United States -  Chicago

Overview:

The greater Chicago market is experiencing a period of economic strength. Over two dozen Fortune 500 companies are headquartered in the Chicago area, spanning a variety of industries, including finance and food services. New companies are drawn to the Chicago area for its modern transportation infrastructure, central location, affordable cost of living, and world-class cultural, sports, and entertainment attractions. Several areas of Chicagoland are experiencing growth or revitalization. An example is the West Loop, which has undergone a transformation from a former meatpacking and light-manufacturing district to a new “tech hub” of the city; companies such as Google and Twitter have recently announced relocations to this area. As such, the area’s well-established and diversified economy represents a top investment market for hotels, including new hotel development.

Improvements in the economy and an increase in public and private investments have led to continued growth in hotel demand, with positive RevPAR growth year-over-year since 2009. After a record year in 2015, market-wide occupancy is expected to fall in 2016 with the entrance of new supply and a soft convention year. Noteworthy trends include the recent and expected increases in new supply in the market. After several years of stable room inventories, new supply increased for the first time in 2013, a trend that is forecast to continue in the next several years; over 30 hotels and more than 7,000 rooms are anticipated to enter the broader market area by 2019. With this expected increase in supply, we anticipate occupancy to fluctuate over the next few years, but remain relatively stable. Average rate will likely fall as the market responds to new supply, although stronger convention years should allow for average rate growth. The value of Chicagoland hotels will fluctuate in the near term as the new supply is absorbed.

Nine hotels totaling approximately $1 billion in transaction volume have sold in the CBD since January 2015, including such significant assets as the London House – a Curio Hotel (highest total price paid at $315,000,000 and almost $700,000 per key prior to its May 2016 opening) and the Waldorf-Astoria (for a total of $111,900,000 or nearly $600,000 per key). There are currently eight high-profile hotels listed for sale in the CBD, with most having been on the market for over six months. The gap between asking price and perceived buyer value has widened with the soft first-quarter performance in 2016. However, given the vibrant economic environment of the city, the outlook for the lodging market in Chicago remains positive for the long term.

* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent big picture data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

Valuation Trends and Predictions:

Chicago United States
Previous Year -3% (66 of 71) +1% (49 of 71)
Growth in 2017 -2% (63 of 71) +2% (36 of 71)
Growth in next 3 years +10% (42 of 71) +10% (36 of 71)

Change In Value For Market:

Chicago RevPar % Change

For more information, please contact:

Stacey Nadolny, MAI
snadolny@hvs.com
  • +1 419 367-3879 (w)
Dana Waud
dwaud@hvs.com
  • +1 312 505-5913 (w)
Meghan Bean
mbean@hvs.com
  • +1 734 649-7221 (w)