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.
Since 2016, a number of Upper Upscale properties have been developed in the Minneapolis CBD, and the Rand Tower is slated to be converted into a 277 room Tribute by Marriott, which will further add to the number of Upper Upscale rooms in downtown Minneapolis. If the Rand Tower project is completed, it would represent 1,219 Upper Upscale rooms added to the Minneapolis CBD since 2016.
United Properties’ Four Seasons project will add another 222 rooms on top of that, so it will be interesting to see how the Four Seasons may impact other properties in the upper-end of the market.
According to Smith Travel Research, there are currently 9,299 rooms in the Minneapolis CBD. In January of 2016, there were only 7,562 total rooms, representing a 23% overall increase.
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.