Hotel Market Overview
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DOWNTOWN HOSPITALITY ADVISORS DOWNTOWN RACINE HOTEL MARKET ANALYSIS PHASE I - PRELIMINARY FINDINGS SEPTEMBER 2010 (DRAFT 9/1/10) 1123 Boundary Road, Middleton, WI 53562 608-334-7735 [email protected] CONTENTS PHASE I - PRELIMINARY FINDINGS SEPTEMBER 2010 (DRAFT 9/1/10) Introduction and Summary of Key Findings – p1 1. Downtown Racine as a Hotel Location – p4 2. Site Analysis – p6 3. Local Economic Conditions – p12 4. Lodging Supply Analysis – p14 5. Overview of Lodging Demand Segments - p20 6. Detailed Analysis of Corporate Demand Generators – p23 7. Market Operating Performance – p27 8. Proposed Hotel Projected Operating Performance – p31 Study Limitations and Use– p34 Acknowledgments – p35 Phase I - Preliminary Findings DOWNTOWN RACINE HOTEL MARKET ANALYSI S PHASE I - PRELIMINARY FINDINGS SEPTEMBER 2010 (DRAFT 9/1/10) The following is an initial report on the feasibility of a new downtown hotel being considered in Racine, Wisconsin. This portion (Phase I) of the study reports on our primary and secondary data collection, and is intended to provide essential information needed to determine whether the project could achieve satisfactory operating performance. This study examines the viability of Downtown Racine as a location for a new hotel and the suitability of selected sites. Economic and market conditions in the Racine lodging market area are analyzed with particular emphasis on the dynamics of Downtown. Supply and demand conditions specific to the local lodging industry are studied in detail. In this first phase report, estimates of operating performance as measured by revenue per available room (RevPar) are provided. Phase II would continue the analysis, developing recommendations to refine the proposed lodging concept and position the property to maximize its impact on the downtown district. Phase II would also include more precise estimates of operating performance in terms of occupancy and average daily room rate. Phase I - Preliminary Findings (DRAFT 9/1/10), Page 1 Summary of Key Findings 1. Downtown Racine is an attractive hotel development location given the success of its revitalization efforts, existing hospitality amenities, and the sense of place that has developed around the Lake Michigan lakefront. A Downtown location could outperform a typical highway hotel because of its unique location. 2. Both the YMCA and Walker sites benefit from their proximity to Lake Michigan. However, both locations are challenged by accessibility, pedestrian-connectivity and surrounding land use issues. However, there are other possible sites that if available, could optimize operating performance of a new hotel. 3. Racine has a substantial and diverse business and commercial base. While the City currently struggles with high unemployment, there remains a diverse mix of hotel demand generators. Most have reported a decrease in overnight travel as a result of recent economic conditions. 4. Hotel competitors in Racine are aging. The only two primary competitors are the Radisson Hotel Racine Harbourwalk (121-rooms) and the Marriott Racine (222- rooms). Both have served the community well, but there now appears to be demand for a newer first-class lodging alternative downtown. 5. Unlike other cities, Racine has had no additions to the room supply in recent years. 6. Lodging demand in Downtown Racine is primarily business related. However, the leisure/other travel sector is important given Downtown’s hospitality related amenities and proximity to Lake Michigan. Group meeting demand is more limited due to market competition and lack of hotel conference facilities. 7. Local companies frequently use the Marriott and Radisson. Many business leaders are open to the idea of guaranteeing room nights as a way to incentivize development of a new Downtown hotel. Downtown would provide a preferred location for many corporate visitors as it offers a favorable and authentic experience within the community. 8. The U.S. and Racine lodging markets have been experiencing similar patterns in occupancy and average daily room rate since 2007. Significant declines in performance have occurred due to economic conditions. The 2009 occupancy in the Racine lodging market (competitive sample of six hotels) was 54.2% with an average daily room rate of $92.99. Performance in 2010 has stabilized with local and national data pointing to a slow recovery in the hotel industry. Phase I - Preliminary Findings (DRAFT 9/1/10), Page 2 9. We believe the most appropriate lodging concept for Downtown Racine would be an upscale select-service brand with 100-120 guest rooms (including suites), limited food and beverage service, and limited meeting space. Examples include Hyatt Place, Hilton Garden Inn, and Courtyard by Marriott hotels. 10. We believe such a hotel, located at an alternative and more optimal location, could achieve a 30-percent premium in revenue per available room over the current competitive hotel sample. The resulting performance would be consistent with the performance of other U.S hotels in this industry sector. Phase I - Preliminary Findings (DRAFT 9/1/10), Page 3 1. Downtown Racine as a Hotel Location Downtown Racine is recognized regionally and nationally as a revitalization success story. Unlike other cities of similar size in the Midwest, Downtown Racine has enjoyed significant reinvestment and community support. While the City is centrally located between Milwaukee and Chicago, it has clearly defined an identity of its own. Downtown in particular has developed a “sense of place” over the past 20 years, building on its Lake Michigan lakefront (beaches, extensive boating facilities, and recreational amenities), museums, public art, restaurants, unique shops, and outdoor activities and events.1 Also making Racine unique are its prominent industry partners. Samuel Johnson, the late chairman emeritus of SC Johnson and lifelong resident of Racine, led downtown revitalization efforts by funding a major planning effort in the mid-1990's. The successful Downtown Racine Plan completed in 1999 has resulted in an estimated $200 million of new investment. Much has been accomplished since the completion of the plan: Sam Johnson Parkway and Park Blocks Main Street reconstruction New downtown Transit Center New arts facilities, including the new building for the Racine Art Museum Many new downtown businesses Renovations, rehabs and façade improvements for existing buildings New downtown housing – renovations, artist’s lofts Johnson Building Corporate Headquarters and new parking garage Source: Racine Downtown Plan, 2005 Currently, hospitality related amenities Downtown include: 50 restaurants, pubs and coffee houses, including good ethnic eateries 40 retail stores 15 galleries, studios and workshops Two museums Marinas and yacht clubs 11 places of worship 1 While difficult to define, a sense of place is what draws people to a successful downtown. It impacts economics as more people downtown results in improved business activity, increased property values and expanded local tax base. Elements might include multi-uses, historical preservation, local heritage, pedestrian-friendliness, a feeling of community ownership and overall uniqueness. Phase I - Preliminary Findings (DRAFT 9/1/10), Page 4 Both public and private organizations continue to work together to build on Downtown Racine’s accomplishments. This is captured well in the Downtown Racine Corporation’s Vision Statement that echoes Downtown’s uniqueness and welcoming attitude toward visitors. “Downtown Racine will be one of the Midwest's most unique and vibrant lakefront community centers, welcoming a diverse population of residents and visitors for daily experiences that span the spectrum from the arts to outdoor recreation.” Sense of place is becoming more important to lodging consumers as more travelers are seeking new lodging concepts in an authentic community environment. Accordingly, many new lodging concepts are more fitting in a vibrant downtown environment like Racine and can enjoy occupancy and room rate advantages over traditional, “placeless,” highway locations. While Downtown Racine offers a unique and attractive environment for a new hotel, it is still essential that the particular site chosen is convenient, visible, accessible, safe and aesthetically attractive. These attributes are especially important in a competitive lodging environment. Conclusions – The Downtown Racine Location Downtown Racine is widely recognized as a success story in downtown revitalization. Over the past 20 years, new investment has occurred and a “sense of place” has developed Downtown and around the Lake Michigan lakefront. It already contains many of the hospitality related amenities including restaurants, specialty retail, museums, public art, and outdoor activities and events. Accordingly, Downtown Racine is an attractive location for new hotel development and provides travelers with an alternative to the traditional suburban or highway hotel location. Phase I - Preliminary Findings (DRAFT 9/1/10), Page 5 2. Site Analysis The site for a hotel is a critical consideration as it affects a hotel’s ability to draw customers and penetrate the local lodging market. It is important that a location be convenient, visible, accessible, safe and attractive. Hotels benefit from high visibility and proximity to generators of room night demand and support services such as restaurants and retail stores. This section examines two specific sites as possibilities for the facility. These include the