Real Estate Spotlight: Racine, Kenosha counties see growing need for hotel rooms

The Kings & Convicts brewery is being built along with a new high-end hotel in Pleasant Prairie.
The Kings & Convicts brewery is being built along with a new high-end hotel in Pleasant Prairie.

The area along I-94 in Racine and Kenosha counties is booming with new development as more companies locate and expand there. Hospitality and tourism experts say this development activity has created a need for more hotel rooms.

BizTimes Milwaukee examined hotel market data for the two counties, specifically focusing on the I-94 corridor eastward to Lake Michigan. The data, provided by Hendersonville, Tennessee-based STR Inc., showed that hotel rooms added in this area over the past several years were quickly absorbed, indicating the demand for rooms is there.

According to the STR data for 2019, the hotel occupancy rate through July was 57.6%, one percentage point below the occupancy rate for the same period last year but within the range of 52.6-60.3% reaching back to 2013. Over that same period, five hotels have come online, four of which were added in 2018 and 2019.

Greg Hanis, hotel industry analyst and president of New Berlin-based Hospitality Marketers International Inc., said hotel guest demand growth in the Racine County and Kenosha County area has exceeded the pace of hotel development. Hotel room supply in the area has increased about 3.2% per year while demand has increased about 5.4% annually.

“Which is really good, because what that’s indicating is the new hotels are bringing new demand to the area,” he said. “That’s a real positive thing; even though the occupancy has stayed relatively flat, the demand has gone up.”

Hanis calculated an absorption rate of 7.1 months for the new hotels in the Racine County and Kenosha County area. He said that absorption rate is more than satisfactory to many hotel developers.

“Most developers like to see it under three years and, in fact, they like to see it around two years just to be on the safe side for absorbing the new rooms,” Hanis said.

Meanwhile, the average room rate in the area has grown from around $80 during the first seven months of 2013 to about $96.50 in 2019. Hanis said the data reveals a 4.1% growth rate per year on average, which is above the rate of inflation.

Dennis DuChene, president of the Kenosha Area Convention and Visitors Bureau, noted the county has seen the number of hotel rooms increase by roughly 200, to around 1,200, over roughly the past year. He said while average daily room rates haven’t yet caught up to the increase, the rooms are certainly being used.

“As the rooms … come online, we’re filling these rooms,” he said. “It’s driving the rates down a little bit, but I think over time things will even out.”

He said increased demand is coming from the growing number of area events as well as businesses moving operations across the Illinois state line.

Dave Blank, president and chief executive officer of Real Racine, the Racine County convention and visitors bureau, said the hotel market reports he reviews regularly show occupancy has remained the same even as room numbers have gone up with the addition of new hotels. He said this indicates the county could take on even more hotel supply.

Taiwanese electronics manufacturer Foxconn Technology Group is among a number of major companies starting up new operations in the area. So far, hoteliers say Foxconn and other new companies have not been the drivers of hotel room demand growth in Racine County, but rather the workers who are putting up the new buildings and reconstructing the roads, Blank said. Major ongoing road projects include the expansion of I-94 south of Milwaukee County.

Heather Wessling Grosz, vice president of economic development at the Kenosha Area Business Alliance, also said extended-stay hotels are seeing demand from construction workers and other business travelers.

KABA invested in the 80-room Stella Hotel & Ballroom, which opened recently in downtown Kenosha. Wessling Grosz said the hotel, particularly the event space, meets space needs for weddings and corporate events.

“It’s just a regular and constant increase in the demand for hotels because it’s a growing market,” she said.

Construction in late August officially commenced on a development that includes a 124-room hotel and a brewery along I-94 in Pleasant Prairie. M. Brad Slavin, a consultant on the project, said construction of the new Kings & Convicts Brewing Co. brewery has started first, with the hotel to follow.

Slavin said the site of the hotel and brewery is “an optimal location” due to its proximity to new facilities being built for companies such as Foxconn and German candy maker Haribo of America.

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Alex Zank, former BizTimes Milwaukee reporter.

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