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Chicago’s hotel market is feeling the impact of declining demand

Profile Photo By: H L
June 10, 2009

Chicago’s hotel market is feeling the impact of declining demand

Hotel occupancy and average daily room rates have posted double-digit percentage drops over the first four months of this year compared with the same time last year.

The decline is to be expected, given that consumers have pulled back discretionary spending and tourism is down nationally.

The catch locally, though, is that the numbers are unlikely to improve as the summer travel season gets under way and consumer confidence improves, because the law of supply and demand is off kilter. Despite demand being down, the city’s supply of hotel rooms is on the way up.

The opening of four new hotels, plus rooms that will join the inventory at Trump International Hotel & Tower, will add 989 rooms to the downtown Chicago market this year.

Mark Eble, Midwest vice president of hotel consultant PFK Consulting, predicts that in the greater Chicago area the revenue per available room, a critical industry benchmark, will be down 18 percent this year.

Existing hotels are offering sizable discounts in a bid to entice visitors to sleep at their properties rather than a competitor’s.

In April alone, the average room rate in downtown Chicago hotels was about $162 a night, 23 percent less than the roughly $210 per night guests paid during April 2008, according to data from Smith Travel Research Inc.

As a result, total revenue for the 35,000-plus rooms in downtown Chicago has plunged 25 percent year to date.

The newest entrants in the market are feeling the pressure.

Marketing budgets have been increased, local residents are being invited to sample restaurant menus, and employee work schedules have been made more flexible.

“It’s a cyclical industry, and we’re in a down market,” said David Pisor, founder and chief executive of Elysian, which opens July 15 on Walton Street near State Street. “In some ways it’s an advantage because you open leaner and more hungry.”

Two years ago there was a laundry list of hotel projects planned for Chicago. Those plans have since been scuttled or mothballed until the market improves and financing becomes available.

The most visible sign of the market’s seizing is the Shangri-La, whose unfinished shell sits at Wacker Drive and Clark.

Had that and other properties continued, the glut of rooms would have been worse, delaying any rebound.

full article ?

Source: Mary Ellen Podmolik? (2009). Racked by glut of rooms, Chicago Tribune? http://www.chicagotribune.com/travel/chi-mon-hotels-wit-0608-jun08,0,3333207.story published Jun 8, 2009. Viewed June 10, 2009,

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