varied significantly based on the maturity of the local tourist market, the degree of Olympic-induced hotel supply and how well the region leveraged the Games for its tourism industry. A look at history demonstrates that hotel room supply gains precede the Olympics Games. In the four past Summer Olympic host cities, hotel room supply increased by 15 to 35 percent in the two years leading up to and including the Games. While increased room capacity provides a strategic advantage for a city in terms of its ability to attract and host major events, all host cities suffered a decline in average occupancies during the Olympic year. Occupancy levels typically have recovered in the years following the Games. Salt Lake City has indeed experienced supply additions over recent years, with the room stock increasing by 64 percent since 1994. Recent additions include the 775-room Grand America Hotel and the 359-room Marriott City Center, along with a number of extensive refurbishments. According to the Salt Lake Convention Bureau, every major convention hotel in Salt Lake City is new or has been remodeled since 1999 in preparation for hosting the Games. "While this may result in a short- Salt Lake City 2002 - Lessons From Past Olympic Hosts - Add Two term glut of hotel rooms, it also provides a strong anchor for the city's tourism and convention industry," said McKay. Hotel performance levels also tend to peak during the Olympic year. During this year, revenue per available room (RevPAR) increased between 10 and 20 percent in the past four summer Olympic host cities. This will be welcome news for Salt Lake City, which has experienced a 2.2 percent decline in RevPAR during 2001. "Experience suggests that hotel markets have tended to fall into a trough in the year following the Olympics, not surprising in view of the artificial peak created by the Games," said McKay. "However, the markets tend to recover quickly, creating a strong growth position for the years following the Games in which general market cycle influences prevail." The Olympics is widely recognized as a strong growth driver for a city's convention market. In addition to providing a legacy of sporting, tourism and municipal infrastructure, it also demonstrates the city's ability to host major world-class events. Atlanta used the Olympics to leverage its convention business, registering a record number of conventions the year immediately following the Games. Sydney, the most recent city to host the Games, has enjoyed substantial tourism gains from the Olympics, with arrivals to Australia increasing 11 percent during 2000, and an expected record year of conventions in 2001. Evidence is already mounting that Salt Lake's convention sector has and will continue to be positively impacted. Since winning the right to host the Games, convention capacity has expanded considerably. After the Games, there are 27 major conventions of a minimum 1,000 delegates or more. And 2002 will be a record year in terms of convention delegates, despite the fact that the U.S. is in a recessionary environment and that the Olympics swallowed the first three months of the year. Office Market "In addition to the increase in tourism, the Games can be effective in driving capital to the city when sound business reasons support the move," said McKay. Office markets can receive direct benefits from the major improvements in transport and telecommunications infrastructure made by host cities. Atlanta, for example, spent a total of $1 billion on capital works to accommodate the Olympics. These improvements are commonly credited with propelling Atlanta into the international business arena. Salt Lake City may experience parallel benefits. "Although Salt Lake City already has a well-developed office market, the improvements to the city's infrastructure, including a billion-dollar freeway rebuild and a new light-rail system, should make the city more attractive to businesses," said McKay. "Salt Lake City enjoys a high quality of life, physical proximity to other expanding markets, a pro-business environment (which includes below-average business costs), a well- educated workforce Salt Lake City 2002 - Lessons From Past Olympic Hosts - Add Three and a good infrastructure base. This will help drive economic growth that exceeds the national average." The Olympics will provide a significant short-term economic boost to Salt Lake City, estimated to be as high as $4.5 billion, a much-needed injection in a recessionary environment. It will generate 35,000 job- years of employment and $1.5 billion in income to local workers and businesses. Olympic-generated re-investment in the city's infrastructure and services in the amount of $75.9 million will also help buoy local industry. "As a result of the Olympics injection, its above-average economic growth and the increasing diversification of its economy, existing firms will continue to expand and Salt Lake will continue to attract relocating business" concluded McKay. Salt Lake City has certainly geared up for an increase in business activity. Over the last four years, office market supply has increased by approximately 20 percent, although construction has slowed markedly in 2002. As a result of this considerable building, vacancy is expected to peak at an all-time high of 22.1 percent in 2002 and continue to rise over the next few years. However, rents have shown consistent annual growth over the last decade. History shows that the office markets of host cities do not benefit automatically from the Games, particularly when overbuilding occurs. Barcelona discovered this the hard way when the Olympic-inspired economic boom of 1986-1990 led to a major increase in construction of office space. The success of early projects stimulated further construction, leading to increases in vacancy rates to 10.4 percent in 1992 from 0.7 percent in 1989. It was not until 1994/1995 that the market once again reached equilibrium. Residential Market While the Olympics can provide a short-term boost to some rents and prices in host cities, the most significant impact of the Games lies in the development of new districts around the Olympic corridor. Both Barcelona and Seoul constructed Olympic Villages that have developed into full-scale new urban centers. On a smaller scale, Sydney also has seen an increase in residential stock built along the Olympic corridor. Because Atlanta primarily used existing facilities to house athletes, it did not experience the mass residential construction around its Olympic precinct. The Olympics did, however, help to create a more attractive inner city residential environment through improvements to public transportation, retail amenities and public areas, such as parks and pedestrian walkways. Salt Lake City has not suffered the weight of significant overbuilding in anticipation of an Olympic-induced windfall. Apartment supply has increased at a compound average annual rate of 2.4 percent Salt Lake City 2002 - Lessons From Past Olympic Hosts - Add Four over the past five years. Despite this, vacancy peaked in 2001 at 6.7 percent and rental growth slowed to 1.1 percent. A number of past Olympic host cities have converted their Olympic Villages into new residential neighborhoods or college housing. Salt Lake City is following suit -- their Olympic Village, built on the campus of the University of Utah, will be used as dormitory space when the Olympics are over. Retail Market "With the exception of Barcelona, the Olympics have not resulted in significant levels of additional construction in the sector," noted McKay. The most direct impact is a short-term boost to retail spending resulting from increased tourism, especially to retail outlets closest to Olympic venues, hotels and dining. Retail sales in Atlanta were boosted by an estimated $2 billion in 1996, expanding at twice the national average in the Olympic year. Similarly, the Sydney Olympics resulted in a net increase of $88 million in retail sales in the month of September 2000 alone for the state of New South Wales. Interestingly, some sectors saw a decline in turnover due to switching of expenditure (e.g. from fresh food to fast food in restaurants). The Sydney Olympics showed that those retail facilities that were easily accessible by public transport and located in entertainment precincts were the winners. Post-Olympics, the increase in tourism and convention business will have a more lasting impact on Salt Lake City's retail sector. McKay stated, "In addition to the temporary boost in spending brought about during the Games, retail markets may be buoyed long-term by the improved flow of visitors to the city after the Olympics are over." Jones Lang LaSalle has produced an in-depth report on the impact of the Olympics Games on real estate markets. The report, "Reaching Beyond the Gold: The Impact of the Olympic Games on Real Estate Markets," examines the legacies of four recent summer Olympic hosts - Seoul (1988), Barcelona (1992), Atlanta (1996) and Sydney (2000). It also provides a guide on how cities hosting major world events, not just the Olympics, can capitalize on the experience and learn from the lessons of the past. The report is available online at www.joneslanglasalle.com. Jones Lang LaSalle Hotels, the world's leading hotel investment services group, provides clients with value-added investment opportunities and advice. In 2001, its success story includes the sale of 7,972 hotel rooms to the value of US$1.3 billion in 39 cities and advisory expertise on 100,550 rooms to the value of US$26.3 billion across 255 cities. Jones Lang LaSalle Hotels' services include transactions, mergers and acquisitions, financial advice and capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection and industry research. Jones Lang LaSalle (NYSE: JLL) is the world's leading real estate services and investment management firm, operating across more than 100 key markets on five continents. www.joneslanglasallehotels.com ### ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/22/20020222BIT01040/bit0001.doc http://www.waymaker.net/bitonline/2002/02/22/20020222BIT01040/bit0001.pdf