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Chicago Hotels Challenged

by Bob Tivnan, CMI, Chicago, January 2020

 

Chicago has high property taxes, plus one of the highest hotel tax rates in the nation at 17.4%. High property and hotel taxes, coupled with a saturated hospitality market, are creating fiscal challenges for many Chicago hotels.

 

Supply and Demand

 

There are more than 140 hotels and 45,000 rooms in Chicago’s central business district, according to Choose Chicago, the city’s official tourism agency. With 37 new hotels and 8,100 new rooms being added in the past five years, there has been a 22% increase in the hospitality market. The growth includes a new wave of boutique hotels.

 

Demand has not kept pace with the increasing number of new hotel choices. Following a record year in 2018, hotel demand has fallen 2.5%, according to research firm STR. Revenue per available room, a key measure of profitability is down 5.6% to $153.41. Occupancy is now under 75%.

 

“The market has kind of blown up over the last five years,” Stacey Nodolny, managing director of HVS Chicago, a hospitality consulting firm told the Chicago Tribune. “You reach a point of saturation, and that’s sort of where Chicago is at this point.”

 

Looking Forward

 

A slowdown in hotel development could help hotels increase rates and occupancy in the future. There are just four properties slated to open in 2020. However, some analysts believe it could take years to absorb all the new rooms that have come online in recent years.