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Updated March 3, 2010

The Halifax World Trade and Convention Centre Expansion: Chasing the ONE BIG THING?

by Beverly W. Miller, MA, MBA March 03, 2010

The proposal to spend millions of dollars on an expansion of the Halifax World Trade and Convention Centre has been accompanied by little economic discussion/analysis and a great deal of ‘feel good’ talk about the amazing tourism benefits this expansion will provide and the boost it will give to downtown Halifax.

Unfortunately, however, research into the convention centre industry paints quite a different picture. As the following sources note, the convention centre industry in North America is overbuilt and undersubscribed and with a large number of convention centre construction projects underway or planned, the economic picture is only going to get worse. In addition, the idea of an expanded convention centre as a catalyst for exciting things happening downtown is a stretch since the convention business is busy five months of the year; April, May and June and September/October. The rest of the year convention centres work on a markedly decreased schedule.

It is also hard to make an economic argument for the office and hotel towers which are planned as part of the P3 project and will obliterate much of the view of the harbour from Citadel Hill. (P3 projects were recently ‘outed’ by the Nova Scotia Attorney General as a huge economic mistake). The data, in the second half of this report, compiled from research by two real estate property consultants indicates that the much touted demand for Class A office space in downtown Halifax is simply not there.

The report by Professor Dionne Anthon also notes another serious flaw in the whole process; the stampede to build more and more convention centre space precludes a serious discussion of the alternatives to spending public money; a discussion of how the money might be better spent on alternative community needs.

Beverly W. Miller, MA, MBA March 03, 2010

I. THE NORTH AMERICAN CONVENTION CENTRE INDUSTRY

Below are four studies and reports that document the current and future excess supply and decreased demand in the North American Convention Centre industry.

Mazerolle, Brent “ Does Moncton Need a Convention Centre?” Moncton Times-Transcript, September 14, 2007.

Mazerolle is reporting on statements by Brian Stanford of PKF Canada prior to PKF undertaking a study for the City of Moncton on the feasibility of a Convention Centre. Stanford is quoted as making the following statements:

“The financial reality of convention centres...they lose money”. Only 2/17 top performing centres in Canada don’t need subsidies and those are because of revenue from renting parking space.

Most centres need $30/sq. ft in operating subsidies

If all the convention centres in Canada that are proposed or built (in 2007) the amount of space would increase by 40% while business growth would increase by 8%.”

The convention centre business is seasonal and cyclical. 75% of convention activity takes place in April/May/June and September/October.

It is interesting to note that these statements by the PKF consultant are in stark contrast to the very bullish and optimist statements made by PKF in their report on the Winnipeg Convention centre expansion only two years earlier in 2005.

2. The PKF cautionary statements are substantiated by an article by Heywood Sanders that appeared in the Vancouver publication The Georgia Straight, April 30,2009 entitled “A Consulting Group’s Fairy Tale Spurred Construction of $883 Million Vancouver Convention Centre”.

In the article Sanders notes that in the US (US cities are often in competition with Canadian cities for North American convention business) between 1990 and 2008 space in convention centres increased 29% from 40.4 million sq. ft. to 52 million sq. ft. The increase in Canada was not as dramatic (from 6.1 million sq. ft. to 8.6 million sq. ft.) but a significant factor in increasing North American supply.

Since there was a very modest increase in events held in second half of that period (2000-2008) from 4,637 to 4,924 the effect of the additional space on the economic results for convention centres may seem to have been somewhat mitigated. However, as Sanders notes, the slight increase in the number of events was accompanied by a drastic reduction in the number of convention attendees from 125 million in 2000 to 89 million in 2008. This supports Sander’s contention that organizations do not cancel conventions in difficult financial times but events get downsized.

Sanders further notes that this situation has, of course, resulted in a buyers’ market and as a result convention centres all over North America are offering freebies and discounts to attract business; further eroding economic projections.

nb Heywood Sanders is a professor of urban politics and planning at the University of Texas, San Antonio. His research specialty for the past 30 years has been in the area of building projects as civic investments. While his research is often controversial among members of the convention industry it has also been noted that, as an academic, he is one of the few reporting on trends in the industry who does not have a stake in the industry.

3. Concern about excess supply is also echoed in a 2008 report compiled by the Winnipeg Convention Centre to update the optimistic PKF report of 2005. That report notes two trends in the convention centre industry for Canada:

The need for exhibition space to be available in conjunction with conventions

The supply side is on the verge of “explosive growth”

4. The existence of excess supply is also strongly supported in the following which is part of a paper addressing the use of hotel taxes to fund convention centres.

The following is from “Unconventional Decisions” published in the University of Pennsylvania, Journal of Constitutional Law, Vol.7 Issue 2, November 2004. The author, Dionne E. Anthon is Professor of Legal Methods at the University of Pennsylvania, Widener School of Law, Harrisburg, Pa. (Professor Anthon’s entire paper is available online and contains a wealth of footnote material of interest to anyone who wishes to investigate the subject further).

II. REALITIES OF CONVENTION CENTERS AND HOTEL TAXES

Convention Centers

Cities gain support for the construction or expansion of convention centers using the familiar rhetoric: "more space means more convention attendees, producing more spending, new jobs, and private development."

36 To defend this position, many cities pay national accounting firms or economic research firms to develop feasibility studies that forecast positive results from increased convention space.

37 Feasibility studies typically estimate demand for convention centre space as growing between 5% and 8% per year.

38 The actual data, however, support no such pattern of growth in demand.

39 In fact, the demand growth has decreased while supply growth has continued to increase.

40 Despite recognizing the increased supply of convention center space, consultants nonetheless recommend that cities "build or expand to keep up with the competition and maintain their market share.

41 A notable exclusion from these feasibility studies is any comparison of alternatives to the convention center plan. After cities use these feasibility studies to make predictions and recommendations, they use them to plan the construction and funding of convention centers. However, the actual results achieved from convention centers are often far below the numbers promised in these studies.

42 Despite these failed promises, cities continue to rely on feasibility studies to support the construction or expansion of local convention center space: These feasibility studies have rarely been subject to serious review and examination. Their conclusions and forecasts are rarely reexamined for accuracy and reliability. And their data, methodologies, and substantive conclusions are effectively never subject to comprehensive or comparative analysis. ... Just as there is no mechanism for evaluating, critiquing, or independently assessing the feasibility studies, there is rarely a local institution or process for evaluating the performance or impact of convention centers.

43 When centers fail to produce the attendance, hotel use, and visitor spending predicted, there is little political accountability and no real performance review. Convention center failure or underperformance...is thus followed by more consultant studies, which in turn call for even more: more exhibit space; more hotel rooms (increasingly with public subsidy); more amenities; and more public investment.., to support the competitive positions of convention centers.

44 Not only must cities begin to recognize the shortcomings of these feasibility studies, but courts determining the benefits of convention center projects must also be wary of the expected results in these studies.

45 A convention center that falls short of expectations can have serious implications for the surrounding community. In addition to having an underused "big box," in some cases, local taxpayers will have to pay for any deficit caused by the convention center's failure to attract the predicted number of conventioneers.

46 Funding of a convention center project also comes at the expense of other city revitalization efforts. Opponents of convention center projects argue that "a city would fare much better by rebuilding neighborhoods and creating retail districts" and that "officials should think of their own residents first and rebuild the city to attract them, instead of conventioneers.’

47 Understanding the realities of past convention center projects 48 should enable cities to plan their revitalization efforts more effectively by considering not only the shortcomings of convention center feasibility studies but also alternatives to building a convention center.

II. Demand for Office Space in Downtown Halifax

``Vanishing Halifax, `` Turner Drake Newsletter Summer 2009; Vol. 2 #89, pg. 1ff

The following excerpt from the Summer 2009 newsletter is based on a report by Turner Drake prepared for HRM as part of the Halifax by Design process in December 2008. (Turner Drake and Partners is an ISO 9001:2008 certified firm of real estate counsellors and valuers).

The harsh reality is that demand no longer exists to warrant development and as a result tenants are unwilling to pay the rents necessary to spur new projects at prices which reflect the developer`s current opportunity cost. The net absolute rental rates today per ft.2 are little different from what they were in 1989. They would have to increase by 50% to achieve the latter level in today`s dollars...and by 25% to 50% to stimulate new development. Whilst the vacancy rate for Downtown office is at an historic low (2.06% in December 2008), this is reflective of the `bargain` rental rates. During the 1980s rents rose gradually as the vacancy rate fell below 8% and sharply (40% per annum) when the 4% vacancy rate was breached. We could find no recent evidence of large rental increases nor could we find support for the assertion that there is large pent-up demand (a figure of 2.0 million ft.2 had been quoted in the media. Nor were we able to locate much evidence of the substantial out of province demand so widely quoted by NSBI. (NSBI is Nova Scotia Business Inc.)

2.The Turner Drake view of the real estate market in downtown Halifax is supported by a report compiled by the Altus Group for the 2009 issue of BOMA The Official Publication of the Nova Scotia Building Owners and Managers Association (Nova Scotia).

From page 20 of the BOMA newsletter available fall 2009: "Sub-lease availability now exceeds actual vacancy in the CBD while net absorption of space has turned negative for the first time since 2004."

Rental rates in existing projects have not increased to the point where new development would be feasible despite what had been a tight downtown market.

III. IN CONCLUSION

Study of both the Canadian, and the North American convention centre sectors and the poor prospects for the downtown Halifax office space sector indicates that the proposed expansion of the Halifax WTCC and the adjacent office and hotel towers would seem to be simply another example of Halifax chasing the ephemeral

ONE BIG THING that will `save` downtown Halifax and boost the economy.

Convention space in Canada, to quote the PKF study of 2008 "is on the verge of explosive growth", while convention business is shrinking and increasingly competitive, making convention centres increasingly unable to meet economic projections.

At current construction prices (even in a period of historically low interest rate) and with the negative

absorption rate for office space in Downtown Halifax the demand for downtown office space would seem to be stagnant for many years, especially since there is huge competition from suburban sites around the city (Dartmouth Crossing, Bayers Lake, etc.) where construction prices are lower.

The construction of the office and hotel towers will block and privatize the view from Citadel Hill, one of our greatest tourist attractions and noted in 1000 Places in the United States and Canada to See Before You Die.In addition this project is a P3 project; P3 projects recently received a failing grade in the Nova Scotia Auditors

General’s report and throwing money at it will delay once again the consideration of what we really need to make downtown a viable exciting place and to support the Nova Scotia tourism industry.

THIS PROJECT IS NOT THE ONE BIG THING.

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