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Market Snapshot: Alexandria, Virginia

The Alexandria hotel market has shown relatively good health despite the ill effects of the recession. The stability of local demand generators and continuing developments are a major reason why.

Like many metropolitan suburbs across the nation, Northern Virginia has felt the effects of the recession, with unemployment rates reflecting a significant increase in 2009. Unlike other metropolitan suburbs, however, Northern Virginia continues to add jobs, albeit at a more modest pace than in previous years; for instance, the General Services Administration (GSA) and Hilton Hotels Corporation will bring a significant number of jobs to the area over the coming months. Hence, the pace at which jobs are added to the market is only slightly behind the pace at which they’re being lost.

To stay afloat during the recession, some local companies have adopted alternative cost-cutting tactics in lieu of workforce reductions. The Corporate Executive Board, for example, whose offices are located in a recently constructed building near the Key Bridge in Arlington, is subleasing unused space. Such indicators suggest a level of local and regional stability that is respectable in the current economy and should prime the area for a rebound once the economy improves.

Alexandria Hotels and Demand Generators

One city in particular seems to be weathering the storm: Alexandria. Anchored by a plethora of law firms, trade associations, charity organizations, and government entities, Alexandria has maintained the lowest office vacancy rate and one of the highest office rental rates of all Northern Virginia submarkets within the D.C. Metro region. A major component of Alexandria’s success is the continued development of local transportation and several citywide master-planned projects, including Landmark/Van Dorn, the Waterfront, Potomac Yard, and Carlyle/Eisenhower East. This is good news for the hotel market, which draws heavily on these demand generators.

The Carlyle/Eisenhower East development has positively impacted lodging trends in the area. The 230-acre master-planned development includes office, residential, retail, and hotel construction. The stability of the development’s tenants, which include the U.S. Patent and Trademark Office and expanding law firms, has fueled and sustained corporate and government demand for area hotels. At the start of construction, groups such as Starwood and Marriott went full force in building hotels that would support demand generated by this 2.5-million-square-foot development. The Westin opened in November of 2007 and the Residence Inn Alexandria @ Carlyle opened in November of 2008. The Lorien Hotel & Spa, a Kimpton property, opened in February of this year, operating in Old Town near two other Kimpton hotels, the luxury Morrison House and the upscale boutique Hotel Monaco.

Hotel Performance and Development

When plans for new development were in the early stages several years ago, owners didn’t foresee a crash in the economy. Rather, Alexandria looked like the ideal place for new hotel construction. Despite a jump in supply and the impact of the national recession, the greater Alexandria hotel market has fared relatively well. Supply increases in 2008 resulted in an initial decline in occupancy, but the recessionary economy in late 2008 and the first quarter of 2009 had only a minimal impact. With average rate for the market showing few signs of distress, RevPAR has remained relatively unchanged on a market scale. This stability is positive news in the context of substantial nationwide RevPAR declines.

Faced with the effects of the recession, the Alexandria city council cut the city’s budget by 2% for fiscal year 2010 and raised property taxes, which will reportedly cost owners of commercial real estate an average of $4,303 in new property taxes. The course of the economy and the effect of new taxes remain to be seen, but prospects for future real growth and economic prosperity in Alexandria look promising. In February, the city council approved plans for the Landmark/Van Dorn Corridor Plan, which will include the redevelopment of Landmark Mall to incorporate retail, residential, office, and hotel developments supported by improved transportation. The plan will depend largely on whether General Growth Properties, Inc., the current owner of the mall (or a new owner should the site be sold), can leverage enough capital to fund the redevelopment. But the plan is a high priority for the city, and its realization over the next few years would produce several new streams of demand for area hotels.

Several new hotels are in various stages of the pipeline for Alexandria. A large-scale full-service hotel has been proposed for the Landmark/Van Dorn Corridor Plan; an 85-unit SpringHill Suites by Marriott and an 85-unit Holiday Inn Express & Suites at 6075 Richmond Highway are planned for an opening in December of 2009 and March of 2010, respectively; and a 145-room Braddock Gateway Hotel on North Fayette Street, a 90-room hotel at 1623 Duke Street, and 625 hotel rooms at Potomac Yard on Jefferson Davis Highway are rumored to open during the course of 2012.

Conclusion

Corporate strategies, including those governing hotel operations and developments, will need to continue to adapt to stay viable in this jarring economy. Yet stakeholders maintain that the overall strength of Alexandria’s and Northern Virginia’s businesses and government operations will help stabilize the market until the economy improves. New hotel supply will take place in stages in the market over the next several years, and as demand improves over the course of that time, the market should be poised for growth.

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