The Minneapolis-St. Paul, Minnesota, metro area is comprised of 186 cities and townships and, with over 3 million people, is the 16th largest metropolitan statistical area in the United States. The market has 317 hotels with 38,000 rooms and generates US$717 million in annual room revenue—25th among U.S. markets (excluding Las Vegas).
Minneapolis-St. Paul has begun the climb back from the steep downturn of 2008-2009. May 2010 year-to-date revenue per available room was up 4.1 percent, driven by a 7.5-percent occupancy increase. Average daily rate was down 3.1 percent but has shown steady improvement recently. May ADR moved into positive territory—the first time in 16 consecutive months—with a 0.6 increase. At the trough of the down cycle (September 2009), RevPAR was down 20.5 percent on a trailing-12-month basis.
Transient business is leading the way back. May year-to-date transient occupancy at upper-end hotels increased 20.5 percent, while group occupancy was up 7.1 percent. ADR has not yet moved into positive territory in either category, but RevPAR is in the black based on the occupancy strength.
May year-to-date weekday occupancy (up 7.6 percent) and weekend occupancy (up 7 percent) have both shown good increases, with Tuesday and Wednesday running the highest absolute numbers, about 63 percent. Weekday ADR declined 2.9 percent while weekends fell 3.7 percent, with absolute weekday ADR holding a US$14 premium over weekends.
As in many markets, room-supply growth has contributed to Minneapolis-St. Paul’s performance woes. In 2008, room supply in the market increased 3.8 percent, over 1 percentage point above the market’s 20-year average. Supply growth now is slowing, with a 1.1 percent increase May 2010 year-to-date. There are currently no hotels under construction and only about 700 rooms in the “final planning” stage. This obviously bodes well for existing operators as demand firms and pricing power returns.
STR divides the Minneapolis-St. Paul area into five sub-markets. Minneapolis accounts for about one-third of annual room revenue, and Bloomington another 25 percent. May year-to-date occupancy increased in four of the five sub-markets, while ADR was down in all five. Upper-upscale and upscale hotels make up over half of room revenue in Minneapolis-St. Paul and midscale-without-food-and-beverage properties another 20 percent. Similar to the overall U.S. trend, upper-level hotel occupancies have seen the most improvement based on May year-to-date data, while ADR has not yet moved into positive territory.
The future for hotel operators in Minneapolis-St. Paul certainly appears bright. The Twin Cities metro area is home to 19 Fortune 500 companies and boasts a diverse and vibrant economy, based on manufacturing, government business and high-tech industries. The area also offers a diverse menu of outdoor and leisure activities, including the Mall of America. The market provides affordable accommodations and a “low key” destination that is attractive for meetings, groups and incentive travel. Additionally, room supply growth will be constrained for the foreseeable future and demand is strengthening. Put it all together, and the Minneapolis-St. Paul market is strong, good-looking and definitely “above average.”