Aug. 2, 2008 - The local hotel and motel market has remained strong, buoyed by a favorable exchange rate luring Canadian shoppers south of the border.

Grand Forks County hotels and motels had an occupancy rate of 63 percent through June, an increase of nearly 4 percent from the first six months of last year, according to a survey of about half the area's lodging properties by Smith Travel Research.

But with another hotel opening its doors in the past two months and three more hotel projects in the pipeline, is the local lodging market nearing a tipping point?

Kelly Gust, the general manager of the Hilton Garden Inn, said the new hotels will put the onus on the city, convention and visitors bureau, Alerus Center and Ralph Engelstad Arena to attract more business, events and conventions to fill them up.

"It will take some business from all of us," Gust said of the new hotels. "At this point, I don't see the city as oversaturated. But in a few more years, if we add four more new hotels, it might be."

Market growth

With the opening of the 100-room Country Inn & Suites by Carlson in June, the Grand Forks/East Grand Forks metro area now contains about 1,900 hotel and motel rooms.

That's almost half of Fargo-Moorhead's total of about 4,000 rooms and less than Bismarck-Mandan's about 2,400 rooms. By comparison, the most recent U.S. Census Bureau population estimates show Grand Forks with 51,740 residents, Bismarck with 59,503 and Fargo with 92,660.

A Staybridge Suites and a SpringHill Suites by Marriott are planned for South 42nd Street and a Courtyard by Marriott is planned near Ralph Engelstad Arena. If all three are built, they would add about 280 additional rooms, bringing the local market to about 2,200 rooms, roughly in line with the number of rooms in comparison to population in Fargo and Bismarck.

A Settle Inn is under construction, and a Hilton Garden Inn is planned in Fargo. Hampton Inn and Candlewood Suites properties recently opened in Bismarck.

"I think there has been a shortage of rooms in Grand Forks for some time," said Tim Crary of Crary Homes & Real Estate, who is part of a group planning an 86-room Staybridge Suites extended stay hotel across from the Alerus Center.

Hotel developers say they have studied the local hotel market and are convinced it can support their projects.

"There has been a lot of research by these companies that has gone into this," said local businessman and former hotel owner Hal Gershman. "People don't just build hotels rashly."

Will new hotels hurt existing ones?

Gershman, who was in the hotel business for 32 years, said he believes the local market is strong enough to justify the additional properties.

But he said as newer, flashier hotels with better amenities are built, lower-priced motels have historically become more vulnerable.

"You always run the risk of hotels that have not made improvements slipping as new ones come in," Gershman said.

But some local motel operators say they have carved out their own niche among cost-conscious travelers and do not compete head-to-head with bigger hotels for the same guests.

Sharon Rausch, general manager of the Budget Inn Express on Gateway Drive, said she is not concerned about plans to build a Courtyard by Marriott nearby.

"That's not going to affect us," she said. "People who want to stay there aren't looking for this kind of a hotel."

Rausch said business has been good as Canadians fill up the motel on weekends with some pipeline workers also staying while they work on out-of-town projects.

"I don't think there's too many (hotels)," she said. "There's weekends we're all booked up. We're pretty much full every night. Even on weekdays."

Canad Inn impact

Before construction even started on the Canad Inns Destination Center, some local area hotel operators worried that its opening would negatively impact other hotels and motels.

But so far, it seems that the local lodging market has had no problem absorbing the additional 200 rooms from its opening last year, and observers say it hasn't hurt other properties.

In fact, some say the Canad Inn has accelerated the flow of Canadian visitors flocking to Grand Forks and has created a spill-over effect, helping to fill other hotels when it sells out.

Local occupancy rates shot up to almost 67 percent last year, an increase of almost 9 percent from 2006, helped by an influx of Canadian visitors.

While local hotel revenue has increased almost 25 percent from a year ago at this time, helped in part by recent additions to the market, the opening of more upscale hotels such as the Canad Inn also has resulted in average room rates jumping 10 percent to nearly $72 a night.

Positives of growth

Gershman, who also is president of the City Council, said the building of new hotels will be a positive for the city's financial health.

"Anytime you see groups willing to make multimillion-dollar investments in your community, it's a very good thing," he said. "It will be expanding our property tax base."

Tami Pearson, the Alerus Center's marketing manager, said the addition of more lodging properties nearby will only make the facility more appealing for those considering it to host concerts, meetings and conventions.

Some events also require minimum levels of local hotel rooms to consider host cities, so adding more rooms may eventually help in that regard.

Potential concerns

While the local hotel market has been strong, the eventual reversal of the favorable currency exchange rate for Canadians shopping in the U.S. could lead to a sizable reduction in business.

"If that shifts it will absolutely affect us," said Julie Rygg, executive director of the Greater Grand Forks Convention and Visitors Bureau. "But the Canadian market has always been a good market for us."

Rygg said the local hotel market is robust, evidenced by occupancy numbers going up, but she said soft weekday business remains a concern.

Gust of the Hilton Garden Inn said the building of new hotel properties is positive for the long-term health of the market but questioned whether three citywide sellouts so far this year justify the building of four new hotels right away.

Gust, who also has worked in Wisconsin Dells, draws some parallels from where Wisconsin Dells was a decade ago and the Grand Forks market is now.

"It's good and bad in a lot of ways," Gust said, noting some of the growing pains Wisconsin Dells experienced. "Grand Forks is just starting the hotel boom. It's a slow growth that has a good future."

Staffing also could become a concern for new hotels as Grand Forks already has more jobs than takers.

Gust recalls how Wisconsin Dells built new hotels so quickly that there weren't enough workers in the resort town's small year-round population to staff them all, requiring hotels to bring in non-English speaking employees from other countries.

"You can build all the hotels you want, bring in all the people you want, but if you don't have adequate staffing to provide the level of service people expect, the events may not come back," Gust said.

Schuster covers business. Reach him at (701) 780-1107; (800) 477-6572, ext. 107; or send e-mail to [email protected]. Read his business blog at www.areavoices.com/bizbuzz.

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