Despite additional rooms, occupancy remains high at downtown hotels

Real Estate

The 205-room Marriott Downtown Hotel at 323 E. Wisconsin Ave. opened in 2013.

A Chicago developer is planning to build a 110 to 150 room hotel on the block northwest of Plankinton Avenue and Clybourn Street in downtown Milwaukee.

Clark Street Real Estate has owned the three-acre site since 2008, which is adjacent to The Shops of Grand Avenue, and has been planning a dense mixed-use development including retail, office and hospitality, according to the company’s website.

Clark Street is planning to partner with Choice Hotels International Inc. – which owns several mid-scale hotel brands including Comfort Inn, Comfort Suites and Clarion – on the project, according to numerous commercial real estate sources familiar with the project.

Also, a 200-room Westin Hotel is proposed just west of the new 17-story 833 East office building. And, Bear Development plans to convert the Button Block building at 500 N. Water St. into a 94-room Homewood Suites hotel.

Those are just the possible hotels. Several hundred hotel rooms have also been added to the downtown market recently.

Since 2012, 422 hotel rooms have been added to downtown Milwaukee – increase that number to 803 rooms if you count the 381-room hotel at Potawatomi Hotel & Casino that opened in 2014.

The area in and around downtown now has 4,772 hotel rooms – up from 3,715 in 2009, with most of the growth happening in the past two years.

The Kimpton Hotel is one of two hotels that will open in 2016. Since 2012, 422 hotel rooms have been added to downtown Milwaukee.
The Kimpton Hotel is one of two hotels that will open in 2016. Since 2012, 422 hotel rooms have been added to downtown Milwaukee.

By mid-2016, 313 more rooms will be added to the neighborhood, with the 158-room Kimpton Hotel at the northeast corner of Broadway and Chicago Street in the Historic Third Ward and the 155-suite SpringHill Suites at the corner of Fourth and Wells streets both scheduled to open next year.

While at first glance it may seem like the downtown hotel market is reaching a saturation point, market data from Hendersonville, Tenn.-based STR Inc. shows downtown Milwaukee hotels are having a good year.

The occupancy rate through August at the 28 downtown hotels is 67.9 percent. While that is down slightly from the same time period in 2014, when the occupancy was 70.9 percent, the revenue per available room is holding steady. Through August, it’s $91.33. For the same time last year, the revenue per room was $91.24.

As a point of comparison, occupancy during the first eight months of the year in 2009 was 56.6 percent for the 22 hotels that existed at that time in downtown Milwaukee. Revenue per available room in 2009 was $65.92.

The average daily room rate at the 28 hotels downtown is $134.59, up about $6 from 2014, when the average daily room rate was $128.69.

“I’ve been doing this for over 45 years – to see a market like this is unbelievable,” said hotel industry analyst Greg Hanis, president of New Berlin-based Hospitality Marketers International Inc.

The 307-room Pfister Hotel at 424 E. Wisconsin Ave. is one of Marcus Corp.’s three hotels in downtown Milwaukee.
The 307-room Pfister Hotel at 424 E. Wisconsin Ave. is one of Marcus Corp.’s three hotels in downtown Milwaukee.

When breaking down the data further and looking at five luxury hotels in downtown and Wauwatosa – The Pfister, 424 E. Wisconsin Ave.; InterContinental, 139 E. Kilbourn Ave.; Hilton, 509 W. Wisconsin Ave.; Marriot Downtown Hotel, 323 E. Wisconsin Ave.; and the Crowne Plaza Milwaukee West, 10499 W. Innovation Drive, Wauwatosa – the occupancy rates are even higher.

The occupancy rate for those five hotels is at 75.8 percent, up from 71.3 percent in 2014. At the same time, the average daily room rate is only down $1 – from $133.13 to $132.16.

“What this indicates to me is there was unaccommodated lodging demand among luxury hotels,” Hanis said. “When new hotels opened, there was an increase in demand in the downtown areas.”

In December 2012, the 127-room Hilton Garden Inn opened at 611 N. Broadway. The following year, the 205-room Marriott and the 90-room Brewhouse Inn & Suites at the former Pabst brewery complex opened.

Potawatomi opened its hotel in 2014; however, Hanis said he doesn’t look at its occupancy rates because casino hotels are operated differently than traditional hotel properties.

Hanis said barring another recession or economic collapse, downtown Milwaukee is nowhere near the saturation rate for hotel rooms.

There was some concern at the beginning of summer that occupancy rates would be lower this year because the convention business would be slower, said Tim Smith, general manager of The Pfister.

That concern proved to be unfounded.

“This is a pretty good year,” Smith said. “The PGA tournament in Kohler was also very good for us in August.”

Losing group travel is always a fear for the hotel industry, particularly during and in the years following a recession. New technology would make it possible to replace actual conferences with video conferences and webinars, but the majority of industries are still relying on face-to-face contact.

“Since the 1970s, I’ve heard someone say ‘there goes the group business,’ but we can’t be friends with our computer,” Hanis said. “The industry is showing that the group business is definitely coming back, and the downtown market is definitely seeing that.”

The 205-room Marriott Downtown Hotel at 323 E. Wisconsin Ave. opened in 2013.
The 205-room Marriott Downtown Hotel at 323 E. Wisconsin Ave. opened in 2013.

Milwaukee-based The Marcus Corp. owns The Pfister, InterContinental and Hilton, and with a combined 1,257 rooms, owns the most supply in the market.

Marcus has also opposed public subsidies for new hotel developments downtown.

Smith said despite the strong occupancy rates, adding 400 rooms to the inventory downtown could make it difficult in the winter months when occupancy is closer to 50 percent.

“We need more hotels by the convention center to attract more convention business,” Smith said. “But the smaller hotels (added elsewhere) erode what’s already here. That said, new competition makes everyone better, it keeps us sharp and makes us sure we have the right talent in place.”

Occupancy in the suburbs has not been as high. Hotels in Brookfield are seeing rates around 54 percent with average daily room rates at $103, $30 lower than downtown Milwaukee’s average rate.

“There is no supply growth in the (suburban) area and demand is declining,” Hanis said. “I don’t want to say the suburbs are suffering, they’re just kind of plodding along right now and probably running a little less than industry averages.”

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