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25 Feb, 2008

US Convention Industry Asks: Is It Overbuilt?

A study of North American convention and exhibition centres says that the supply-demand balance has matured and that as there is “not enough business to go around”, the future of these centres will depend on how competitive they are. It raises the question: Is the industry overbuilt?

Conducted by the hospitality industry consultancy company HVS, and released last week, the study offers an advance warning for Asia-Pacific convention and exhibition centres which are undergoing a similar process of over-building that characterised the North American centres, and will soon face the same issues.

The study says that major exhibition facilities in the U.S. and Canada have expanded from 379 in 2000 to 469 in 2007, with space availability rising from 63.4 million sq feet to 85.9 million sq feet in 2007. This includes convention centres, exposition centres, fairgrounds, and trade centres as well as space offered by large hotels, civic centres and conference facilities.

By 2010, this is estimated to grow further to 479 facilities and 92.1 million sq feet.

At the same time, the number of exhibition events held annually has increased from 3,289 in 1989 to 5,036 events in 2007, a slight growth over 5,001 events in 2006. Since 1972, professional attendance at tradeshows has grown at an average rate of 4.4% p.a., the number of exhibiting companies has increased at an average rate of 4.5% p.a. and the amount of space rented for exhibition events has increased at an average rate of 5.4% p.a.

However, the estimated utilisation factor in 2007 was only 16.47%, based on preliminary figures, down from 21.63% in 1999 and virtually unchanged in the past four years. This figure, the report says, is “near historic lows, indicating how competitive this mature industry is.”

Says the study, “Across the United States and Canada, city officials and economic development decision-makers are wrestling with the question of whether to develop new or expanded convention centre assets in their communities. Many existing exhibition facilities are not operating at or near full capacity.

“Even as demand slowed throughout the first part of this decade, supply continued to expand, resulting in facility utilisation rates near historic lows. Public policy makers, private developers, and concerned citizens wonder: Is the industry overbuilt?”

The report argues “that the convention centre industry is now mature, characterised by aggressive competition. Facilities compete for limited business and only those with the best competitive positions will succeed.”

It says, “Over the past three decades, the meeting and convention industry has evolved dramatically from a budding industry to a mature one that has become an important driver of the national economy. The Convention Industry Council estimates industry expenditures grew to approximately $107.2 billion in 2006, compared to an estimated $103 billion in 2003.”

Now, the report says, “The convention centre industry has entered a new stage of the industry’s lifecycle.”

The next step of evolution and growth will come not from latent demand sources but will depend on new demand, which in turn will be affected by other factors “such as the cost of travel, the importance of face-to-face interaction in certain industries, improvements in facility design, resources available to promote events, and overall growth trends in the national economy.”

The report cites the examples of other mature industries, such as shopping malls and movie theaters, in which new developments are successful only if they have important advantages over their competitors, such as facility design, location strategy, marketing efforts and technology.

In the conventions/exhibitions industry, proximity of full-service hotels to event facilities, as well as availability of nearby amenities including restaurants, retail and entertainment venues are important competitive advantages, it says.

Says the report, “As in other mature industries, the supply of convention centres now exceeds the demand for such facilities nationally. This means cities can no longer rely on a strategy simply to capture a fair share of the market for meetings and conventions. There is not enough business to go around.

“If a new convention centre is not positioned competitively with respect to location, design, amenities, price, technology, marketing, and management, then it is likely to fail in terms of its financial performance and its ability to generate economic impacts for a community. In short, if you build it, they might not come.”

It adds, “When an industry matures continual fluctuations do not end and neither does the prospect for new supply or demand. Ongoing increases in supply are not always met with equal increases in demand. A sort of saturation effect takes place, and additional supply can do one of two things.

“It either dilutes demand, as business is spread out through more and more facilities. Or it consolidates demand by dominating its competitors and taking existing demand away from them. In a mature industry, new supply generally does not generate additional business because there is little or no latent demand to target.

“New facilities must compete for existing business. This dynamic characterises the current state of affairs in the convention centre industry in the United States and Canada.”

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