August 05. 2011 2:00AM - Last modified: March 15. 2012 2:47PM

Airport hotels scuffle for market share

Real Estate

By Andrew Weiland

  
Mitchell International Airport has attracted record passenger numbers in recent years (May was the 21st consecutive month of record passenger numbers at the airport) and hotel developers appear to have taken notice.

Four hotels have opened in the area near Mitchell International Airport since the beginning of 2009, another will open soon and at least one developer plans to build another hotel in the airport area.

In October, a 119-room Courtyard by Marriott will open at 4620 S. 5th St. and an Illinois developer is working on plans for a 107-room Four Points by Sheraton Hotel southeast of Howell and College avenues in Oak Creek.

But is the airport hotel market strong enough to support the added room capacity? Market data indicates the airport area hotel market peaked in 2008 but has not been performing as well since the new hotels opened during and after the Great Recession.

"(Demand) is actually kind of coming back to the '08 numbers, but the (added) supply has been a significant burden and will be again as we are going to add more supply," said Greg Hanis, president of New Berlin-based Hospitality Marketers International Inc.

Data from Smith Travel Research Inc. shows that occupancy rates, room demand, hotel room rates and revenue per available room (RevPar) for hotels in the airport area peaked in 2008. That year the airport hotel market had a 63.3 percent occupancy rate, an average daily room rate of $77.36 and RevPar (room revenue divided by rooms available) of $49.00. All of those exceeded levels in 2005-07.

Hotel developers took notice and built more hotels near the airport. Three hotels opened in 2009: the 82-room Sleep Inn & Suites at 4600 S. 6th St., the Candlewood Suites at 6440 S. 13th St. and the Fairfield Inn & Suites at 6460 S. 13th St. Another hotel, the 143-room Hilton Garden Inn at 5890 S. Howell Ave., opened in 2010.

The four hotels added 445 rooms, increasing the airport area's total room count to 3,438, during 2009-10. At the same time that new inventory was being added in the airport area, the national hotel industry suffered during the Great Recession.

The hotels in the airport area also took a hit during the recession. Demand plunged by 12.2 percent in 2009 as the total number of rooms sold fell from 708,781 in 2008 to 622,620 in 2009. The drop in demand combined with the addition of the three new hotels, which increased the supply of rooms, resulted in a 17 percent drop in occupancy in 2009 to 52.6 percent. Average daily room rates dropped 12.3 percent to $67.85 and RevPar fell 27.2 percent to $35.67.

As the U.S. economy improved in 2010, the airport area hotel market also improved. Demand was up 10.8 percent to 689,617 rooms sold. Occupancy rates were up 6.6 percent to 56.0 percent and RevPar increased 5.2 percent to $37.51. However, the average daily room rate dipped 1.4 percent to $66.83.

But data for the first half of 2011 indicates that the airport area hotel market has stagnated. For the first half of this year, demand for rooms was flat dipping 0.1 percent, occupancy was down 4.2 percent to 52.5 percent. On the plus side, average daily room rates were up 6.0 percent to $68.52 and RevPar was up 1.6 percent to $35.94, compared to the first half of 2010.

The airport hotel market, "came roaring back in '10 and now it has just kind of flattened out," Hanis said. "Why is demand flat this year when we're coming into a recovery year? The positive side is the rates are going up, so they are able to gain a little more revenue."

The stagnation in the airport area is out of step with many other hotel markets in the U.S., including the downtown area, which have grown this year, Hanis said.

The reconstruction of I-94 between Milwaukee and the Illinois state line, which includes reconstruction of the Mitchell Interchange and other freeway interchanges, could be hurting hotels in the airport area, Hanis said. Some potential customers could be staying away from hotels in the area to avoid the hassle and confusion caused by the construction project, he said.

"It's gotten better, but it's still confusing as all get-out," Hanis said. "That's going to impact the hotels. It could be a reason why demand has been flat this year."

But the additional supply added to the airport area hotel market continues to have an impact on hotels in that area. Without the new hotels that have opened since early 2009 the airport area's occupancy rate for the first half of the year would have been about 58 percent, instead of 52.5 percent. If the proposed Four Points by Sheraton opens, in addition to the opening of the Courtyard by Marriott in October, the additional supply would result in a 50.7 percent occupancy rate, based on the demand from the first half of this year. Without additional demand for the new hotels, the airport hotel market will continue to struggle to absorb the increased supply.

"(The planned hotels) are just going to divide the pie another two ways," Hanis said.

Older hotels, especially those along Layton Boulevard and Howell Avenue, will be hurt the most by the addition of Courtyard by Marriott to the market, Hanis said. Marriott brands are popular with business travelers he said, and the Courtyard brand is considered just one step below the main Marriott brand, he said.

Oak Creek city officials are in negotiations for a development agreement and tax incremental financing with Illinois-based Syner G, the developer for the proposed Four Points by Sheraton hotel, said Doug Seymour director of community development for Oak Creek. Synger G's long range plans include two more hotels southeast of College and Howell avenues. The intersection is close to a future runway expansion planned by Mitchell International Airport, but the developer's plans are not in conflict with the airport's plans, Seymour said.

As competition in the area has increased with the addition of new hotels, several older airport area hotels have changed flags and done upgrades in recent years. Those changes include: the conversion of the Ramada Inn at 6401 S. 13th St. to Crowne Plaza, the shift of the Radisson at 6331 S. 13th St. to Ramada, and the conversion of the AmeriSuites at 200 W. Grange Ave. to Hyatt Place, the conversion of Exel Inn at 1201 W. College Ave. to Days Inn.

In 2007 the 508-room Four Points by Sheraton Milwaukee Airport hotel at 4747 S. Howell Ave., was converted to a Wyndham hotel. More recently the hotel has had financial problems and its operations earlier this year were turned over by a Milwaukee County circuit court judge to a receiver: Michael George, chief executive officer of Fairfax, Va.-based Crescent Hotels and Resorts. George says operations at the hotel continue, "business as usual."


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