In Milwaukee, supply growth dominates

MILWAUKEE—Things are looking good for the hotel market in Brew City. While cautious, industry executives think it can stay that way.

“Current city-wide market conditions are strong,” said Mark Eble, managing director, CBRE Hotels Consulting’s Midwest practice. “RevPAR increased 2.7% in 2018, compared to average annual growth of 3.9% for the period 2014 through 2017. CBRE Hotels Americas Research forecasts RevPAR growth of 6.2% in 2019, the highest annual rate since 2013.”

CBRE is forecasting this growth because of an estimated increase in occupancy of 2.7%, and a 3.4% gain in ADR. The RevPAR boost is better than the national projection of a 2% increase. The upper-priced segment of Milwaukee is forecast to attain a 4% gain in ADR and see a 3.5% increase in occupancy, resulting in a 7.6% RevPAR increase. Lower-priced hotels are projected to experience an ADR growth rate of 3.1%, along with a 1.8% gain in occupancy, resulting in a 5% RevPAR increase. Looking toward 2020, Milwaukee RevPAR is expected to decline 2%. This is less than the rate of growth in 2019.

“Milwaukee is seeing a more than 30% growth in hotel supply just in downtown alone,” said Marco Bloemendaal, SVP of sales, Visit Milwaukee. “Based on current hotel proposals and projects in the works, we are expecting more than 3,000 additional hotel rooms by the end of 2020. Event organizers are excited when they see the diverse hotel options—in terms of amenities as well as affordability—they can offer their attendees in Milwaukee and the surrounding areas.”

He continued, “We have all the major hotel brand companies represented and even offer a wide variety within each portfolio. Milwaukee also offers many exceptional boutique hotel options that have incorporated unique amenities, such as nods to our beer and brewing history, rooftop patios, complimentary vintage bicycles and live, local music.”

Hawkeye Hotels recently entered the market with the start of construction on three hotels in Downtown Milwaukee. With JR Hospitality, the company is constructing two buildings that will house the properties, with one building containing a Home2 Suites by Hilton (115 guestrooms) and Tru by Hilton (100 guestrooms), while the other is a Holiday Inn Express (116 guestrooms), part of the InterContinental Hotels Group (IHG) portfolio. Each of these brands is a first in the area.

Hawkeye Hotels and JR Hospitality are building three hotels in Downtown Milwaukee.

“Milwaukee has been on our radar for many years,” said Raj Patel, chief development officer, Hawkeye Hotels. “We love the creativity and spirit of the city, and we knew we wanted to be part of the revitalization efforts. Strength and growth in sectors like services, healthcare and education, as well as commercial development trends, contributed to our choice to enter the market.”

Patel said that the company decided to build three hotels at once because its leadership felt that the market was underrepresented in many segments. “We saw opportunity there,” he said. “With the Holiday Inn Express as select-service, the Home2 Suites as extended-stay and the Tru as midscale affordable, we can add a significant number of rooms in one market, diversified across three segments.”

The Milwaukee hotel market is expecting to see a boost with the announcement that the 2020 Democratic National Convention (DNC) will take place in the city. “If the 2016 DNC is an indicator, in July of 2016, Philadelphia citywide RevPAR was up a whopping 30.7% over the same month in 2015, largely from massive rate increases,” said Eble. “However, for the entire year, Philadelphia RevPAR in 2016 was up just over 5%, slightly lower than the annual growth recorded in 2015.”

For Greg Marcus, president/CEO of The Marcus Corporation, which has been operating hotels in the city for more than 60 years, including the iconic Pfister Hotel, the future for the city is incredibly bright. “Our city is benefitting from considerable new investment, and no doubt the rest of the nation is starting to take notice given next summer’s Democratic National Convention at the Fiserv Forum,” he said. “This is great news, and we love that others are starting to see what we’ve long known.”

But, he said, city hospitality leaders need to remain cautious. “We need to resist the urge to think of Milwaukee as the next ‘it’ market and throw anything at it that will stick and, instead, think strategically about the kind and location of room supply we really need,” he said. “For years, we have seen other operators pop up, yet we are no further along in expanding our convention center, which is central to the growth and sustainability of the hospitality industry.”

He continued, “In the last two years, Milwaukee’s average annual growth of supply has been 3.5% and demand 3.8%, so as a market we’ve absorbed the supply growth, just barely, while trailing national supply growth averages during the same time frame (1.9% supply and 2.6% demand). We have a new wave coming, and it could be similar to other markets nationally where supply is now exceeding demand.”

Indeed, CBRE is predicting that for the next two years, supply will outpace demand growth in Milwaukee. “Slower growth in demand and higher growth in supply are forecasted to gradually reduce occupancy levels to 60.4% by 2022,” said Eble. “As occupancy declines, ADR growth is expected to be suppressed and RevPAR growth is forecasted to be minimal through 2023.”

With this, Marcus again called for caution. “Simply put, more isn’t always better; instead, we need greater alignment between the hospitality industry and the future economic growth of our community, so we have the right supply in the right place that performs well versus too much supply that is only half occupied,” he said. HB

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