As travel continues to rebound, the hotel industry is looking for opportunities to bounce back from the pandemic’s impact. Chicago, in particular, has faced challenges in post-pandemic recovery. Unlike other major urban areas, Chicago’s hotel recovery has been slow. But that doesn’t mean it’s all bad news for the city as the market has seen some positive developments recently.
For one, the city’s hotels will see a boost from the 2024 Democratic National Convention next summer. “That will change the group meeting convention landscape for the positive, which is coming back strong in Chicago and nationwide,” said Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors.
However, when comparing year-to-date March 2023 key performance indicators with 2019 levels, hotel performance has seen double-digit decreases. Occupancy is down 27 percent. Average daily rate has fallen 12 percent, while revenue per available room has dropped 35 percent.
But the news isn’t so dire for Chicago. “The city has experienced some upward momentum in recent months, with March RevPAR 7.2 percent above the same month in 2019. The uptick in being driven primarily by ADR, while occupancy is still below 2019 levels by 9 percentage points,” said Romy Bhojwani, director of hospitality market analytics at CoStar Group.
LW Hospitality Advisors forecasts occupancy to reach 66.3 percent by next year, which isn’t too far off its 2019 base. ADR and RevPAR are expected to fully recover by the end of the year.
CBD Concerns
Like many major urban markets, a circling concern is the impact on hotels from other commercial real estate assets, such as office buildings, sitting empty or near-empty. “While leisure travel and group business have performed well in Chicago, corporate transient has been slower to recover due to low office utilization in the central business district,” Bhojwani said.
However, Lesser isn’t worried that the issue will be long-lasting. “People want to work and play in major urban markets. There’s this notion that urbanization is going to go away, but urbanization has been around forever. People are starting to move back,” he said.
As for how diminished occupancy in office buildings affects business travel, Lesser said it’s more of an opportunity for hotels than anything. “Work-from-home is putting pressure on corporate business travel. There’s a need for companies to hold more group meetings because they’re not working together face to face as much anymore,” he said.
And hotels will be ready to welcome those guests. According to STR, Chicago is poised to open 13 hotels with 1,410 rooms by the end of this year. In total, the market has 62 hotels with 8,370 rooms in the pipeline.