Market of the Month - Chicago, IL
By Heidi Nielsen, Vice President of Business Development
Chicago is one of the most iconic and diverse hospitality
markets in the United States, blending world-class business demand with a rich
cultural and leisure landscape. The city draws millions of visitors annually
for its renowned architecture, culinary scene, museums, and major events.
Anchored by a vibrant downtown and key submarkets such as the Loop, River
North, and Magnificent Mile, Chicago benefits from strong year-round demand
supported by corporate travel, conventions, and tourism. With two major airports,
including O'Hare International Airport, one of the busiest in the world, the
city serves as a major national and international gateway. This
accessibility, combined with a deep and diversified demand base, positions
Chicago as a resilient and globally recognized hospitality market.
As the third-largest city in the U.S., Chicago is powered by
a highly diversified economy spanning finance, consulting, technology,
healthcare, manufacturing, and transportation. Major corporations, including
McDonald's, Boeing, and United Airlines, maintain a significant presence in the
region, while a strong network of universities, including University of Chicago
and Northwestern University, supports innovation and workforce development.
Chicago's central location and extensive transportation infrastructure,
including rail, interstate, and air networks, reinforce its role as a critical
hub for commerce and logistics, driving consistent business travel demand.
• Tourism & Entertainment - Tourism and
conventions remain foundational to Chicago's hospitality performance,
generating over $16 billion in annual economic impact and attracting more than
50 million visitors each year. Anchored by McCormick Place, the largest
convention center in North America, the city benefits from strong group and
corporate demand, complemented by leisure attractions such as Millennium Park,
Navy Pier, and the Art Institute of Chicago, as well as major events like
Lollapalooza and the Chicago Marathon.
Chicago's sports and entertainment landscape further
enhances demand, with teams including the Chicago Bears, Chicago Bulls, Chicago
Cubs, and Chicago White Sox driving visitation to venues such as Soldier Field,
United Center, and Wrigley Field, creating strong compression during major
events and peak travel periods.
• Financial Services - Chicago is a leading financial
hub, anchored by institutions such as CME Group, one of the largest futures and
options exchanges globally, along with major companies including Northern
Trust, Allstate, Discover, and BMO. Large financial institutions like JPMorgan
and Wells Fargo continue to invest in the region, with branch expansions and
job creation initiatives supporting long-term growth. Management consulting
firms such as McKinsey & Company, Bain & Company, and Boston Consulting
Group also maintain a significant presence, with continued office expansion
reflecting Chicago's role as a key business center.
• Healthcare - Chicago is home to a nationally
recognized healthcare and life sciences ecosystem, anchored by leading
institutions such as Northwestern Memorial Hospital, Rush University Medical
Center, and the University of Chicago Medical Center. The presence of top
medical schools and research institutions continues to drive innovation and
workforce development, with approximately 34,000 life sciences professionals in
the region. While recent layoffs across select healthcare-related organizations
have impacted employment, the sector remains a key economic driver supported by
ongoing research, education, and patient care demand.
• Manufacturing - Historically a cornerstone of
Chicago's economy, the manufacturing sector remains diverse, producing
machinery, chemicals, and food products. Global companies including McDonald's,
Mondelez International, and Quaker Oats maintain headquarters in the region,
supporting a strong industrial base. While the sector has faced recent
headwinds, including plant closures and layoffs, new investments—such as
Fortune Brands Innovations' planned headquarters relocation to the Chicago
suburbs—are expected to create jobs and support long-term economic stability.
Year-to-Date Trends:
According to CoStar, the Chicago hotel market has
demonstrated solid momentum through January, with trailing 12-month RevPAR
growth of 4.0%, outperforming many peer Midwestern urban markets. Unlike
several comparable cities where performance has been driven primarily by rate,
Chicago's gains have been supported by both occupancy and ADR growth. Occupancy
increased 2.5% to 66.5%, while ADR rose 1.5% over the same period, reflecting a
well-balanced recovery across demand segments. The continued rebound of leisure
and transient business travel has been a key driver of performance, with
transient demand increasing 3% through year-end as both leisure travel and
corporate activity return to the market.
While overall demand has not yet fully reached pre-pandemic
levels, the trajectory remains positive, particularly within the
transient segment. Group demand, however, declined 3% over the past 12 months
following several periods of growth, largely due to calendar gaps between major
conventions and the absence of large-scale events that boosted prior-year
performance, which includes the Democratic National Convention. Despite this
near-term softness in group, market participants remain cautiously optimistic,
as Chicago's robust event calendar—including the Chicago Architecture Biennial
and the International Conference for High Performance Computing, Networking,
Storage, and Analysis (SC26)—is expected to support continued demand. Looking
ahead, RevPAR growth is forecast to moderate to 1.9% by year-end 2026, though
the market is still projected to outperform the broader U.S., which is expected
to see more modest RevPAR growth.
New Supply:
New hotel development in the Chicago market has slowed in
recent years, reflecting elevated construction costs, labor shortages, and
broader economic headwinds. Over the past decade, the market averaged roughly
2,300 rooms under construction annually, with the majority of deliveries
occurring prior to the pandemic. In the last three years, that pace has
declined to approximately 1,700 rooms per year. This trend continued through
2025, with just four new hotels totaling 520 rooms delivered, primarily in the midscale
and upper-midscale segments. As of January, approximately 1,915 rooms across 18
hotels are under construction, with nearly 1,600 rooms expected to deliver in December
2026, representing a modest 1.5% increase to existing supply, well below the
national average.
Looking ahead, the pipeline remains measured but active,
with 2,816 rooms in final planning and nearly 4,000 additional rooms proposed,
though some projects may face delays due to ongoing development challenges. A
key project to watch is the $1.7 billion Bally's Chicago Hotel & Casino by
Bally's Corporation, which is expected to include a 500-room hotel and major
entertainment components, with an anticipated opening in late 2026. Development
is largely concentrated in the central business district, with the majority of
projects falling in the upper-midscale through upper-upscale segments,
consistent with Chicago's existing inventory and reinforcing its position as a
high-barrier-to-entry urban market.
Transactions:
Transaction activity in the Chicago hotel market softened between 2024 and
2025, with total volume declining 18% from $701.1 million to $572.9 million,
despite gradually loosening credit conditions. It is worth noting that 2024
transaction volume was elevated by the $300 million sale of the Sheraton Grand
Chicago Riverwalk, the market's largest trade in nearly a decade, which skews
year-over-year comparisons. Even so, 2025 volume remained below both the
three-year average of $598 million and the 10-year average of $743 million,
reflecting continued caution among investors. Over the past two years,
transaction activity has been dominated by local, national, and foreign
investors targeting branded assets in the upper-midscale through upper-upscale
segments, which account for roughly 78% of total volume and align closely with
Chicago's existing hotel inventory.
Investors have largely focused on more affordable assets,
with hotels trading below $150,000 per key accounting for 94% of total
transaction volume in both 2024 and 2025, underscoring a preference for
select-service and lower price-point acquisitions amid elevated borrowing
costs. Notable trades reflecting this trend include the Fairfield Inn &
Suites Chicago, Westin Michigan Avenue Chicago, Hilton Garden Inn Chicago North
Shore, and Claridge House Chicago Tapestry Collection.
However, there have been a few higher-value transactions,
most notably the $77.4 million sale of Virgin Hotels Chicago (approximately
$310,000 per key), highlighting continued appetite for well-located,
high-quality assets. Looking ahead, investment activity is expected to increase
in 2026 as financing conditions improve, with continued interest in
upper-midscale through upper-upscale hotels and a sustained focus on
value-oriented acquisitions.
Conclusion:
Chicago remains one of the most compelling hospitality
markets in the United States, supported by its scale, global connectivity, and
highly diversified demand base. While the market continues to navigate
near-term challenges, including elevated development costs, evolving demand
patterns, and cautious investment activity, its strong fundamentals provide a
solid foundation for long-term growth. A robust convention calendar, continued
corporate presence, and a steady recovery in both leisure and business travel
are expected to sustain performance, even as RevPAR growth normalizes.
With limited new supply, ongoing investment interest, and a deep pipeline of cultural, corporate, and citywide events, Chicago is well-positioned to outperform many peer markets in the years ahead. As capital markets improve and demand continues to strengthen, the city's high barriers to entry and global appeal will continue to attract both operators and investors seeking stable, long-term returns in a premier gateway market.
