CHICAGO—A healthy economy has sustained both domestic and foreign travel to the Upper Midwest in 2017. As a result, occupancy and RevPAR have increased in the Chicago metro area, as well as most other metros in IL, IA, MN, NE, ND, SD, and WI, according to the latest report on the sector from Marcus & Millichap.
“The heightened demand has led to a jump in construction, which may place downward pressure on the occupancy rate into 2018,” the report states. “Nebraska was the only state to post declines across all metrics amid mounting supply pressures as six hotels opened during the prior 12-month period in Omaha alone.”
And this boost in demand whetted investors' appetites for the region's hotel properties during the last four quarters. “A sizable concentration of brand-affiliated hotels, combined with a variety of large and small markets with established and reliable demand drivers, provide an array of potential opportunities for buyers,” according to Marcus & Millichap. “Hotels in the midscale and upper midscale segments were of particular interest to investors amid steady revenue growth.”
In 2017, the firm forecasts that occupancy in the Upper Midwest will rise 30 bps from the prior year to 61.2%, with much of the increase driven by rate improvements in IL and WI. Marcus & Millichap states that the average daily rate will advance to $112.67 while RevPAR will reach $70.50.
But in 2018, the hospitality sector may see supply pressures in several markets, especially Chicago and Des Moines. Chicago developers have about 4,000 rooms under construction and an additional 3,700 in the final planning stages. And occupancy in IA fell 110 bps since last year as a total of nine new Des Moines hotels were placed into service. However, the completion of the Iowa Events Center, a 16,000-seat sports and entertainment arena, and a 100,000-square-foot exhibit hall, “will continue to draw investor interest to the state for opportunities to capitalize on group demand.”
And investor interest has been surging for properties throughout much of the region, although more than half of all hotel transactions in the last 12-month period involved IL and WI properties. “The bulk of hotel sales in Chicago were located in the suburbs as limited listings fueled intense bidding in the core, elevating prices,” Marcus & Millichap says. “Hotels in Chicago's CBD changed hands at roughly $270,000 per key while prices in the state averaged near $64,000 per door. Mounting competition in WI raised the average price up 3.4% to approximately $45,000 per door.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
