How hotels contribute to Nashville's economic growth
This article was provided by North Point Hospitality, who are developing the new tri-brand Marriott hotel slated to open in Nashville this winter.
No one is arguing that Nashville has seen a remarkable growth in its economy over the past several years. Just look at the skyline and you can see the vast expanse of cranes high in the air indicating the next new build. Over 25% of the buildings that have been developed, are under construction or are proposed are hotels. Many have speculated at the future success rate of these hotels, but what few have investigated is the economic impact of hotels currently in the market as well as those coming into Nashville in the future.
In asking what the hotels of Nashville bring to the table, the main area of exploration is revenues. Certainly, hotels will collect their own revenue with the increasing visitor density that is anticipated for the city. However, the tax revenues properties are collecting have a large economic impact on the city, which will continue to increase throughout the years. Tax collection will continue to drive revenue through different metropolitan entities, as well as fund major initiatives to help improve the profile of the city.
First, a 9.25% sales tax is collected from all hotels on every night of a guest’s stay. This tax is distributed throughout the metropolitan government departments, including a portion that is specifically segmented to schools. In addition to sales tax, there is also a 6% occupancy tax paid by all hotels. According to the Nashville Convention and Visitors Corporation, the occupancy tax was first collected in 1976 at 3% of the rate every night of a guest’s stay. In the first year, the occupancy tax collections recorded $1,252,260 in revenue. As of 2017, the occupancy tax has been raised to 6% and collected $68,495,383 in revenue. The revenue from the occupancy tax collections have been used to fund the Music City Center, market Nashville as a destination for travelers and a variety of other uses that help improve the Nashville economy.
For example, consider the new Spring Hill Suites/Residence Inn/AC Hotel set to open this winter. This property will have around 500 rooms. (They will actually have 470 but let’s use 500 to keep the math easy). With 500 rooms at 80% occupancy, that gets us to around 146,000 room nights occupied for the property. With an average rate around $250 (well below the average for a property like this in downtown Nashville), the hotel will take in $36,500,000 in room revenue for the year. In occupancy tax alone, the property will contribute $2,187,536.25 in occupancy tax to Nashville.
Following the revenue track for a moment longer, it should be noted that visitor spending is a large contributor to the Nashville economy. The Nashville CVC tracks visitor spending in a variety of ways including the ways their dollars are spent. For example, visitors tend to allocate 32% of their overall spend to their accommodations. After that, visitors spend money on restaurants and food, retail outlets, car rentals, transportation and other items.
As a result of this visitor spend, businesses are able to and need to hire more employees. Currently, Nashville is in a strong economic position from an unemployment standpoint. As of May 2018, unemployment in Metropolitan Davidson County was 2.3% while the national unemployment rate was 3.8%. With a booming economy and low unemployment rate, more locals are putting money back into the local economy creating a robust revenue stream in all segments of the market.
In addition to a constant stream of revenue for the local economy, the new hotels are bringing a variety of offerings and amenities that have not been seen in the market. The new Spring Hill Suites/Residence Inn/AC Hotel will be the first tri-brand Marriott in the United States. This property will combine a select service hotel, an extended stay property, and a full-service hotel under one roof. One of the seasonally appropriate amenities they bring is a rooftop pool that will include cabanas to create more of a social gathering spot for guests. The Spring Hill Suites/Residence Inn/AC Hotel will also have some of the best views in downtown for guests to enjoy from the rooftop bar.
As the surge of new hotels continues, Nashville will have new obstacles to contend with including the changing face of the hotel landscape. Hotels coming to the market are offering new amenities not previous seen in the market in an effort to differentiate themselves from the pack. Visitors to Nashville will continue to impact the local economy through a variety of areas of spend and it will be a great mark of the city to offer a diversity of hotels and amenities from which to choose. While funding solutions to some of the infrastructure and visitor density roadblocks will be crucial, hotel communities like the Spring Hill Suites/Residence Inn/AC Hotel will be strong contributors.