US Realty Consultants has completed our year-end review of Columbus, Cleveland, Cincinnati, Indianapolis and Chicago.  This article indicates the occupancy and average daily rates of these five cities for the past three years and our projection for year-end 2001.  We have analyzed the Metropolitan Statistical Areas (MSA) for Columbus, Cleveland, Cincinnati, and Indianapolis while analyzing the downtown Chicago market.  In addition, we indicate the number of new hotel rooms proposed and under construction in each of the cities.

All five markets showed decreases in occupancy levels due to the economic recession and the negative impact on travel from the terrorist attacks of September 11, 2001. The Cincinnati MSA is projected to finish the year with the lowest occupancy level at 50% while the downtown Chicago market is projected to record the highest occupancy level at 67.1%. Three of the five markets recorded a decline in average daily rate while Columbus and Indianapolis recorded small increases.   The following table indicates the projected new supply which we are tracking in each city. The table includes both hotels which are under construction and those which are proposed and have a serious development potential.

The table indicates that Columbus, Ohio is projected to have an 8.5% increase in supply between 2001 and 2003 which is the highest percentage increase of all of the compared markets.  The market with the lowest percentage increase is the downtown Chicago market followed by the Cincinnati MSA market.  As Cincinnati is recording the lowest occupancy level, it is advantageous that the increase in room supply is finally declining after a number of years of strong expansion.

The following table presents occupancy and average daily rate statistics for the metropolitan statistical areas encompassing each city.  The figures were obtained from Smith Travel Research.

CINCINNATI, OHIO

The Cincinnati MSA Market experienced a demand increase of 3.0% from 1999 to 2000.  Room demand decreased -9.5% from 2000 to 2001.  We estimate a 2.0% increase in room supply in 2001 versus a market supply increase of the 3.0% in 2000.

The majority of supply growth is occurring primarily in the northern Cincinnati suburbs along the Interstate 75 corridor.  Hotel supply growth in the northern suburbs can be attributed to the growth in commercial office and retail developments that included the opening of an eight-story 256,000 square foot office tower during 2001.

Downtown Cincinnati hotel occupancies were negatively impacted by the city’s April 2001 riots and, the Comair Pilots strike.  New developments included the opening of The Newport on the Levee retail office, and entertainment complex in Newport Kentucky during 2001.  Planned projects include the continued construction the 45,000-seat, $235 million Reds baseball stadium, which is scheduled to open for the 2003 season.  The Cincinnati Convention and Visitors Bureau has proposed the expansion of the existing Dr. Albert B. Sabin Cincinnati Convention Center. 

CLEVELAND, OHIO

During the period 1999 to 2000, overall demand increased by 3.5% while new supply increased by 4.9%.  Year-end projections for 2001 indicate total demand declining by

Several major hotel projects opened in 2001 including the 294-room Hyatt Regency Cleveland at the Arcade and the 267-room Embassy Suites in Independence.  New developments proposed for the Cleveland area have decreased as compared to previous years due to the lack of progress on the new convention center and economic concerns about the health of the local economy.  Although political leaders have identified two potential sites in downtown Cleveland for a new convention center, they have not identified funding.  USRC estimates an increase in overall room supply in the Cleveland MSA of approximately 5.4% by year-end 2003.  These include up to seven hotels including the 240-room Hilton Garden Inn under construction in downtown Cleveland and the 300-room Intercontinental Hotel under development in Midtown near the Cleveland Clinic.

The bankruptcy of LTV Steel, the closing of Dillard's department store in downtown Cleveland, and problems with the airport expansion raise concerns for the region.  The redevelopment of the former Six Flags Ohio combined with the former Sea World of Ohio into Six Flags World of Adventure has created a larger amusement park attraction in Aurora, on the east side of Cleveland.

COLUMBUS, OHIO

The Columbus MSA Market showed a demand increase of 3.7% from 1999 to 2000. We project a modest -2.2% demand decrease for 2001 when compared to 2000. Total supply increased by 3.9%  in 2000 and 6.6% in 2001, which is the single largest increase of all the markets analyzed. From 1998 to year-end 2000, occupancy levels in Columbus remained relatively stable at levels near 64.0% despite these increases in supply, spurred by a significant amount of commercial development throughout the Columbus MSA. USRC estimates a decline of nearly five occupancy points for year-end 2001 due to significant supply increases, the impact of the softening economy, and the tragic events of September 11, 2001.

Hotel development in the Columbus MSA has been especially active in the Airport, East, and North Submarkets in recent months. The East Submarket, which includes Pickerington, Reynoldsburg, and Easton has seen the addition of the 313-room Hilton and a 120-room Residence Inn at Easton, and five new limited-service properties representing 390 rooms in 2000 and 2001. The Airport Submarket, spurred by a 5% increase in airport traffic and the current expansion of gates at the C Terminal, has seen the addition of four hotels in 2001 with a fourth currently under construction. In addition, the former Quality Inn underwent significant renovations and a conversion to a Ramada Inn. With increased demand projected following the opening of the Polaris Fashion Mall, the North Submarket has seen the development of two hotels at the Polaris Interchange as well as new supply openings at Crosswoods. Future supply additions are anticipated with the opening of the six anchor super regional mall.

The construction of COSI, the opening of Nationwide Arena, and the recently completed expansion of the Greater Columbus Convention Center, all of which are part of $2 billion in new developments in downtown Columbus, are expected to positively impact city-wide hotel occupancies in future years. Although the number of events in 2000 was down by approximately 11.6%, the total number of convention attendees increased by 74.9% to 1,997,688 with an estimated economic impact of approximately $1.46 million. 

INDIANAPOLIS, INDIANA

Overall demand in the Indianapolis market remained relatively stable from 1998 to 1999, before increasing by 8.0% for year-end 2000. This significant increase can be attributed to several factors including the city’s renewed popularity and its recognition as a tourism destination city. The opening of the Circle Center Mall, the White River Park attractions, and revitalization of downtown into an entertainment district has aided the rejuvenation of the downtown area. Other factors attributing to increased demand in 2000 include the hosting of the NCAA Final Four in April of 2000 and an increase in attendance at the Convention Center. According to the Indianapolis Convention & Visitors Association (ICVA), convention attendance increased from 767,713 delegates in 1999 to 822,914 in 2000, an increase of 7.2%. Furthermore, the number of convention related room nights increased by 17.3% to 474,804 for year-end 2000. Following this record year, demand decreased for year-end 2001 by -2.0%.

Increased demand has spurred significant development of new hotel properties throughout the Indianapolis MSA in recent years. Overall supply increased by 5.7% in 2000 and 3.6% for estimated year-end 2001. Nearly 1,000 rooms of the additional supply are located in the CBD consisting of the 615-room Marriott and the 332-room Adams Mark Hotel and Suites. The majority of the additional supply consists of limited-service properties located along the city’s outerbelt.

This increase in supply has resulted in a decline in occupancy of 5.7% from 60.9% in 2000 to an estimated 57.6% for year-end 2001. Although our projections estimate a rather modest increase in supply of approximately 3.0% in 2002, occupancy levels are not projected to improve in the near future due to the continuing effects of the events of September 11 and the general softening of the economy, which has resulted in decreased business travel throughout the region. In addition, the ICVA reports that convention bookings as of the end of September were lagging projections by about 35 percent for 2002 and 45% for 2003. Interestingly, the number of events for 2002 is only two less than the record number of bookings for 2001; however, attendance and projected length of stay are lower than previous years.

CHICAGO, ILLINOIS

During 2000, lodging demand in the downtown Chicago hotel market increased by a strong 6.4% while new supply increased by 1.8%.  For 2001, the downtown new supply increased by approximately 2.7% but lodging demand declined by approximately 10%, as a result of a decline in business travel related to a slowdown in the economy and the September 11^th terrorist attacks.  Chicago’s two largest submarkets, Downtown and O’Hare, fared the worst in 2001.  The Downtown Submarket has traditionally been led by corporate and convention demand, the two demand sources that experienced the greatest declines in 2001.  The O’Hare submarket experienced similar declines in occupancy and rates, although this market was significantly affected by the 20%+/- reduction in airline flight schedules implemented by the major airlines serving O’Hare after the September 11^th events.

The suburban Chicago submarkets have generally fared better in 2001 than the Downtown and O’Hare submarkets.  The DuPage County submarket will end 2001 with the smallest decline in occupancy and room rates of any of the Chicago submarkets.  In the Schaumburg submarket, the full-service hotels experienced significant declines due to business contraction of Motorola and 3Com, however the mid-scale and limited service hotels in the market experienced only a small decline in occupancy while maintaining room rates comparable to 2000 levels.

In the Downtown Chicago submarket, four new hotels with a total of 1,295 rooms and two renovated hotels opened in 2001.  For 2002 and 2003, the only hotels under construction in the Downtown market include the 415 room Sofitel expected to open mid-year 2002 and the 384 room Hard Rock Hotel projected to open by 2004.  New construction in the suburban markets have been dominated by mid-scale, limited service and extended-stay developments.  Convention-related demand is expected to experience a modest increase in 2002 compared to 2001 as result of advance bookings and rotation of shows while leisure demand should increase noticeably due to increases in auto-related vacation travel.