The Real Deal Chicago

Booming tourism keeps Chicago-area hotel occupancy steady, report says

The region’s hotel occupancy rate ticked up this year, despite thousands of new rooms coming online
By Alex Nitkin | October 01, 2018 04:30PM

The Langham Hotel in Chicago

Chicago-area hotels are staying busy, even with a multiplying field of competitors.

The region’s occupancy rate nudged up by 10 basis points to 68.9 percent during the 12-month period ending in June, according to Marcus & Millichap’s regional hospitality research report. The uptick reverses a two-year slide in hotel occupancy, following 70-percent occupancy between June 2014 and June 2015.

Paired with feverish hotel construction — more than 4,500 rooms were underway in June 2017, the report notes — the numbers point to healthy demand for short stays in the city and suburbs, according to Peter Nichols, the national director of Marcus & Millichap’s hospitality group.

“GDP growth and the strong dollar are all contributing to very strong hotel performance, and we’re seeing it pretty consistently across all the major markets,” Nichols said. “Those 10 basis points [in Chicago] may not seem like much, but you have to factor in all the total number of rooms that have become available.”

Almost 3,200 hotel rooms were being built in the region as of this June, according to the report.

The local hospitality industry’s hot streak is also registering in the sums investors are willing to pay to acquire hotel buildings, Nichols said.

The price per room in Chicago-area hotel sales averaged nearly $153,000 between June 2017 and June 2018, a more than 37-percent spike over the average from the previous year, according to data from Marcus & Millichap and CoStar. Between June 2014 and June 2015, hotel sales reaped an average below $87,000 per room.

“You have so many demand generators in Chicago that make it stand apart from 99 percent of other markets in the country,” Nichols said. “You have universities, hospitals with medical conferences, sports franchises … all of them are bringing tourism.”

The city of Chicago has been consistently breaking its own record for tourism each year, drawing more than 55 million visitors in 2017, according to Choose Chicago.

The average daily rate for a hotel is also on the rise, both around the city and across Illinois, according to the report. The Chicago-area average surpassed $142 this June, compared to $137.35 in 2015. The state’s average daily room price grew from $122.29 in 2015 to $127.80 this year.

Between the 165-key hotel proposed as part of Related Midwest’s 52-story tower at 725 West Randolph and Sterling Bay’s 200-room Hyatt House hotel under construction at 105 North May Street, the West Loop is experiencing a mini-boom in new hospitalty space.

Massive Downtown developments like the 101-story Vista Tower, the soon-to-open South Loop Hilton Homewood Suites and Riverside Investment & Development’s proposed redevelopment of Union Station are all expected to add hotel capacity over the next several years.