Tourists And Conventions Are Back, But Hotels Are Still Missing One Piece That Would Ensure Recovery
On some days, downtown Chicago looks the same as it did in the summer of 2019. Tourists are thick on the streets around Millennium Park and the Magnificent Mile, pack themselves into the now-open restaurants and ride bikes all along the lakefront. The visitors are filling up downtown hotels as well, throwing a lifeline to the industry that the coronavirus pandemic hit the hardest.
Domestic flights at Chicago’s two main airports for the week ending June 19 were up 150% compared to the same time in 2020, and down less than 20% from 2019, according to an analysis by Choose Chicago, the city’s tourist information center.
“Almost everyone I know has taken a vacation in the last four weeks,” HVS Managing Director Stacey Nadolny said.
It’s like old times for some hotel operators.
Occupancy has rebounded strongly on holiday weekends at the Residence Inn Chicago Downtown/Loop, a 381-key hotel at 11 South LaSalle St., owner The Prime Group CEO Michael Reschke said. The hotel clocked 90% occupancy on Memorial Day weekend and 85% on the Fourth of July.
But all these sightseers, however welcome, are usually here only on weekends. That’s not enough for downtown hotels.
“There is still no substantial business travel to speak of to fill rooms Monday through Thursday,” Nadolny said. “That’s the key to recovery.”
Illinois entered the fifth and final phase of its Covid-19 reopening plan on June 11. Leisure travel quickly returned as hotels, restaurants and bars could then welcome customers without public health restrictions. But Nadolny said downtown offices remain largely empty.
That directly impacts the hotel business, as offices closed to their own employees won’t welcome out-of-town colleagues and other visitors, the travelers that in normal times keep hotels filled on weekdays. And until downtown corporations can formulate plans to bring their workers back, hotels will continue struggling with low occupancy rates and revenue.
“What we’re hearing is that most business travel won’t return until after Labor Day, and even then, the numbers may be at a reduced level,” Nadolny said.
Downtown workers are coming back, just not in numbers that would restart the flow of business travelers. According to data from Kastle Systems, a security company that tracks access-card swipes around the U.S., 27.9% of Chicago workers were back in the office as of June 30. That’s only a couple of percentage points above where things stood at the beginning of that month.
Missing out on business travel means a lot of empty hotel rooms. Overall occupancy at Reschke’s Residence Inn now stands at about 54%, he said.
Hotel occupancy across the Central Business District stood at 44.2% in the week ending June 19, according to Choose Chicago’s analysis of data from STR, a hospitality research firm. That’s a 145% increase from the same time last year, but it’s still roughly half the occupancy Chicago hotels were enjoying in the summer of 2019.
Chicago is having one of the slowest recoveries in the U.S. The city’s hotels recorded a revenue per available room of $52 in May, a 59% drop from May 2019, far worse than the average national decline of 22%, according to the American Hotel & Lodging Association’s analysis of STR data. That’s not enough to get hotels out of the deep hole the coronavirus started digging in March 2020.
“Profits are not being made in Chicago right now, and there will not be profits for the rest of the year,” Nadolny said.
No profits for 2021 means some Chicago hotels are still in danger of foreclosure, she added. Although the wave of hotel foreclosures initially feared when much of the city was shuttered last year did not happen, largely because lenders and operators came to agreements that put off such drastic actions, the bills will eventually come due.
“We are going to see some foreclosures in every major city, including Chicago,” Nadolny said.
But along with the return of tourism, there is another source of optimism. Entering Phase 5 meant conventions could return, and after more than a year of cancellations, the McCormick Place Convention Center now has a packed schedule. Some events are expected to draw tens of thousands of attendees, many of whom are already reserving hotel rooms.
Although nine McCormick events originally set to take place in the year’s second half were canceled, more than two dozen remain on the schedule, including the Chicago Auto Show from July 15 to 19, the National Apartment Association’s Apartmentalize event Aug. 31 through Sept. 2, and the three-day Black Women’s Expo, starting Aug. 20.
Black Women’s Expo CEO Merry Green said vaccinations have had an effect and, based on current ticket sales, the event should attract around 25,000 people, nearly as many as it would in a typical year.
“The excitement is out about our show and we’re getting clients and exhibitors that we’ve never seen before,” she said.
Several hundred exhibitors will display health and wellness products, fashion accessories and clothing, and hold sessions on subjects like parenting and criminal justice. Green’s company always books a block of rooms at the Hilton Garden Inn Chicago McCormick Place for the exhibitors, as well as for the local and national entertainers who perform at the expo.
“Every year, whatever we book is taken,” Green said.
Choose Chicago CEO David Whitaker told Bisnow in an email that 2022 is shaping up to be a breakthrough year for McCormick Center. Among the events scheduled are 35 major conventions, expected to generate 1.2 million hotel room nights, roughly the same generated by major conventions in 2019.
That’s welcome news, Reschke said, but it will mostly benefit downtown’s big-box hotels. His Residence Inn, an adaptive reuse of the 38-story Roanoke Building & Tower, a landmark tower designed by Holabird & Roche and completed in 1925, caters to business and leisure travelers.
But when Chicago-based United Airlines announced last month that it would buy 270 new jets from Boeing and Airbus, its largest-ever purchase, a move primarily made to service passengers on business trips, Reschke took it as one more sign that normal operations will eventually return.
“I’m reasonably optimistic that we will be 90% back by the end of this year,” he said. “Just keep your fingers crossed.”