In the late '60’s and early '70s folk music group Peter, Paul and Mary had a hit song, "Where have all the flowers gone?"
Given recent news, downtown Milwaukee hotels could be asking "Where have all the corporate/commercial travelers gone?"
Planned or possible conversions of the 100 East office building and other mostly vacant office buildings in downtown Milwaukee into apartments is interesting news for the adaptive reuse of these structures. However, for downtown hotels, both existing and new, the conversion of downtown office buildings into apartments will have a significant effect on their potential success and continued operation.
There are three key market segments that drive the success of hotels. These market segments are: social/leisure, group (business and pleasure) and the very necessary corporate/commercial travelers.
The social/leisure demand has been the lifeblood of hotels in recent years. This market has generated pent up lodging demand that resulted from the COVID-19 pandemic. People wanted to get out and travel. Hotels and airlines reaped the benefits. Weekend hotel occupancy was stronger than mid-week occupancy. However, this strong growth and lodging demand is showing signs of leveling off and, in some cases, retracting due to inflation and the cost of travel.
The group market is now rebounding better than the corporate/commercial travelers market. Meetings, trade shows, conventions, sporting events, social events, etc. are all coming back strong. Milwaukee is going to experience this big time in 2024 with the Republican National Convention.
The corporate/commercial traveler market was expected to rebound faster than group markets. This was expected to happen last fall. But we are still waiting for this market to return! It is lagging behind. However, for Monday through Thursday nights, as in the past, it’s been the main driver of lodging demand. Companies in the market area generated this lodging demand for administrative needs, sales and marketing, training, vendors and suppliers, human resources, etc. "Where Have All the Flowers Gone?"
This last point is where the loss of office space and the conversion to residential use comes in. When you lose this office space, you lose corporate/commercial market demand for hotels. Apartments and condominiums do not generate mid-week lodging demand. Yes, it bring economic activity to downtown for the restaurants, entertainment venues and will support retail. But some of the corporate/commercial lodging demand is lost if office space downtown is reduced.
The solution is not easy. Building owners and lenders who are under water with vacant office space will seek the easy solution, sell the asset or find another use.
The hard job coming from the economic development side is that it needs to attract new corporate/commercial activity to the hotel market. If this new lodging demand is not found, the existing and, newly announced hotels, are going to lose a major market segment needed for their success. No one wants a vacant building that is dark. But what it is occupied with, will be critical to the success of a major economic engine in downtown, the lodging industry.
One last thought, if the downtown hotels struggle, the quality of lodging in the market can decline, new hotels are not attracted, and the other two market segments can be effected adversely. It’s a ripple effect that needs to be kept in balance, and that’s an art that will challenge local officials.
Greg Hanis is the president of Hospitality Marketers International, Inc., which has offices in New Berlin and Fort Myers, Florida.