Report: Louisville hotel room rates expected to rise 13.9 percent as supply and demand increase

The Omni Hotel at Second and Liberty streets is by far the largest hotel development with 613 rooms. | Courtesy of Omni

The Omni Hotel at Second and Liberty streets is by far the largest hotel development with more than 600 rooms. | Courtesy of Omni

The economic principle of supply and demand generally rings true, but when it comes to the hotel market in Louisville, the principle, to a certain point, doesn’t apply.

With nearly 2,200 new hotel rooms coming online in Louisville during the next several years, a CBRE Louisville report indicates that the average daily room rate will jump 13.9 percent to $119.35 from 2016 to 2020. The revenue per room rate — calculated by dividing the total revenue from hotel rooms by the total number of available rooms — will rise an estimated 19.6 percent to $76 per room by 2020.

The increases may seem counter-intuitive, but with conventions and bourbon’s popularity boom, the demand for hotels in the city is high.

“There’s not a finite level of demand. The demand can increase to some degree as supply increases,” said David Hardy, managing director of CBRE Louisville, a commercial real estate firm.

Before the Louisville Marriott Downtown was completed in 2005, Hardy said, people questioned whether the city needed the new hotel and worried it would take business away from other lodgings.

“It helped everybody,” he said, adding that room rates increased because it opens Louisville up to additional consumers.

Karen Williams, president and CEO of the Greater Louisville Convention and Visitors Bureau, has stated multiple times in the past that additional hotel rooms will allow the city to host large conventions it couldn’t accommodate in the past. Williams said the city has been passed over because it did not have enough hotel rooms for certain conventions.

José M. Fernández, an associate professor of economics at the University of Louisville, concurred with the CVB’s assessment.

“It is more likely that rates will go up because Louisville will be able to accommodate larger conventions,” Fernández said in an email. “Cities are ranked by their hotel capacity when conventions are choosing destinations. The addition of more hotels moves Louisville up on this list.”

No number has been floated as a potential tipping point for Louisville’s hotel market. In fact, even though 835 new hotel rooms have opened since late 2014 and another 2,172 will be completed by the end of 2018, developers still are contemplating new hotel projects in Louisville, Hardy said.

“A lot of people from outside the market are making bets on our town,” Hardy said. “Bourbon-themed anything is so hot right now. That is probably the fuel behind the fire.”

Development begets more development. Those who may have been too afraid to make the first move see others taking a chance on Louisville and decide to invest.

“It must be a good idea, so other developers follow,” Hardy said. “We are absolutely seeing continued interest, in conversions mostly.”

He gave the example of the more than 100-year-old Republic Building, which Florida-based company Hudson Holdings and Louisville-based Blue Venterra are developing into the 85-room Hotel Indigo.

CBRE Louisville created the report because the city is attracting the attention of out-of-town developers who are trying to understand the Louisville market.

“It was largely driven by the number of outside developers we have been working with,” Hardy said, adding that when he drove clients to potential development sites, “I felt like I was on the hotel tour as I was driving through downtown.”

The report, shown below, details hotels that have opened within the last couple years as well as those still in the works.

Louisville Hotel Developments by insiderlouisville