Chicago Hotels See Rebound

After suffering a dropoff in convention and meetings business in the first six months of 2004, Chicago-based hotels are optimistic that bookings will rebound in the next 12 to 18 months. When those bookings return, companies may see higher prices and have less negotiating power.

Meeting space rates in 2005 will be 10 percent higher than this year, and buyers can expect sleeping room rates to jump 6 percent 10 percent over the same period, said Scot Cotton, director of sales and marketing at the Chicago Marriott Downtown-Magnificent Mile.

Anticipating a strong 2005 and 2006, the Marriott has invested $12 million into all 1,200 of its rooms, with renovations slated for completion by the end of March.

For most of 2004, it has been a buyer's market in the Windy City. Businesses had negotiating power and benefited from a surplus of rooms during a dramatic slowdown in transient travel and corporate meeting sales.

According to Smith Travel Research, revenue per available room declined 0.7 percent from January to June 2004. In comparison, RevPAR increased 8.2 percent for the United States during the same time period.

"Chicago has seen the greatest rate decline," said Jan Freitag, who is a director at Smith Travel Research. "The drop is inconsistent with the rate increase that we observed throughout other major metropolitan areas."

According to Freitag, occupancy from January to June 2004 at Chicago hotels was 58.9 percent and the average room rate was $99.35. In contrast, hotel occupancy in New York City was 78.7 percent, with an average daily rate of $172.89 during the same period.

The drop in Chicago's meetings in the first half of 2004 largely was due to the cyclical nature of the city's convention business.

"Citywides come to Chicago every two or three years, and it just happened that in 2004 we didn't see a lot of rotations," Marriott's Cotton said. "We expect demand to increase into this year and next."

There already are signs that business is returning to Chicago. The occupancy rate for the month ending Aug. 14 was 75 percent, according to Smith Travel Research.

Cotton predicted Chicago hotel prices soon will be on par with the prices the industry had in 2003—considered a relatively successful year in Chicago meeting sales—and expected that Chicago's 2005 rates will compete with those found in such cities as New York. Cotton noted "there is going to be less negotiating ability going into 2005."

Jerry Murphy, Chicago-based account executive at meetings management company Conferon, agreed. Murphy's research shows that hotel chains plan to be more aggressive with their rates in the second half of 2005.

"The negotiating power is going to shift back to the hotels again," Murphy said. "They are anticipating that the market will pick up, and Chicago's rising prices are part of a larger trend." Overall, 2005 U.S. hotel rates will rise 3.7 percent over 2004 rates, according to projections released in September by PricewaterhouseCoopers.

Despite the encouraging news for Chicago hotels, the groups and meetings market is not recovering as quickly as is transient travel on a nationwide level, according to Rick Binford, national director of corporate sales at Conferon. "The fall period is a typically strong season for meetings, but fall 2004 did not have as much advance business on the books," Binford said. "Those hotels with holes to fill are being very aggressive about booking space."

One offshoot of the economic slowdown in Chicago is that smaller groups continue to take advantage of the surplus of rooms. Marsha Goldstein, president of My Kind of Town, a Chicago-based destination management company that works with properties with less than 1,000 rooms, said the first half of 2004 was a success for some businesses. She said hotels will continue to offer low rates. for meetings booked at the last minute.

"It's still possible to get a room for $69 in downtown Chicago," Goldstein said, adding that buyers continue to have a good deal more negotiating power in Chicago than in other cities.

"Honestly, it's a Midwest thing," Goldstein said. "There is more negotiation on both sides. There is more willingness for a client to meet our needs."

Goldstein said she still is locking in 2004 prices for 2005 meetings bookings for her clients, and is uncertain what the Chicago price market will be like in 2005.

"I really think prices will be set on a property-by-property basis," Goldstein said.