Ten years ago, Detroit’s hotel market struggled mightily with an average occupancy rate between 46 and 49 percent.
Today, that number is in the low 70s, thanks partly to an apparently growing perception of the Motor City as a tourist destination, along with a rebound in the local and national economies.
“It’s all legit,” said Michael O’Callaghan, executive vice president and COO of the Detroit Metro Convention & Visitors Bureau. “We talk to a lot of meeting centers and leisure visitors to metro Detroit and the sentiment throughout the country for the most part is the buzz is that Detroit has become a great story, with the city kind of rising from the ashes and that it really is a place to see.”
But with no fewer than 2,000 more rooms expected to come online amid a flurry of new hotel projects, the question has to be asked: How many can Detroit support?
Visitor numbers jump
An increasing influx of visitors is no mirage, O’Callaghan said: A decade ago, 11 million or 12 million people visited the region.
In 2017, that figure stood at more than 19 million. He pointed to recent features in Lonely Planet, The New York Times (which later in 2017 asked whether it is “the most exciting city in America”), “Good Morning America” and “The Today Show” highlighting Detroit as a good place for tourists to travel as helping fuel that perception nationwide.
“When you have the recognition of major publications like that driving demand to a city, we have to deliver lodging experiences for those travelers,” said Andrew Leber, vice president of hospitality for Dan Gilbert’s Bedrock LLC real estate development, ownership, management and leasing company.
So with apparently a growing market for leisure travelers and convention-goers, the question then becomes where the visitors to greater downtown Detroit lay their heads at night, as there are only about 5,000 hotel rooms in and around the central business district, ranging from the motels that dot east Jefferson Avenue and other major thoroughfares to the city’s tallest building, the Detroit Marriott at the Renaissance Center.
Hotels on the docket
Developers have taken notice in the increased demand for hospitality space. A Crain’s tally shows that no fewer than 2,000 rooms have been proposed or come online in the last few years, and there are easily hundreds more in the pipeline that have not yet been formally confirmed or announced, ranging from projects in Midtown to a host of others throughout the area.
That means to maintain downtown occupancy rates, the increasing numbers of visitors will also have to continue to rise.
Bedrock is developing not only the Shinola Hotel on Woodward immediately north of the J.L. Hudson’s department store site project, but also tentatively plans converting the former Detroit Police Department headquarters at 1300 Beaubien St. into a 200-room hotel and is considering a hotel component in a residential tower slated to soar 800 feet above the ground.
The 98-room boutique Siren Hotel by New York City-based ASH NYC LLC recently opened, as did the Foundation Hotel in a former Detroit Fire Department building on Larned Street. A West Elm hotel is planned for Midtown and another 100-room boutique hotel is slated for 640 Temple St. In addition, the Ilitch family’s Olympia Development of Michigan plans at least two hotels in its sprawling District Detroit development area covering 45 to 50 blocks.
Charles Skelton, president of Ann Arbor-based Hospitality Advisors Consulting Group Inc., believes in a purely philosophical sense that if a market is expanding by more than one-third in a short period of time, that “somebody is going to get hurt.”
But that’s only philosophically. In reality, he thinks Detroit can absorb the new hotels being developed because they are generally smaller projects — 100 to 200 rooms at a time — rather than massive hotel projects with 800 to 1,000 rooms.
“As long as we keep building the smaller, boutique-type properties, I’m not worried,” he said.
Brandon Leversee, senior project manager for hospitality consulting firm HVS, agreed.
“I don’t see a need or demand for box hotels, especially in a downtown,” he said.
O’Callaghan and Leber do see a need for a big hotel to make the city more competitive in luring conventions.
“With just the RenCen, we are not as competitive as we should be with cities like Nashville and Cincinnati,” O’Callaghan said.
And O’Callaghan, citing statistics from Destination Reports by hotel data firm STR Inc., said downtown hotels are generally performing better than others across the region. The average daily rate downtown was $172 per night last month, compared with $106 regionwide. And occupancy rates were 73.9 percent downtown, compared with 70.8 percent for the region as a whole.
“Detroit truly has become a destination,” Skelton said. “Many years ago in the 1950s and 1960s, Detroit was a destination. Surprise, surprise.”