By Ronn Thomas and Tim Storey
The Twin Cities has always been a strong hotel market, with a tradition of top operators locating here and developers building here.
It may be a surprise to some, then, that the market is about to welcome its first five-star hotel.
The first flag to break our five-star bubble will be a Four Seasons at the Gateway tower development on the north end of Nicollet Mall, being constructed by United Properties. The 222-room hotel will include a restaurant, bar and one of the largest pool decks in Minneapolis.
Not far south in Eagan, the Wilf family is partnering with Ecolab to add a 14-story, four-star hotel at the Viking Lakes development district near the newly constructed team headquarters. The hotel, to be branded as an Omni, will have 320 guest rooms and suites, hospitality lounges, a rooftop deck, restaurant and fitness center, among its other amenities. Just short of a five-star, the hotel would be another addition to the top of the market, which has seen significant new supply in recent years, especially in downtown Minneapolis.
Hotels all over the Twin Cities have enjoyed a strong run during this economic expansion, but they’ve also never competed with five-star alternatives. So, what could the advent of one mean for the market?
Although it’s difficult to say with complete certainty, we’re expecting it to be a positive for the market, especially in terms of rates. Five-star hotels are on a different level than most others in the hotel business, and therefore charge a higher rate of their guests. Four Seasons is particularly known for its rate integrity, meaning it won’t drop prices in down periods to boost occupancy, and will aim to offer services and amenities not available in the market today.
That may mean a couple of things for other hotels in the market. One, the presence of a new high price point may provide opportunities for lower-rated hotels to increase rates without substantial property improvements, allowing them to collect more revenue.
Second, some lower-rated properties may improve their amenities and offerings to be more competitive with the four-stars in town. To justify these capital expenditures, higher rates may be necessary. The introduction of these properties into the market may also attract new group and leisure business not currently staying in the market.
Of course, regardless of a market’s inventory, a healthy economy is essential to the hotel market.
As long as the market continues to move forward and expand at a healthy pace, hotels will get their guests. If things sour, that could change. But for now, we have no reason to expect the four-star emergence to be anything but a positive for the market and hotels all over it.
Cushman & Wakefield’s Minneapolis-based Hospitality Real Estate Services Team of Ronn Thomas and Tim Storey offers a full range of hotel, leisure and tourism transaction, advisory and valuation services to hoteliers, investors, governments, institutions and developers throughout the Midwest.