Fulton Market in recent years has been the epicenter of office development in Chicago, helping the city attract new corporate tenants, retailers and workers.
Now, the Near West Side neighborhood is ground zero for another kind of development boom: hospitality. Four hotels with a total of 581 keys have come to the Fulton Market neighborhood since 2014, with another seven hotels in various stages of development and planning.
In all, Fulton Market is projected to be home to about 1,500 hotel rooms in the next few years, raising questions about how much supply the market can absorb, and which projects might struggle, if they get off the ground at all.
“[Fulton Market] is a big draw now,” said Nate Sahn, senior vice president at CBRE Hotels. “It’s also an area that historically didn’t have a lot of hospitality there. Builders will gravitate there because of that.”
Brokers and analysts said the flurry of hotel development is needed to support the new corporate offices and retail that have popped up in Fulton Market in recent years. But the new hotels will inhabit an ulta-competitive and saturated landscape, which is experiencing something of a downturn this year.
“The Downtown market has been a bit dismal in the last six months, and some of that is because last year was so strong,” said Ted Mandigo, a hotel consultant with TR Mandigo & Company. “2018 was a very, very good year.”
The average daily rate for a hotel room in the central business district fell to $259 in June, down from $278 in June 2018, according to hotel data and analytics firm STR. Revenue per available room — a key industry metric — came in at $228 in June, down from $251 in June of last year. Occupancy in June was at 88 percent, down from 90 percent at the same time last year.
Of the four hotels already in Fulton Market, two opened this year: the 200-key Hyatt House at 105 North May Street, and the 182-key Hoxton Hotel at 200 North Green Street. Another hotel is also nearing completion, the Robert De Niro-backed 119-key Nobu Hotel that’s now slated for an early 2020 opening. Related Midwest’s plans for a 165-key Equinox Hotel has been approved by the city, but it has not yet broken ground.
Then, there’s over 630 rooms proposed between three different projects, plus two others — Base Capital Group’s proposal for the 1000 block of West Fulton, and North Park’s plan for the 800 block West Lake Street — that have not publicly announced the number of rooms they plan to develop.
Mandigo said occupancy rates for the existing Fulton Market hotels hovers in the mid-to-high 60’s, but he expects that number to climb. That’s because hotels take about 18 months to get absorbed into a new market, the industry veterans said. Fulton Market’s hotels could take on the longer end of that timeline, because most of its properties are boutique and include brands that are not household names.
“First I have to figure out what a ‘Hoxton’ is, and if I like it,” Mandigo said. “It takes as long as three years for a luxury property to grow their product.”
Some will make it, others may not
The existing hotels — and the soon-to-open Nobu — will likely find success in a rapidly changing Fulton Market, both Sahn and Mandigo said. But the likelihood of success for the four recently proposed hotels is a little trickier to determine, they said.
That’s because there’s so much office, multifamily and retail development underway in the Near West Side neighborhood that it is too early to see if those projects will be successful, let alone the newer hotel proposals. Leasing activity in Fulton Market has been strong, but it’s still too early to tell how the market will look in a few years, when even more hotels are slated to come online, Mandigo said.
“The level of activity is so substantial that it’s a little hard to get a handle on what the demand will actually be,” he said.
The good news for the hotel developers is, there is still time to change their plans if it gets too crowded, too quickly. Of the five hotels proposed for Fulton Market, all of them have been announced this year. Only one — Base Capital Group and Hartshorne Plunkard Architecture’s plans for a 12-story hotel at 1043 West Fulton Market — has been approved by the city’s Department of Planning and Development. None have received building permits.
“Chicago historically has generated a lot of demand for hotels,” Sahn said. “That part of town is just coming into its own.”