Additional hotel room supply hasn’t hurt downtown market

Real Estate Spotlight

Hyatt Place Milwaukee Downtown opened at The Brewery this summer.

New hotels in downtown Milwaukee have added more than 600 rooms to the market during the past three years, but the additional inventory has not had an effect on the market’s occupancy rate.

Instead, having additional hotel rooms available in downtown Milwaukee appears to have hurt occupancy in the region’s next largest submarket, Brookfield. Despite a decline in the number of hotel rooms there since 2015, the occupancy rate for Brookfield’s hotels has also declined.

Hyatt Place Milwaukee Downtown opened at The Brewery this summer.

The occupancy rate of downtown Milwaukee’s hotels during the first half of 2018 was 65 percent, up from 62.6 percent in the first six months of 2017, according to market data from Hendersonville, Tennessee-based STR Inc.

The occupancy rate during the first six months of the year was even higher than it was in 2015, despite there being four more hotels open in downtown Milwaukee since then.

Demand for downtown Milwaukee hotel rooms is also up 6.8 percent for the first half of the year, compared to the first six months of 2017, according to STR data. In an attempt to meet the growing demand, there has been a surge in downtown hotel development since 2012, during which time 1,340 hotel rooms have been added to that area.

The boom included the 381-room hotel at Potawatomi Hotel & Casino that opened in 2014 in the nearby Menomonee Valley. Potawatomi is now adding a second hotel tower with 119 additional rooms, which is currently under construction.

Since December, both the 94-room Homewood Suites by Hilton at 500 N. Water St. and the 150-room, six-story Hyatt Place Milwaukee Downtown hotel at The Brewery complex have opened. This month, construction began on the four-story, 132-room Cambria Hotel at 503 N. Plankinton Ave.

Four more hotels are under construction or soon to be under construction downtown: a 200-room Drury Hotel at the First Financial Centre, 700 N. Water St.; a 220-room hotel at the Humphrey Scottish Rite Masonic Center building; a dual brand Home2Suites and Tru by Hilton; and a Holiday Inn Express southeast of East Michigan and North Jefferson Streets.

Despite the demand for downtown Milwaukee rooms, local hoteliers have not taken full advantage of Milwaukee’s hot market, according to Greg Hanis, a hotel industry analyst and president of New Berlin-based Hospitality Marketers International Inc.

The average daily room rate in downtown Milwaukee has decreased since last year to $135 a night, down 2.3 percent from the first six months of 2017, when guests were paying an average of $138.14 to stay downtown.

“Everything in downtown Milwaukee looks great, except that average daily room rate,” Hanis said. “Hotel operators are leaving money on the table.”

In Brookfield, where three new hotels totaling 437 rooms are planned or currently being built, there has been an overall decline in demand, occupancy rate and average daily room rate.

The occupancy rate for Brookfield’s hotels during the first six months of the year was 53.7 percent, down 3.8 percent from the first six months of 2017, according to STR data.

Demand during the same time period was also down 1.7 percent.

The average daily room rate in Brookfield is $101.99, down about $4.50 from an average daily room rate of $106.50 at the same time period last year, according to STR.

Coralville, Iowa-based Hawkeye Hotels is building a Holiday Inn Express & Suites and a Fairfield Inn & Suites by Marriott at The Corridor development along I-94 in Brookfield, which will add 132 and 137 rooms, respectively.

A 54,000-square-foot conference center and 168-room Hilton Garden Inn hotel linked by a glass walkway is also in the works at the former Sears Auto Center site, just south of Brookfield Square Mall.

Once the Hilton Garden Inn opens in early 2020, there will be approximately 1,000 hotel rooms within walking distance of the new conference center, according to Visit Brookfield.

“I would not want to be a hotel operator coming in to Brookfield,” Hanis said. “Demand is in negative growth and I can’t determine what the absorption of the rooms is going to be. This is a very, very bad scenario for Brookfield.”

Hanis believes Brookfield’s conference center will do well once it opens, drawing people from the Fox Valley, Madison, and Racine and Kenosha markets.

But the increase in hotel room supply downtown will continue to put pressure on other area submarkets, he said.

“(In the past when downtown hotels were full, visitors) would go to Brookfield or the Milwaukee airport hotels,” Hanis said. “Now that you have more rooms downtown, you don’t have (that spillover).”

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