Chicago hotel supply poised for big boost

If all rooms in the central business district pipeline come online, Chicago is set to see a 20-percent room supply increase by 2019.

Chicago hotel development and investment will be topics of interest at NATHIC Midwest, operated by Questex Hospitality Group, Nov. 16-17, at the InterContinental Chicago Magnificent Mile.

Coming off a record 2015, hotel development in Chicago is booming. But with a supply story that shows a 20-percent increase in rooms over the next few years, some might wonder whether it’s time to worry.

As of June, the Chicago market had 745 existing hotels with 112,455 rooms, according to STR data.

If all rooms in the central business district pipeline come online, Chicago is set to see a 20-percent room supply increase by 2019, according to Stacey E. Nadolny, managing director and senior partner at HVS.

“That’s a pretty substantial increase,” she said. However, she added it’s important to look historically at Chicago’s pipeline over the past seven years.

“With the exception of 2015, the new hotel openings have certainly lagged. And that’s why 2015 was a record year for Chicago, because new supply growth has been suppressed over the last several years coming out of the recession,” Nadolny said.

Performance

Year-to-date through May, Chicago has seen declining performance. Revenue per available room fell 5.1 percent to $80.95, according to STR data. Average daily rate dropped 2.6 percent to $129.09, while occupancy declined 2.6 percent to 62.7 percent.

When drilling down into the CBD tract, numbers also are down. Nadolny said most of the performance declines have been on the occupancy side in the CBD, while ADR has held steady. Most of the declines have been seen during the year-to-date period. RevPAR is down 10 percent with supply up 4 percent, she said.

“We have to remember that 2015 was a record year, so when we compare that to ’13 or ’14, it’s still relatively stable,” Nadolny said. “And there were so many events that happened in ’15 that didn’t repeat in ’16.”

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Development

While hotel development in Chicago falls under a range of segments, the data are skewed slightly due to the upper-upscale, 1,200-room Marriott Marquis coming online in the third quarter of 2017. The hotel broke ground in February 2016.

Other notable developments include:

  • the 289-room Conrad Chicago (pictured below), expected to open in September 2016;
  • the 180-room Viceroy Chicago, opening in 2017;
  • a Nobu hotel in Chicago’s West Loop, which broke ground last month and is expected to open next year; and
  • an Ace hotel, set to open in the second quarter of 2017.

Chicago also is starting to see more demand drivers relocate to its quarters. For instance, Kraft Heinz moved one of its headquarters from suburban Northfield to downtown Chicago this year. McDonald’s also will move its headquarters to Chicago’s West Loop. That move is expected to be completed by 2018.

Want to learn more about the Midwest’s hotel industry? It’s performance; development and investment; how lenders perceive particular markets; the brands' take; how to get the right deal? Join industry leaders for NATHIC Midwest, Nov. 16-17, 2016, at the InterContinental Chicago Magnificent Mile. To learn more and register, visit www.nathic.com.