Area hotel markets show signs of oversaturation

Real Estate Spotlight

A rendering of the Fairfield Inn planned in Brookfield.

Several hotels have been built in the metro Milwaukee area in recent years, especially downtown. Now, the market is starting to show some signs of oversaturation, just as more hotels are under construction and being planned downtown and in the western suburbs.

During an earnings call in late July, Greg Marcus, president and chief executive officer of The Marcus Corp., which operates 17 hotels across the country including three in downtown Milwaukee, said the U.S. Open held at Erin Hills in June saved the quarter for the Milwaukee-based company’s hotel division.

A rendering of the Fairfield Inn planned in Brookfield. It is one of three hotels being developed in the city.

The U.S. Open was a major bright spot for the area’s hotel market, which has seen key data points decline this year. In fact, in the first six months of the year, the downtown Milwaukee hotel market had four months of year-over-year decline in occupancy rates and demand, according to Hendersonville, Tennessee-based hotel market data firm STR Inc.

June downtown hotel data showed year-over-year improvement, as did March – when Milwaukee was a host site for the NCAA Men’s Basketball Tournament.

For the first six months of the year, hotel occupancy in downtown Milwaukee was 62.6 percent, down 4.9 percent from the same period in 2016.

Since January 2012, 1,350 hotel rooms have been added to downtown Milwaukee. That includes the 381-room hotel at Potawatomi Hotel & Casino that opened in 2014 in the nearby Menomonee Valley.

Potawatomi is now planning to add a second hotel tower with 119 additional rooms, and several additional hotels are planned or under construction downtown.

Those hotels include a 150-room, six-story Hyatt Place hotel under construction at The Brewery complex, a 94-room Homewood Suites under construction at 500 N. Water St. and a 200-room Drury Hotel at the First Financial Centre, 700 N. Water St. Plus, Ascendant Holdings plans to convert the Humphrey Scottish Rite Masonic Center building into a 220-room hotel.

Across town in the western suburbs, the hotel market data is trending similar to the downtown market this year, with March and June being the only months to see year-over-year gains in occupancy rates and demand, according to STR.

For the first six months of the year, occupancy in the western suburbs was 59.9 percent, down 2.8 percent from the same period in 2016.

A rendering of the Holiday Inn Express & Suites.

And like downtown, the western suburban area, including Brookfield, is poised to get several new hotels.

Coralville, Iowa-based Hawkeye Hotels is planning to build 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.

The City of Brookfield is also working on a conference center with an adjacent 175-room hotel development in the Brookfield Square parking lot.

In addition, Milwaukee-based HKS Holdings LLC is developing a 120-room SpringHill Suites by Marriott hotel at Milwaukee County Research Park in Wauwatosa.

Greg Hanis, a hotel industry analyst and president of New Berlin-based Hospitality Marketers International Inc., said the sudden urge to build hotels, particularly in Brookfield, is puzzling.

“The reality is the lodging demand really isn’t growing at all. I think this is a game of chicken of who is going to build all of these hotels first,” Hanis said.

One thing that has not yet taken a hit is the average daily room rate. In downtown Milwaukee, room rates averaged $138.31 per night for the first six months of the year, up 4.9 percent over the first six months of 2016, according to STR.

In the western suburbs, the average daily rate was $102.96 for the first six months of the year, up 7.5 percent over the same period last year.

But Hanis worries with new hotels coming online, older hotels will have to start discounting their rates to keep occupancy rates from falling further.

“There needs to be a moratorium (on new hotels) for the next three to five years so the existing rooms can be absorbed,” Hanis said. “The pressure is going to be on to fill these rooms.”

Brookfield currently has 14 hotels. Adding 444 more rooms and three more hotels has been a concern for the existing hoteliers, said Carol White, president of the Greater Brookfield Chamber of Commerce.

Brookfield officials want to get a hotel and conference center built in the city. They originally considered having the conference center and hotel built at Irgens Partners LLC’s site for The Corridor development, which hotel operators were OK with, White said.

But the site was dropped when it became clear there was not enough space for parking, and it was understood by hotel operators that Irgens might still build a hotel at the Corridor, she said.

But when plans were announced to build two hotels at The Corridor site, Brookfield’s existing hotel operators were very surprised, White said.

“I am a believer in the free market and encourage business, but we have had low occupancy across the board,” White said. “I don’t believe we have enough demand to bring three more hotels into the market.”

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

No posts to display