While the meeting and exhibition industry is rapidly growing, some cities are proceeding cautiously with convention center expansion projects. A big issue, experts say, is rising costs in a slowing economy.
Recently, expansion projects in several cities — including Milwaukee; San Jose, Calif.; and New Orleans — have been questioned, delayed, or scrapped. “With the continuing warning messages regarding the economy, undertaking new public debt is a concern,” says Doug Ducate, president and CEO at the Center For Exhibition Industry Research, Dallas.
“It's a trend I've been expecting,” adds Jim Grinstead, publisher, Convention and Conference Facilities, a Nashville-based trade publication that tracks the construction of meetings facilities, commenting on how some destinations are pulling back the reins. High prices for construction materials, especially steel and concrete, have driven the costs up, he says. “That has also affected some convention centers, where expected revenues wouldn't be high enough to handle the increased financing costs caused by the higher prices.”
Cost a Factor
In Milwaukee, a feasibility study to determine whether to expand the 189,000-square-foot Midwest Airlines Convention Center has been put off indefinitely as the state grapples with budget gridlock. “Right now there is not a great appetite in this state to raise any taxes,” says Dave Fantle, spokesman for the Greater Milwaukee Convention and Visitors Bureau — and the funding of an expansion will require some tax increases. “Before we proceed on any expansion initiative, the state needs to pass the budget,” which has been in gridlock since the summer.
In San Jose, a study requested by the city council suggests that the city might be better served renovating the McEnery Center and increasing usage by 15 percent to 20 percent before considering expansion. “While a less expensive upgrade renovation could make the [center] physically more appealing, an expansion requires financial resources of an entirely different magnitude,” writes the report's author, Kai Yan Lee.
Dan Fenton, president and CEO at the San Jose CVB, says the report raises some good questions about cost of construction and demand, but he questions some of the conclusions, saying they are based on an “old national study” conducted in 2005. The CVB is now surveying 500 events that could potentially come to an expanded center to gauge their interest. “The ultimate test is in going to the decision-makers within your market and saying, ‘would you be more likely to come here if we expanded or if we improved?’” explains Fenton. “You really have to do very specific market analysis.”
The CVB awaits further direction from the city council by early 2008.
A Good Sign
“I think the fact that cities are taking a good hard look at these decisions is a good sign for the cities and the industry,” says Ducate. Because competition is so keen for national events, cities need to make sure they can successfully compete before going forward.
Adds Grinstead: “Those that held off in making needed changes will face some difficult decisions and, possibly, higher costs just to be competitive.”
Attendance, Revenues Spike, Says CEIR Index
The overall economy may be slowing, but not the exhibitions industry. According to the Center for Exhibition Industry Research's CEIR Index, all major metrics flourished in the second quarter of 2007, compared to the second quarter of 2006.
REVENUE UP 11.3 PERCENT TO $2.65 BILLION ATTENDANCE UP 13.5 PERCENT NET SQUARE FEET of exhibit space up 3 PERCENT NUMBER OF EXHIBITORS UP 4.5 PERCENT
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