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Commercial
Chicago

Hotel rates are rising despite vacancy increase

Occupancy is 25% lower than pre-pandemic rates, but operating costs for hotels are still increasing

(iStock/Illustration by Kevin Rebong for The Real Deal)
(iStock/Illustration by Kevin Rebong for The Real Deal)

Downtown Chicago hotels are raising rates, even as they struggle to fill rooms, as the cost of goods and labor increases in tandem with property taxes.

March room rates averaged about $174 a night, up 12 percent from Covid’s initial spread two years ago, Crain’s reported, citing data from hospitality research firm STR. Higher costs mean it doesn’t make sense to cut rates to boost occupancy hovering at 25 percent below the pre-pandemic era.

Still, hotels are rebounding faster than they did after the Great Recession. About 66 percent of rooms were occupied on weekends last month, and 48 percent on weekends, suggesting tourists are returning faster than business travelers or conventioneers whose meetings haven’t yet come back.

“The classic math in hotels has been: Lower the rate, stimulate occupancy, then (revenue) grows,” said Bob Habeeb, CEO of Chicago-based Maverick Hotels & Restaurants. “Now people are struggling with labor and higher costs, so if they’re going to achieve their revenue (goals), they’re going to get it via rate.”

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Chicago’s data is in line with national trends. The pandemic is unlike most economic recessions in that safety, not finances, was the primary factor keeping people from traveling, Jan Freitag, national director of hospitality analytics at CoStar Group, which owns STR, told Crain’s.

Just because a room is vacant, doesn’t mean it is technically available. Shortages in staff to clean rooms and serve guests means “vacant dirty” rooms are increasing. Wages for staff are also rising, adding to additional costs for hotels.

“This is a people-intensive business,” Del Ross, chief revenue officer at Hotel Effectiveness, told Crain’s. “You might have a 150-room hotel, but because of the labor shortage, you might not be able to open all the rooms because you can’t clean them—there’s not enough staff. . . That reduces supply, and with peak demand you’re able to charge more.”

[Crain’s] — Miranda Davis

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