F-M area hotel revenues rising as demand catches up with room supply
FARGO - Things are looking brighter for the hotel industry in Fargo-Moorhead.
Hotel revenues in the Fargo-Moorhead area rose to nearly $101 million in 2018, up 2.7 percent from the nearly $98.1 million recorded in 2017, says Charley Johnson, president and CEO of the F-M Convention and Visitors Bureau.
The previous two years had each seen revenue decline more than 3 percent, Johnson said.
“The revenue was up, which is a good sign, because it had been down, it had been slipping for the last couple years,” Johnson said recently.
Meanwhile, hotel occupancy rates in the Fargo-Moorhead area are holding their own, despite the addition of hundreds of hotel rooms over the last few years, many built to serve anticipated demand tied to the construction of Sanford Hospital along Interstate 94.
The occupancy rate for the Fargo-Moorhead-West Fargo area was 56.2 percent in 2018, down just 0.2 percent from 2017’s 56.4 percent, according to figures compiled by STR, which tracks supply and demand for hotels worldwide.
That’s despite the fact that the metro area’s supply of hotel rooms had risen nearly 2 percent in the last year, Johnson said.
‘A little bit overbuilt’
In 2012, the Fargo-Moorhead-West Fargo area had 4,487 hotel rooms. In 2017 there were 5,621 and in 2018 that had risen to 5,728, for an increase of 1,241 rooms in seven years, Johnson said Tuesday, March 19. That increase included more than 600 hotel rooms in West Fargo, he said.
Another 125 rooms will be available to the market with the completion of the Block 9 building in downtown Fargo and the opening of the hotel planned as part of the mixed-use mid-rise tower, Johnson said.
Block 9 is expected to open to the public in fall 2020.
“The bottom line to what I would say .. is that the hotel industry in Fargo-Moorhead-West Fargo is a little bit overbuilt right now, and has depressed occupancy rates, for sure,” he said.
The fact that revenues are rising again is “a good sign and it shows that demand is picking back up,” Johnson said. “As long as there aren’t six more hotels that open up in the next two years, we should see the occupancy start climb back, hopefully toward, and over 60 percent at some point. I think if we can stabilize around 60 (percent) again, that would be fabulous.”
As recently as 2014, the hotel occupancy rate in the F-M area had been 67.3 percent, which Johnson called “extremely healthy,” though that had dipped to a still healthy 61.5 percent in 2015.
Nationally, the annual hotel occupancy rate was 66.2 percent in 2018. That’s the highest it’s been in the last 18 years, according to Statista.
The lowest annual occupancy rate for the nation was 54.6 percent in 2009.
Several factors hurt demand
A mix of economic factors has played a role in undercutting demand for area hotel rooms over the last few years.
At the height of the oil boom, the F-M area saw a lot of traffic shifting back and forth from the western oilfields.
One hotel manager said “that there was a time when they had 15 or 20 walk-ups (seeking a room) a night (without reservations),” Johnson said.
In 2014, a big drop in oil prices put the skids on the Oil Boom in the Bakken formation, Johnson said. Oil prices have been rebounding, but hiring hasn’t ramped up to previous levels because the industry is employing more efficient technologies.
The slowdown demand for rooms happened as hotel chains were still adding rooms around the state, Johnson said.
Other factors affecting room demand include low agriculture prices the last five years - exacerbated by recent trade disputes - cutting farmers’ spending.
The strong U.S. dollar has also pushed the exchange rate for the Canadian dollar down to 75 cents U.S., hurting tourism, Johnson said.
In 2018, North Dakota statewide hotel room occupancy was 51.3 percent, more than 3 percent higher than in 2017, said Heather LeMoine, marketing and research manager for North Dakota Tourism.
LeMoine said the statistics available through industry analyst STR are provided voluntarily by hotels. While larger cities in North Dakota offer a wealth of data, information from rural counties sometimes isn’t available.
For example, the room census for North Dakota lists 24,702 hotel rooms. However, most of those rooms were reported in major cities, she said.
Not all prosper
Not all hotels in the Fargo-Moorhead-West Fargo area are doing well.
A representative for the owner of the Microtel Inn & Suites by Wyndham at 705 23rd Ave. E in West Fargo appeared before the West Fargo City Commission on Feb. 18.
Ethan Horn of Denver said the 88-room hotel, given an assessed value by the city of more than $5 million in 2017 and 2018, should have its taxable value lowered to $3.3 million for both of those years. Horn presented an appraisal to back the owner’s contention that the hotel’s lower revenues didn’t support the city’s appraisals.
“The property has struggled” and been unable to turn a profit, Horn said.
Horn said the area has an oversupply of hotel rooms and that general market conditions indicated a downturn.
Horn added that of the March 16, 2018, appraisal of the property, the hotel “was negative cash flowing.”
However, commissioners pointed out that the owner had bought out a partner in June 2018, which put the hotel’s value at $5.9 million.
Mayor Bernie Dardis told Horn that the sale set a price point.
“To me, market value is what you can buy it or sell it for,” Dardis said.
City Assessor Nick Lee said no other hotels in West Fargo sought to have valuations lowered for 2016, 2017 or 2018.
The commission then voted to deny Microtel’s request for both years.
Build it and they will come?
Johnson said a key to dramatically boosting hotel stays in the F-M area would be construction of a large conference center space.
“We need a significantly larger meeting space in the community, because that does hamstring our ability to bring conferences and conventions to the community,” Johnson said.
Johnson said he and his staff have been contacted regularly in the last seven years by groups looking for a place to meet, but didn’t have the space to accommodate their needs here.
“That’s disheartening,” Johnson said.
Instead, Johnson said the CVB has focused on helping sports clubs and groups attract tournaments.
The area’s “wonderful sporting facilities,” including the Hulbert Aquatic Center and the Scheels Arena, have “helped us stay ahead of the curve,” he said.
For example, in April 2018, the National Collegiate Roller Hockey Association held its national championships here, bringing local hotels 1,000 room nights of business, he said.
One conference center proposal in recent years called for adding 40,000 to 50,000 square feet of meeting space to the Fargodome. By using the arena and current meeting spaces, the facility could hold “pretty large events, if we needed to,” Johnson said.
Ideally, Johnson said a conference facility would have room to serve meals for 2,000 to 3,000 people, and have 100,000 square feet of exhibit and breakout spaces.
“We do not have a place that big now,” Johnson said.
The largest ballroom in the community is 15,000 square feet, which is strained by Chamber of Commerce luncheons, he said.
Of course, more meeting space would also allow the city to host many smaller conferences, too, Johnson said.
“At this point, we’ll take anything, anywhere, but we need that bigger room … just to give us a fighting chance” for some of these things, Johnson said.