CHICAGO—Like many hotel markets across the United States, Chicago started slowly but gathered momentum as 2010 went on.
And also like many other markets, slow supply growth is expected to help keep the recovery moving.
HVS Global Hospitality Services
Year-to-date through November 2010, Chicago’s occupancy increased by 10.3% to 63.3%, average daily rate declined slightly by 0.8% to US$113.49, and revenue per available room was up 9.4% to US$71.84, according to STR data.
2010 was a “strong rebound year” for Chicago, and 2011 should bring continued favorable operating performance, said Hans Detlefsen, managing director in the Chicago office of HVS Global Hospitality Services.
“I envision continued strength in 2011 as demand growth continues to outpace supply growth,” he said in an e-mail. “This will begin to manifest itself more in the ADR component of RevPAR than in occupancy for many Chicago hotels that are already serving at or near their peak historical occupancy levels.”
In 2010, there were five hotel openings and three closings around the Chicago area, he added. Two of the closings, the Wyndham O’Hare and the Sheraton Arlington Heights, occurred early in 2010.
“There was not a significant over-building situation that led to this recession, unlike several of the prior five economic cycles dating back to the early 1970s,” Detlefsen said.
Tough times linger
An exterior shot of the building in which Langham and Oxford Capital hope to develop the 330-room Langham Chicago Hotel.
Still, the hotel sector has its challenges. LaSalle Hotel Properties late last year announced Modern Magic Hotel LLC, a joint venture in which LaSalle has a 95% controlling interest, sold its stake in the 330 N. Wabash Ave. building downtown. Modern Magic owned the second to 13th floors and a portion of the first floor of the 52-story building, also known as the Meis van der Rohe building.
LaSalle had plans to convert the space into a hotel, but the downturn forced the company to abandon those plans. The rate of return on the property wasn’t high enough to justify holding onto it, LaSalle CEO Michael Barnello said during a telephone interview.
“Clearly you understand that threw a monkey wrench into our plans,” he said of the recession.
Opportunity to invest
Jumping on the opportunity to acquire the space, however, were Oxford Capital Group LLC and Langham Hotels and Resorts. The group intends to develop the 330-room Langham Chicago Hotel, which is expected to open in 2012.
Langham opted to make this investment in Chicago partly because of its status as a major Midwest business hub, Langham CEO Brett Butcher said in an e-mail.
“While we are not privy to LaSalle’s business plans and objectives, we see the iconic Meis van der Rohe building as a major opportunity for the Langham brand and would be appealing to our luxury clientele,” he said.
Butcher added the Chicago market presents many growth opportunities. “We anticipate the next five years will see significant growth in revenue per available room.”
Barnello said a return of demand in the Chicago market makes the case that recovery is underway in the city. Demand increased by 10.2% year-to-date through November 2010 in Chicago, according to STR data.
“It’s recovering,” he said. “We think ’11 will be an OK year. … It’s still a little bumpy.”
STR's 2011 market forecast for Chicago sees occupancy increasing 2.3% to 63.6%, ADR rising by 3.6% to US$117.53, and RevPAR jumping 6% to US$74.71.
HVS’ Detlefsen said a “V-shaped” recovery is underway in Chicago in regard to roomnight demand.
“We anticipate that (the) demand-growth curve will flatten a bit in 2011 and 2012 as more hoteliers shift to a strategy of increasing rates.”