Burst of Growth in Hotels Extends Across the State
Post Date: Aug 24 2015
By The Bismarck Tribune
Ashok "Smiley" Thakker is just trying to keep up.
The owner of seven hotels in Grand Forks has watched as more and more competition springs up around town. Since the beginning of 2014, the city has seen an influx of six new hotels -- all of which sit on South 42nd Street.
The burst of growth in hotels isn't limited to Grand Forks but extends to other cities across the state. Overall, the number of hotels operating in five major North Dakota cities has jumped by 39 percent from five years ago.
The spike in new establishments doesn't come without consequences for the industry.
Hotels' annual occupancy rates and other key indicators that measure the industry's success are falling in Grand Forks and across the state.
An abundance of new hotels has owners such as Thakker trying to find a solution to attract guests and keep their businesses afloat.
Thakker reopened his Ramada Inn this past week after a large-scale renovation, which included refurbishing guest rooms, the restaurant, lobby, restrooms and more.
"It's been a big project," Thakker said.
Grand Forks has seen a 29 percent increase in available hotel rooms since 2010, according to data from the North Dakota Department of Commerce Tourism Division. In that same time frame, occupancy rates peaked in 2012 and are now on a downslide.
In the first six months of 2015, just 54.7 percent of hotel rooms were filled in Grand Forks, according to data provided by STR, a company that researches and tracks the hotel industry. That's down from a high of 69.8 percent during the same period three years ago.
Though the hotel market is cyclical, with more people staying in hotels during the summer months than in the winter months, those in the industry say the hotel market has remained down this summer, and they don't see it getting much better soon.
The hotel market as a whole is down across the state, said Dean Ihla, tourism development manager for the Department of Commerce.
Slipping occupancy in the eastern portion of the state can be attributed to a weakening Canadian dollar and possibly overbuilding, he said.
In western North Dakota, in places such as Minot and Dickinson, Ihla said the decrease is due to a combination of more permanent housing for oil field workers--they no longer have to stay in hotels for long periods of time--and a little bit of overgrowth.
"I think there's some overgrowth because of not knowing where this oil growth was going," Ihla said. "Now that the oil has slowed down, we're seeing that in hotels, too."
However, lower occupancy rates in places such as Minot likely stem from those cities returning to normal instead of an indication of a widespread problem, Ihla argued.
In 2011, Minot had an annual occupancy rate of 86.6 percent, but that rate was down to 65.4 percent as of last year, according to STR. Between 65 to 70 percent is considered a good rate, Ihla said.
Over the past five years, the number of hotels in Minot nearly doubled, growing from 17 to 32, according to STR.
Despite that, Wade Regier, director of sports and events for the Minot Convention and Visitors Bureau said Minot has a "perfect" number of rooms for the city.
Regier pointed to few vacancies on weekends when Minot hosts events such as the North Dakota State Fair or the state basketball tournament.
"When there's big events in town, we actually don't have enough hotels," Regier said.
Sara Otte Coleman, the director for the Tourism Division, said hotel owners are always concerned when new businesses enter the market, but she expects this to only be a short-term issue.
"It's natural that occupancy rates would fall with more hotels, but we think that will eventually correct itself," she said.
Bismarck also has seen a similar trend. In 2011, its occupancy rate was 78 percent. Last year, it fell to 70.1 percent. In the last five years, Bismarck has added 11 hotels, according to the Department of Commerce.
Fargo has remained steady since 2010, with its occupancy rate last year sitting at 67.5 percent.
It's not just occupancy data that has slipped recently.
Revenue per available room, or RevPAR, is one of the top performance measures in the hotel industry. In the first six months of 2015, Grand Forks' RevPAR was $48.73, down 23 percent from its high in 2012. That means each room is making less money than it once did.
Troy Ausmus, general manager of Yellowstone Management, which owns three hotels in Grand Forks, said he's not sure how to combat the problem. His hotels have increased advertising, included more promotional deals and lowered rates all to draw in more tenants.
"There was a fixed number of customers coming down and now there's more options," Ausmus said. "I've seen other hotels drop their rates more than we have, but everybody's down. I've talked to a few different hotel groups and they're all saying the same thing."
Ausmus and Ihla both said one of the problems is that Grand Forks, and North Dakota as a whole, have only a limited number of people who come to visit. The state lacks a major metro area and doesn't have a large-scale attraction, such as Yellowstone National Park or a Disneyland to attract more visitors.Advertisement (1 of 1): 0:27According to the Department of Commerce, the occupancy rate for the entire state in the first six months of 2015 was 56 percent, which is a 9.3 percent decrease from that same months a year ago.
"I think it's more of a stabilization," Ilha said. "The numbers aren't alarming right now. We went through a period where you couldn't do a lot of promotion because there was just nowhere to stay.
"So, of course occupancy is going to change when you've added 10,000 rooms to your inventory. That's a lot of growth for a population of 725,000 and no large, major cities."
Without those large urban populations and attractions, cities such as Grand Forks have relied on Canadian travelers.
However, with the Canadian dollar continuing to struggle, fewer visitors from the north are coming down.
The Canadian dollar fell to its lowest level against the U.S. dollar since early 2009, according a MarketWatch report published earlier this month. A Canadian dollar was worth 76 cents as of Thursday, according to the Bank of Canada.
Meanwhile, border traffic has slumped. In the first six months of 2014, 158,254 personal vehicles were recorded at the Pembina, N.D., crossing, which decreased to 145,609 in the same period this year, according to federal data.
"We can't really do anything to bring more people to town in our market, so there becomes an internal competition to see if somebody can pull a bigger market share than the other hotels," Ausmus said.
Though several hotels have popped up recently, there are no new hotels on the horizon, according to the Grand Forks City Planning Department.
Julie Rygg, executive director for the Greater Grand Forks Convention and Visitors Bureau, said despite the recent growth, it's still too early to say if there's too much inventory in town.
"We just want to help the hotels stay busy," she said.
Rygg said hotels are busy at different times of years, so it's hard to say how exactly the industry is doing.
But by most measures, including the Grand Forks' lodging tax collections, the industry is down. Collections between January and May were down 6.9 percent in the first five months of 2015 from a year ago.
"There's no question that everybody's down," Ausmus said of the city's hotel industry. "Now we have to figure out a way to bring it back up."
Burst of Growth in Hotels Extends Across the State - The Bismarck Tribune