The course correction with hotels was just getting started over the summer. Now there are signs of a full-out softening of the market.
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Waterton hospitality CIO Nir Liebling says this was expected, as there's a ceiling to how long every economic recovery lasts. But the waves in the market don't mean that 2017 can't be positive, and dealing with the fallout now will determine how strong the sector bounces back.
Here's what's weakening the Chicago hotel market.
1. Investors Are Increasingly Cautious
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The recent sales of the Hotel Allegro (pictured) and the Hyatt Place Downtown are proof investors are being more cautious with their money and are looking for great deals. Nir says the Allegro had a limited buyer pool that recognized the risks involved with acquiring the property. It was recently renovated and had low cash flow, two contributing factors into why a hotel valued at over $100M ended up trading for $87M.
2. Slower Convention Business
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Chicago's vaunted convention business wasn't as robust as it was last year, but Nir says this is a cyclical factor that's out of our control. If the number of conventions booked next year increases, we won't be talking about 2016 as much. The city is certainly bullish on that, as it's fast at work building a Marriott Marquis at McCormick Place. Which leads us to our final factor...
3. A Glut Of Supply
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After a banner 2015 that saw the delivery of 10 hotels and 2,407 rooms, only three hotels and 809 rooms went online this year. But there are still over 9,600 hotel rooms in the pipeline, with the 1,206-room Marriott Marquis leading the way. So far, that supply has been able to keep up with demand from convention and tourism business, but if both decline that can lead to an oversupply and adversely affect the market until stabilization occurs.
To learn more from Nir and our other experts, attend Bisnow's Hospitality Boom event, 7am Tuesday, Dec. 6, at Londonhouse. Register here.
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