Eight new hotels are now under construction in Chicago’s central business district, totaling about 1,500 new rooms, according to the latest list from STR Group. Developers are also planning to start construction on more than a dozen other new hotel projects, totaling an additional 3,700 new rooms. Most notably, the St. Regis Chicago, part of a 101-story super-tall skyscraper, is expected to open in the coming months.
“We remain bullish on the outlook over the next few years, which is when our location will kick into gear,” says Ernest Lee, head of development and investments in North America for citizenM, a hotel company based in the Netherlands. The company plans to open 280 new hotel rooms at 300 N. Michigan Ave., a new, mixed-use, 47-story tower now under construction.
As more people got their COVID-19 vaccinations in 2021, demand for hotel rooms began to return in downtown Chicago: 58.7 percent of hotel rooms were occupied in July 2021, according to STR. That’s a huge improvement from the first months of the pandemic: only 24.7 percent of hotel rooms were occupied in Chicago’s central business district in July 2020, during the first pandemic summer.
Occupancy rates collapsed in Chicago even though scores of hotels simply closed for business during the pandemic, taking their thousands of rooms out of the occupancy-rate equation. The number of hotel rooms counted by the U.S. Census Bureau in Chicago’s downtown fell to 30,000 in April 2020 from more than 48,000 the month before. Nearly all those rooms had reopened by July 2021.
Chicago’s Loop has begun to come back to life on weekends. The recent four-day outdoor music festival Lollapalooza packed 100,000 people a day into Chicago’s Grant Park.
“Leisure has bounced back strongly as soon as cities reopened, and we expect that to continue,” says Lee.
But the hotel industry in the Chicago Loop are still far from fully recovered. Hotel rooms downtown were 82.5 percent occupied in July 2019, the year before the pandemic, according to STR.
“The big question for hotels in the Loop will be the future of business and group travel,” says Lee.
The numbers of workers showing up to Chicago office buildings is about 30 percent of what it was just before the pandemic, according to an analysis of the workers entering buildings by Kastle Systems, a technology company based in Falls Church, Virginia, that creates building security systems used at many Chicago office towers.
“Our return-to-office numbers are pretty much the key metric to watch in the return to business travel,” says Brian Tkac, director of hospitality analytics for STR. “If they are in their offices, that provides a stable base for them to travel.”
Some developers believe that even if many workers continue to work from home, that might create new opportunities for hotel operators. “As workforces become more dispersed due to hybrid setups, colleagues who were once living in the same city will become spread apart,” says Lee. “They will need to come together periodically for in-person meetings but will now need to stay in hotels instead of returning home.”
Conferences and conventions are also likely to draw travelers to Chicago hotels. “The citywide convention calendar and attendance is what drives that midweek business,” says Tkac.
Several large conventions are already scheduled to return in the fourth quarter of 2021, Tkac says. For example, the Radiological Society of North America in planning to return to Chicago’s McCormick Place for its 2021 convention.
“That’s close to 170,000 people,” says Tkac. “Next year, the convention calendar looks very solid, very healthy, even compared to 2019 and the years before that.”
Deferred Plans to Build
The pandemic caused a tremendous amount of chaos, but it also put an end to Chicago’s problem with overbuilding. In the years before the pandemic, developers had rushed to open thousands of new hotel rooms, especially in the River South submarket, close to Chicago’s McCormick Center. The average occupancy rate had peaked in 2017 and sagged since then, according to STR.
“There had been significant supply growth,” says Tkac. “That softened the occupancy rate in the central business district.”
In the first months of the pandemic, developers deferred plans to build eight new hotels in or near the Loop. The eight new hotels would have added 1,694 new hotel rooms to the market, according to STR.
Developers continue to announce new investments in Chicago—betting on a full recovery for hotel demand in the Loop.
“It’s always going to come back: Chicago has always been resilient and has always rebounded,” says Tkac.
Murphy Development Group announced redevelopment plans in July 2021 for a landmark hotel attached to Chicago’s 4 million-square-foot (372,000 sq m) Merchandise Mart in Chicago’s River North neighborhood. A Holiday Inn operated on the site for four decades.
Murphy will transform part of the 521-room hotel into a dual-branded hotel. When it reopens in 2022, the giant building will include both a Holiday Inn and a voco hotel, a premium hotel brand also owned by IHG Hotels & Resorts, owner of the Holiday Inn brand. Both the voco and the Holiday Inn will be operated by Chicago-based Hostmark, which has been affiliated with the hotel since it first opened its doors.
Learn more about innovative developments in Chicago at the 2021 ULI Fall Meeting.