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Rates rise, occupancy drops at downtown hotels
From the Crain's Chicago Business Newsroom June 09, 2008 By Alby Gallun
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(Crain's) Downtown hotels kept hiking room rates in the first four months of the year, but the slumping economy could make life tougher for hoteliers in the coming months.
The average downtown room rate through the end of April rose to $174.98, up 11.6% from the year-earlier period, according to Property Valuation Advisors Inc., a Chicago-based hotel consulting and design firm, using data provided by Smith Travel Research, a Tennessee-based hotel market research firm.
Yet the downtown hotel occupancy rate fell to 61.6% in the first four months of the year, down from 64.3% in the year-earlier period. In strong markets, it's often more profitable for hotel operators to give up some occupancy while they keep raising rates. Nonetheless, the falling occupancy rate also could be a sign of waning demand.
"I'm not saying that the sky is falling," says Property Valuation President Brian Flanagan, "but about everything's not going to work out like it has the last few years."
Government data the past couple months had fueled hope that the U.S. economy was stabilizing. But recession fears increased after the news last Friday that the unemployment rate jumped to 5.5% in May and oil prices jumped nearly $11.
The good news: Chicago's convention business remains sound and is slower to respond to the ups and downs of the economy because meetings are often booked years in advance.
But business and leisure travel are another story. Companies looking to tighten their belts during tough times often slash travel budgets first, Mr. Flanagan says. Cash-strapped consumers often react the same way, especially with gas prices hovering near $4 a gallon.
The hope is that more Chicago-area residents will decide to stick closer to home, visiting downtown tourist attractions and hotels rather than traveling elsewhere in the United States or overseas. And many hotel owners are counting on the weak dollar to attract more foreign tourists to Chicago.
Robert Habeeb, president and chief operating officer of First Hospitality Group Inc., says the number of rooms occupied by leisure travelers has risen 20% this year over the same period in 2007 at one downtown hotel managed by the Rosemont-based firm. Corporate business, meanwhile, has dropped 10% at the hotel, which he declines to identify.
"The corporate guest is where you hear people talking about weakness," Mr. Habeeb says. "Some companies have issued revised travel policies."
The average room rate for the entire Chicago area rose 7.7% through April, to $123.07, according to Property Valuation Advisors. The occupancy rate fell to 57.4% from 59.3% in the first four months of 2007.
Most hoteliers expected the local market to cool off this year after an especially strong 2006 and 2007, when downtown room rates hit an all-time high. And with the economy faltering early this year, many braced themselves for a downturn that has yet to show up - at least in the numbers.
"The good news," Mr. Habeeb says, "is that it doesn't seem to be as bad as everyone's made it out to be.
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