Limited-service hotels leading the way in hospitality boom

minneapolis hotel

 

by Dan Rafter

Is this the longest upswing in the Minneapolis hotel market in … forever?

It just might be. Just ask Ronn Thomas, senior director of hospitality for Cushman & Wakefield/NorthMarq.

“It’s pretty impressive how long this cycle has lasted,” Thomas said. “And it’s predicted to continue even longer. The economy is rolling on, so there’s no reason why the hospitality industry here won’t continue to improve. There really is no end in sight to the strong performance in hospitality that we’ve been seeing.”

Why is the hospitality industry such a strong one in the Twin Cities? Thomas points to the strong local economy in Minneapolis and St. Paul. When the economy is strong, travelers take more trips.

At the same time, business travel rises, too, as companies can spend more on sending their employees across the country for meetings, seminars and face-to-face sales calls.

The Twin Cities are poised to capitalize on this increase in travel because the region offers so much of what travelers – both business and leisure – are looking for when they hit the road, Thomas said.

“Think about yourself and what you are looking for when you travel,” Thomas said. “You might be traveling to visit a college, and we have that here. You want to be close to hospitals. When it comes to business travel we have Fortune 500 companies here. The corporate environment in the Twin Cities is strong. At the same time, there are plenty of fun things to do here. We have good leisure and corporate traffic generators in this market.”

A recent report by Cushman & Wakefield/NorthMarq said as of July of this year, the year-to-date occupancy rate in Twin Cities’ hotels stool at 63.2 percent. Pricing power, though, is especially impressive, with Cushman & Wakefield/NorthMarq reporting that the Twin Cities’ average daily rate increased 4.2 percent to $110.06. Revenue per available room grew 4.1 percent to $69.51.

Developers are busy in this sector, with the report saying that companies as of the middle of the summer had more than 5,600 hotel rooms in various stages of development in the Twin Cities region. Of this number, about 2,400 new rooms are being added to downtown Minneapolis.

Significant hotel projects in the Twin Cities market include the Radisson Red developed by Ryan Cos., a Hyatt Centric by Mortenson Development and Marriot Moxy by Graves Hospitality.

The Bloomington/Mall of America hospitality market remains strong, too, with developers in the process of adding 788 new rooms to the area. Hotel projects here include the recently completed JW Marriott by Mortenson Development and Hyatt Regency by McGough along with the still-in-development InterContinental by Graves Hospitality and AC Hotel by Marriott by Terratron, Inc.

St. Paul is also experiencing a mini-boom, with Cushman & Wakefield/NorthMarq reporting that developers are working on 400 new rooms in the city. This includes Opus Development’s Radisson Red at the Seven Corners Gateway location and Opus Development’s and Greco’s Hamption Inn & Suites at the Seven Corners Hardware site.

Thanks to the increasing demand for hotel rooms in the Twin Cities, owners of these properties have been able to push up their room rates, Thomas said.  This has been especially true this summer, as Minneapolis/St. Paul hotel operators take advantage of the increasing number of tourists who have visited the area this season, Thomas said.

Some types of hotels, though, are seeing even more business than are others. Thomas pointed to the growing number of limited-service hotels serving the Minneapolis/St. Paul area. This segment of the hospitality business, as it is across the country, is growing at a fast clip, as hoteliers realize that they can save a significant amount of money, while still attracting tourists and business travelers, by operating hotels that don’t come with all the amenities that full-service properties offer.

Limited-service hotels don’t offer attached restaurants. The only food service they might provide is a continental-type breakfast – usually free – each morning. Hotels such as Holiday Inn Express and Hampton Inn are a good example of this type of property, Thomas said.

“Fewer and fewer are building the full-service hotels with restaurants attached to them,” Thomas said. “There are better margins in the limited-service end of the industry. Fewer full-service hotels are being built across the country today. There are also fewer headaches in that end of the business because you don’t have to worry about all that food service. You don’t have to hire people to staff a restaurant.”

Thomas said that the future of the lodging industry in Minneapolis and St. Paul looks strong. That’s because there is so much activity taking place in the region today. The NFL’s Minnesota Vikings have a new stadium, of course, and that is inspiring additional commercial development, which, in turn, is bringing in the tourists.

“There is so much activity in downtown Minneapolis right now. It is impressive to see,” Thomas said. “The hotel industry is filling holes throughout the market where there is a lodging void.”

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