Crime, Inflation And Labor Woes Likely To Stall Chicago's Hotel Recovery Another Year

Chicago hotels just had their strongest month since 2019.

But with the leisure travel season in full swing, hoteliers are hedging their bets as business and convention-related travel, though faring well, still face a long road to recovery.  

While nearly all coronavirus restrictions have been lifted, leaders in the hospitality industry are proceeding with caution before declaring a comeback. They say a full-scale recovery could happen by 2024, and possibly before. But factors like inflation, the rise in downtown crime, labor shortages and supply chain issues continue to stifle full recovery.

With leisure pulling the bulk of the tourism weight, recent numbers have shown substantial increases in occupancy and weekly room demand. In the week ending July 2, hotel occupancy was 78.3%, just above June’s monthly average of 76.7%, according to STR data published by Choose Chicago. These numbers, though trending above the 2019 average occupancy rate of 74.2%, are still behind pre-pandemic occupancy rates for the entire year.

Hospitality heads argue that while recovery is happening more quickly than anticipated, with a promising number of group bookings, it would take a lasting increase in business-related travel to spur a genuine comeback. 

“We’re looking to see growth, especially in fall and winter months when leisure declines,” said Michael Jacobson, CEO of the Illinois Hotel and Lodging Association. “Every week we are seeing better numbers on the business side, with conventions at 70% of their pre-pandemic attendance levels. We face a couple of headwinds, and even though it’s not going to be this year, we do anticipate a full recovery of business travel.”

Like other major U.S. cities, Chicago’s reliance on business, group and convention-related travel has made a pandemic revival especially difficult amid long-term issues affecting the city. 

Maverick Hotels & Restaurants CEO Bob Habeeb said there is a continued drumbeat of warnings that the city is an unsafe place to vacation, making it difficult to entice tourists to return.

“I read a travel blog the other day that had 600 comments and at least 200 of them were about crime," Habeeb said. “The others talked about the city’s wonderful attributes, but some said they wouldn’t come here because it’s way too dangerous. That number needs to shrink.”

While fear about crime isn't unique to Chicago, incidents in the downtown area are tracking at an all-time high since 2015, according to reporting by CBS News. As of July 15, there were 191 incidents of violent crime recorded in the River North area in the first seven months of 2022. There were 126 incidents for the entirety of 2021. 

According to Jacobson, public safety in the downtown area is a large concern, but he countered that occupancy metrics have remained unaffected by crime-related issues this summer.

“We’re a little more worried about where the long-term impact lies," he said. "If you’re bringing a major convention to a city, you’re booking that convention five to 10 years out, so if people have a bad perception of Chicago because of our crime issues, we might be paying the price for this a decade later."

Jacobson added there is a responsibility on the business community to help remedy the situation and to fix its ongoing labor woes. He said the Illinois Hotel and Lodging Association is working to educate young people about hotel and hospitality jobs available to them. 

But HVS Chicago Managing Director Stacey Nadolny said key players are peddling a narrative about crime that is lacking nuance for what she referred to as a world-class city with a vibrant downtown. 

The crime problem existed long before the pandemic, she said, as did the hotel foreclosures now garnering headlines.

Recent control of JW Marriott Chicago by Wells Fargo Bank and news that The Palmer House Hotel is moving toward foreclosure aren't evidence Chicago's hotel industry is faltering. Instead, they are the result of spaces carrying inflexible, restrictive debt with no option for renegotiation, according to Nadolny.

“The foreclosure of these properties is not necessarily indicative of their condition or performance," she said. "In fact, the consumer will see almost no impact to the day-to-day operations, and much of the staff may not see impact either. This is purely money changing hands and renegotiating debt on these properties."

Concerns about inflation and the potential of a recession loom heavily over the industry, though hoteliers expect demand levels to remain reliably above 2021 levels and to continue to make up ground, edging back to 2019 levels.

“We expect average rate growth to hold through the end of the year, and inflation will be a great contributor to that because it will allow hotels in Chicago to maintain the average growth rate we’ve seen this year,” Nadolny said. 

Conventiongoers will be a large contributor to improving that growth rate. The American Society of Clinical Oncologists returned to Chicago this past June for the first time in two years and reached attendee numbers close to those recorded in 2019. The International Manufacturing Technology Show is estimating more than 100,000 participants for its show this September at McCormick Place.

For the Metropolitan Pier and Exposition Authority, Hawthorne Strategy Group CEO Cynthia McCafferty said the organization is seeing numbers that reflect the normalization of travel.

Concerns that the market will be more anemic in a post-pandemic world persist, but conventions are pulling their weight. Between July 2021 and June 2022, 211 events took place at McCormick Place, with over $1M in economic impact, according to McCafferty. 

Conservative estimates for 2023 forecast 114 contracted events at the convention center, with an estimated economic impact of $2.2M.

“Things are looking really great,” McCafferty said. “There’s still certainly room for recovery, but people are showing up in numbers. We're consistently exceeding what organizers expected for this year."