GRAND RAPIDS, MI—Hotel development has steadily increased here over the last five-plus years, with room supply rising from just under 2.7 million in 2013 to more than three million in 2018, according to STR.
Room revenues have also increased over the last nine years, noted Doug Small, president and CEO of Experience Grand Rapids, the official destination marketing organization for the area. “The room revenue growth is affected by leisure tourism, convention attendance, the area’s growing business economy and an increase in sports-related events,” he said. “From 2017 to 2018, hotel room revenue increased 3.8% [STR figures] and was the highest ever recorded for Kent County [just over $230 million].” Grand Rapids shares Kent County with its surrounding cities.
Room revenue year-to-date (YTD) through July was $139.2 million, up 5.2% from the same period last year. But if you look deeper into the numbers, hoteliers will be hoping for better results in the second half of the year.
“Every hotel market is driven by the interplay between supply growth and demand growth. Demand growth this year through July is 5.6%, which is a really healthy number. The national average is 2%,” said Jan Freitag, SVP of lodging insights, STR. “But the problem is room supply grew by 7.1%; the national average is 2% as well. So, there’s a very strong supply influx that is met by some increase in room demand but not enough to outweigh the new room increases, which then means, mathematically, the occupancy is declining. The YTD occupancy is 64.8%, so they are basically selling 65% of the rooms each night, but that number is down 1.4% from the first seven months of last year.
“What is important to note is that it’s the second year of decline,” he continued. “In 2018, occupancy declined YTD to July also by 1.8%. This is a decline on top of a decline. The question then is what happens with room rates? Room rate growth this year is flat for all intents and purposes. The ADR growth number is -0.4%, and that is on top of consecutive growth rates. In July 2015, room rates grew 9.1%. July 2016, room rates grew 5%; July 2017, they grew 2.3%; and last year was 2.1%. It went from 9% to basically 0%, so room rate growth is slowing—but, obviously, 9% growth is not sustainable. It is interesting when you observe that room supply growth is rapidly accelerating, but occupancy is declining for the second year in a row. That hits pricing power, and hoteliers were impacted by not increasing rates very much, or are down.”
In an effort to drive business and transient visitors to Grand Rapids, locally based management company AHC+Hospitality took the lead in establishing a hotel district consisting of hotels, restaurants and businesses in the downtown area within a three-square-block radius. Located steps from the Van Andel Arena and DeVos Place convention center, the district offers access to the Grand River riverfront and more than 1,850 hotel rooms (617 per square block) within walking distance of each other, according to the company. Nearly all are accessible year-round via climate-controlled skywalks.
“For the longest time, the downtown area of Grand Rapids was just called Downtown. But as little pockets of neighborhoods developed, we started seeing the areas being called for what they’re known for,” said George Aquino, AHC+Hospitality’s VP and managing director. “The West Side is now thriving with new businesses and entrepreneurs. We have the Arena District, where the Van Andel Arena was built in 1996, an area where pretty much all the buildings were boarded up. Since then, it’s seen some massive development of retail, residential and entertainment.”
He continued, “So, now as the city grows and there are more residents downtown, we wanted to come up with a name for the core, where most of the entertainment is happening, and where a lot of the restaurants are located. Calling it the Central Business District would indicate a 9-to-5 kind of area. Mirroring what a lot of cities have done, we thought it would be great for us to highlight this core three-square-block area. What stood out was that the majority of the hotels in downtown are located in this area. We currently have eight hotels in the Hotel District and it will be nine by 2020.”
Partner hotels within the district include Homewood Suites by Hilton Grand Rapids; Holiday Inn Grand Rapids Downtown; CityFlatsHotel; Amway Grand Plaza, Curio Collection by Hilton; JW Marriott Grand Rapids; Courtyard Grand Rapids Downtown by Marriott; AC Hotel Grand Rapids Downtown; and Hyatt Place Grand Rapids/Downtown. The last five are managed by AHC+Hospitality, with the last two opening this year. The Residence Inn Downtown Grand Rapids is expected to open next year.
Hoteliers in the district hope that by pointing out what the area has to offer—from the breweries and art museums to the restaurants and theaters—guests will flock to their properties.
As Freitag noted, “Hopefully, the overall halo effect of this new district increases room demand, which then boosts occupancy for everybody.” HB