Downtown revitalization efforts led by the public and private sectors are driving the recent economic boom in Detroit.  Several of Detroit�s major corporations are infusing an unprecedented amount of capital into expansions of their headquarters and improvements of surrounding areas to help boost the local economy. As a result of a $17 billion construction and renovation boom, several industry publications cited Detroit as the number one U.S. city for building and purchasing property before September 11, 2001. Unfortunately, the attacks ushered in a sharp downturn in the city�s occupancy, anticipated to continue through the first two quarters of 2002 with a modest rebound in the latter part the year.

In 2001, the overall Detroit market occupancy is anticipated to reach nearly 60 percent, an approximate seven-point decrease from 66.6 percent in 2000. For 2002, an increase of approximately three occupancy points is anticipated, to an estimated 63 percent. Average room rates are anticipated to be approximately $80 in 2001 showing a decrease from the $81.45 ADR registered in 2000. For 2002, ADR is anticipated to remain relatively stable at approximately $80.

Major Demand Changes

Recent developments are anticipated to make the city more attractive to tourists and business travelers. In 2000, General Motors attracted tourists to Detroit with the GM World Exhibit, a new and classic car auto show. GM is currently infusing more than $500 million into their global headquarters, encompassing five towers in the Renaissance Center of downtown Detroit. In 2002, GM plans to add 130,000 square feet of downtown shopping space overlooking the Detroit River. It is anticipated that the General Motors expansion and additional entertainment venues will fuel a surge of commercial and leisure tourism to Detroit.

Detroit�s additional sports and entertainment venues are anticipated to induce leisure demand into the city, including the downtown district. The Detroit Tigers Major League Baseball team opened their new downtown Comerica Park, offering a variety of entertainment and recreational activities. To complement this attraction, the National Football League�s Detroit Lions are in the process of building a new $220 million stadium, slated to open in 2002. In addition, three casinos in the downtown area continue to attract tourists statewide. The city plans to relocate all casinos to a resort district along the Detroit River by 2003 to both create a new entertainment center and to alleviate traffic congestion downtown.

The $1.6 billion expansion project of the Detroit Metropolitan Airport is anticipated to include new facilities and additional gates, allowing it to accommodate a greater number of business travelers, groups, and conventions.  Provided that consumers regain confidence in air travel by early 2002, it is anticipated that the lodging sector will experience a slow resurgence in the latter part of 2002 due to the new entertainment and sports venues the city has to offer.

Major Supply Changes

With 282 hotels totaling more than 35,000 rooms, Detroit does not have sufficient lodging supply to accommodate large spectator events and conventions. During the last two years, Detroit added more than 2,000 guest rooms in the metropolitan area and continues to renovate and improve many downtown hotel properties to mitigate the supply shortage. The Detroit Marriott Renaissance Center, adjacent to the city�s convention center, is undergoing the largest renovation, estimated at at $100 million.

Despite the current shortage of hotel space, Detroit won a bid for the 2006 Super Bowl based upon the expectation that casinos and other developers will construct additional hotel rooms by that time. Several projects in the lodging supply pipeline are currently on hold, however, due to recent economic events and the indefinite delay of the planned downtown 198-room Hilton, which would be the first new hotel to be built in the area in nearly a decade.

Political/Economic/Legal Changes

The construction and renovation of downtown hotel properties to accommodate sporting events and conventions is a hot topic among city government and corporate officials. City officials are counting on casino hotels to fill the void for much needed hotel rooms but disagreements with opposing factions are delaying this initiative�s progress. Furthermore, the arrival of casinos to the downtown area has caused a major parking problem for business commuters, compounded by corporate relocations, including Compuware, to the downtown area.  It is anticipated that the parking situation will not improve until the casinos relocate to the riverfront resort district by mid-2003.

Chuck Bedsole, Dallas
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