Market study shows DMC has enough hotels

November 15, 2018

Rochester has enough downtown hotels planned to meet Destination Medical Center needs for the next five years.

An updated market analysis presented to the DMC Corp. Board Tuesday estimates 750,000 room-nights are expected this year in the district that extends from Rochester’s downtown core to just beyond Saint Marys Hospital. With growth in the number of visitor stays over time, the annual room-night number is expected to reach 1 million within five years.

“At a 70 percent occupancy rate, which is kind of an industry rule of thumb, that would imply a demand of about 3,400 rooms,” said Bill Anderson of AECom, which conducted the analysis.

The DMC district has 2,703 rooms available today with nearly 950 planned or under construction, which would provide a surplus of more than 250 rooms.

However, Anderson said it doesn’t mean development won’t happen.

He noted Rochester has historically operated with a lower occupancy rate, since Mayo Clinic patients — making up nearly 70 percent of the city’s visitors — occupy most rooms during the week, leaving rooms empty on weekends.

Additionally, he said, some hotel developers might be willing to take a risk on providing rooms at a specific price, if they see a gap.

“Somebody might think there is still an opportunity,” he said.

Mayor Ardell Brede noted that Experience Rochester, formerly known at the Rochester Convention and Visitors Bureau, has been looking for other opportunities to fill rooms.

“That’s being looked at very seriously now,” he said.

In September, Mary Gastner, interim director for Experience Rochester, said more hotel rooms are needed to attract larger conventions, which typically require large blocks of rooms throughout several days.

Anderson said the analysis does indicate the potential for such growth with University of Minnesota-Rochester, Discovery Square and Mayo Clinic’s global reputation spurring new activity.

“Rochester has the potential to position itself as a unique national meeting destination centered on innovations in health and well-being, as well as a regional convention center,” the findings stated.

In addition to the hotel market, the analysis also studies anticipated trends for office and medical technology space, residential units, and businesses involving retail, dining and entertainment connected to the DMC district.

Anderson said demand for professional office space will likely be satisfied with upgrades and renovations of existing spaces, rather than through creating new office buildings, but he noted the need for more medical technology spaces could be driven by partnerships similar to those seen at One Discovery Square, which is expected to be completed in March.

Needs in the residential market will likely be driven by job growth, Anderson said, noting nearly 1,100 apartments and other residential units exist in and around the DMC district.

The study indicated 900 to 1,350 new units will be needed. With at least 1,280 already planned, Anderson said the planned apartments should meet or exceed demand in the next few years but suggested more diverse markets could be considered.

When it comes to retail and entertainment venues, Anderson said the analysis shows demand for the next few years is expected to be met, but it could grow with greater regional expectations.

As a result of the study, Anderson suggested the DMC Economic Development Agency work to create partnerships to attract more medical technology businesses, focus on diversifying available housing, prioritize lodging investments that create more demand and develop a dining and entertainment strategy to capture new demand.

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