Market Pulse: Milwaukee, Wisconsin
Wisconsin's biggest city, Milwaukee has come into its own economically and culturally in recent years, no longer the second "second city" to Chicago. The market's hotel industry has reaped the benefit of this growth. Consumer services, technology, and manufacturing are cornerstones of the local economy, with the latter's international customer base generating significant demand for local hotels. Demand within the market also streams from training and conference events held by the area's healthcare entities and related companies. Additionally, the University of Wisconsin-Milwaukee, Marquette University, Cardinal Stritch University, Concordia University, and the Milwaukee School of Engineering generate demand for area hotels through sporting events, graduations, and other special events throughout the year.
The following HVS Market Pulse report provides a look at Milwaukee's key industries, economy, hotel demand generators, and the recent performance dynamics of the local hotel industry.
Once the top beer-producing city in the world, only one large-scale brewery in Milwaukee—Miller, which has been headquartered in the city since 1855—remains. Several highly touted microbreweries, including Milwaukee Brewing Company and Lakefront Brewery, maintain brewing and distribution facilities in the city.
In the last two decades, the services sector, anchored by Fortune 500 companies such as Northwestern Mutual and Kohl's Corporation, has been the fastest-growing segment of the regional economy, a shift from the area's historic reliance on manufacturing. Robert W. Baird & Co., a global financial services firm, is also based in Milwaukee, and several of the nation's largest banking institutions, such as BMO Harris Bank and JPMorgan Chase Bank, maintain a presence in the area.
Milwaukee's healthcare sector includes respected educational and research facilities, integrated healthcare systems, and several specialty hospitals such as Aurora Healthcare, Wheaton Franciscan Healthcare, and GE Healthcare.
Milwaukee remains a major manufacturing center and is home to large industrial companies such as Harley-Davidson, Joy Global, Rockwell Automation, and Johnson Controls. The growing diversity of its economic makeup, however, has led to significant economic growth since 2011.
The diversification of Milwaukee's economic base allowed the city's economy to weather the recession better than other secondary markets. A short downturn has been followed by years of economic growth and revitalization, highlighted by projects such as repurposed old buildings, more transportation options, and new entertainment venues. Areas such as the historic Third Ward and Westown have realized the development of new offices, hotels, and residences in recent years.
Major construction projects currently underway include Northwestern Mutual's Tower and Commons and the new Milwaukee Bucks arena. Northwestern plans to replace one of its Downtown Milwaukee buildings with a 32-story tower featuring 1.1 million square feet of office space. The $450-million project is needed to support the company's growth and is expected to be complete in early 2017. Just across the street, Northwestern Mutual is constructing a 32-story tower that will include 308 high-end apartments, 16 penthouse units, ground-floor retail, and an eight-story parking garage. The new tower building is anticipated to be ready for occupancy by the spring of 2018.
Another major project in Downtown Milwaukee is the $100-million 833 East Michigan Street building, completed by Irgens in early 2016. The building sits next to the US Bank building in the heart of Milwaukee's commercial district and offers 18 stories of Class A, multi-tenant office space.
Additionally, plans for the Milwaukee Streetcar, an aboveground trolley that will initially run through the East River neighborhood, were recently approved. Efforts are already underway to relocate public utilities. The initial route can be found in the map below.
The first phase, which will link the Milwaukee Transportation center with 80,000 downtown workers and 25,000 area residents, is expected to be completed and serving customers in 2018, with additional lines to follow.
Tourism in Milwaukee peaks from May to September, with sporting arenas, cultural venues, and festival events serving as the primary attractions.
Miller Park, which opened in 2001, hosts the Milwaukee Brewers and various entertainment activities throughout the year. Notable features of Miller Park include its fan-shaped convertible roof and the large panes of glass included in its design to allow natural grass to grow.
The Wisconsin State Fair Park has hosted the Wisconsin State Fair since 1892. The park hosts other events throughout the year, including the Milwaukee Mile, the oldest continuously operating motor speedway in the world. The complex is also home to the Pettit National Ice Center, a U.S. Olympic training facility with a 400-meter indoor speed-skating oval and two Olympic-size ice rinks.
In July 2008, the Milwaukee-based Harley-Davidson Motor Company opened a $75-million museum in Downtown Milwaukee. The 130,000-square-foot building features an extensive collection of motorcycles, as well as a restaurant, a retail shop, and indoor and outdoor meeting spaces.
Henry W. Maier Festival Park, located along the Michigan lakefront adjacent to the Third Ward district, annually hosts the popular Summerfest music festival. The eleven-day food and music festival extends from the end of June through early July, booking over 800 acts and representing one of the largest gatherings of bands and musicians in the country.
The BMO Harris Bradley Center, home to the Milwaukee Bucks, also hosts concerts and events throughout the year. A new basketball arena for the Milwaukee Bucks is planned for the vacant lot adjacent to the existing arena. The $524-million arena will anchor what is to become a $1-billion sports and entertainment district that will eventually include restaurants/retail space, multi-unit residential space, and possibly a hotel. The developer is currently seeking financing and has assured the City that the facility will be open for the 2018/19 NBA season.
The Wisconsin Center, formerly the Frontier Airlines Center, accommodates conventions and large meetings in the Milwaukee area. This facility, completed on December 31, 1999, contains a 37,500-square-foot ballroom, 28 meeting rooms, and an exhibit hall measuring nearly 189,000 square feet. Over the years, plans have been proposed for the center's expansion; however, HVS discussions with Visit Milwaukee indicated that expansion plans are on hold, with the focus presently on the new basketball arena.
Reports from the market reflect that the Wisconsin Center is highly utilized by groups such as local professional associations and trade shows. After a significant decline in 2009, attendance increased from 2010 through 2012 as officials marketed to smaller groups that could use the venue more frequently. In recent years, rising rates at hotels have limited the number of guestrooms that hotel owners are willing to put aside for convention groups. Although attendance has remained high, the number of large events has decreased in favor of smaller events.
Downtown Milwaukee and the area near the General Mitchell International Airport have both experienced supply increases over the past five years. As of April 2016, the city of Milwaukee's hotel inventory spans 61 open and operating hotels representing a total of 8,220 guestrooms.1 Of these rooms, 1,765 were added after 2008; by contrast, only two hotels had opened since 2001. In the last three years, the 90-unit Brewhouse Inn & Suites, the 205-room Marriott Milwaukee Downtown, the 381-room Potawatomi Hotel, and the 110-unit Home2 Suites by Hilton Milwaukee Airport have come online.
More hotels are poised to enter the market in the near future. The 155-room SpringHill Suites by Marriott, scheduled to open in June 2016, will be attached to the Wisconsin Center via an indoor skyway. The 158-room Kimpton Journeyman Hotel, located in Milwaukee's historic Third Ward district, is also scheduled to open this summer. A Homewood Suites by Hilton and a Westin hotel, both located east of the river near the site of the new Northwestern Mutual tower, are currently under construction. Additionally, a Cambria Suites hotel is currently in the planning stage.
Roughly 55% of the rooms in the market belong to a brand or a major parent company, with the remaining 45% operating as independent hotels. Of the 6,114 branded rooms, Hilton Worldwide operates approximately 29% of the current rooms in inventory, the largest share of any major brand in the market; InterContinental Hotels Group (IHG), Marriott International, and Hyatt have also established strong roots in Milwaukee, each with market shares between 11% and 13%.
The Aloft Hotel Milwaukee Downtown is currently the only Starwood property in Milwaukee; however, a 200-room Westin hotel is currently under construction and is expected to open next year. As noted in the preceding chart, the brands with relatively small market representation include the Aloft, Motel 6, Best Western, La Quinta, Radisson, and Country Inn & Suites by Carlson, which hold a combined market share of roughly 16%.
Local businesses in the manufacturing, healthcare, technology, and financial fields supply weekday commercial demand to the Milwaukee hotel market. Leisure demand comprises visitors to the area's universities and colleges; interstate motorists; regional travelers attending concerts, festivals, and sporting events at the BMO Harris Bradley Center and other area venues; and travelers visiting friends and family in the area. Conventions and events held at the Wisconsin Center produce the bulk of group demand, which is also generated by youth, collegiate, and amateur sports tournaments and SMERFE-related events such as weddings and family reunions.
Following the opening of the Residence Inn by Marriott in 2001, hotel supply in Milwaukee remained relatively stable through 2008, while demand increased across the market. As noted previously, supply grew steadily between 2008 and 2014, with the opening of ten new hotels in Milwaukee that collectively added 1,435 new guestrooms to the market.
Like many national hotel markets, supply growth in Milwaukee coincided with the onset of a major national recession; unlike the national trend, however, local lodging demand registered only one year of decline. Lodging demand rebounded in 2010, which area representatives attribute to the recovering economy and strong citywide convention bookings that helped generate compression throughout the city. Demand continued to increase through the first half of 2015, as the Marriott rapidly absorbed pent-up demand in the market; however, overall occupancy for 2015 decreased given hotel operators' focus on higher-rated business at the expense of occupancy.
Average rate growth accelerated from 2005 through 2008; occupancy grew as well, increasing by more than 5% on an average annual basis. Brand conversions contributed to this growth, particularly the renovations of the Hampton Inn & Suites (formerly a Howard Johnson) and the DoubleTree by Hilton (formerly a Holiday Inn). With the onset of the Great Recession, average rate declined as hotel operators attempted to maintain occupancy. Average rate grew substantially between 2011 and 2013, supported by strengthening economic conditions. The entrance of new high-quality hotels, such as the Hilton Garden Inn and the Marriott, as well as the conversion of the Fairfield Inn by Marriott (formerly a Best Western Plus), also allowed local hotel operators to raise rates. Average rate growth slowed in 2014 as hotel operators became cautious about the increase in supply.
We note that rate declines in August and September 2014 were attributed to normalization following the Harley-Davidson 110th Anniversary Celebration held between August 29 and September 1, 2013, which caused a spike in rate that year. Rate growth continued through 2015, with rates ending the year in the low $130s. Through March 2016, the market continued to realize increases in average rate and occupancy.
A surge in construction followed the recession in the Downtown Milwaukee submarket, including multi-unit residential space, office space, and hotels. According to Milwaukee Economic Development, nearly $3 billion in construction has been completed since 2006, with another $1 billion currently under construction.
Three hotels in Milwaukee have already opened or are scheduled to open in 2016. Most hotels either under construction or in the pipeline are associated with a national brand, although the room counts and amenities vary widely between properties. Many properties are being designed to complement their local neighborhoods; for example, although the Kimpton Journeyman Hotel is a new-build property, its style mimics the surrounding buildings in the historic Third Ward. Conversely, the proposed Westin hotel is expected to be tall, modern, and business-oriented property, similar to the other new buildings under construction near the Northwestern Mutual campus.
Although Milwaukee's proposed hotel pipeline reflects a significant amount of new supply, the sheer amount of development in commercial, residential, and retail space in the market suggests that there is a large amount of pent-up demand; hence, the new supply is expected to be easily absorbed.
The growth and diversification of commerce and employment in Milwaukee has fueled the city's economic recovery over the past several years. Milwaukee's expanding healthcare, manufacturing, and finance industries have played the most transformative roles since 2010, solidifying the city's economic foundation while generating demand for area hotels. Businesses continue to bolster employment, trainings, and overall commercial activity, resulting in increasingly higher levels of travel to Milwaukee. Declining unemployment and improving commercial office space trends serve as further evidence of the encouraging future for local economic conditions.
Additionally, weekend and summer tourism has made an enduring impact on Milwaukee's hospitality industry. RevPAR levels in the market are anticipated to continue to grow, despite an increase in supply of nearly 5% in 2016. Hotel operators will likely focus on raising average rates in the coming years, a move that should be supported by the opening of newer hotels. Based on these indicators, the prospects for Milwaukee's hotel market look optimistic, with both hotel performance trends and overall market conditions pointing to more growth in the near future.
