Josh Schamberger

Guest Opinion

Many area leaders and citizens have been inquiring about all of this planned new hotel inventory. Is there a need for it? What will it mean for existing hotels?

One just has to look around town to see that our community is currently experiencing unprecedented hotel growth. Within the next 26 months, an additional 962 rooms in nine hotels will be added to our area hotel market, an increase of more than a third of our current inventory. It’s a pretty safe bet that there is no other community in the region seeing this type of development. While the local hotel market remains strong and has demonstrated itself to be a bit recession proof over the years, this amount of growth is also worrisome.

For the most part, hotels don’t create demand. While it is true that some of the larger conference center hotels (e.g., Marriott, Sheraton/hotelVetro) have the ability to bring large groups to town, the majority do not. Area hotel occupancy has grown by about 3 percent per year over the past decade, and the concern here is what ramifications a roughly 35 percent supply increase will have on average daily rate or ADR.

Why is market ADR important? For starters, ADR has a direct correlation to area tax revenue. Since the early 1980s, visitors to our community are assessed an additional 7 percent hotel tax for each overnight stay. This is in addition to normal sales (or excise) tax collections that support the state’s general fund. Hotel taxes are collected quarterly by the Iowa Department of Revenue and, unlike sales tax collections, are returned back to the municipality in which they are collected. In fiscal year 2016, total area collections were just short of $3.9 million.

Iowa law requires that a minimum of 50 percent of these collections be spent on tourist-related initiatives and efforts. That happens through each area municipalities’ hotel tax investment into convention and visitors bureaus and their parks and recreation departments' efforts. The other 50 percent goes into each city's general fund budgets where dollars are used to support local festivals, special events and attractions — organizations and efforts that largely help generate these visitor dollars to begin with.

What does all of this mean? Well, while the additional room supply will be welcome during high-traffic weekends — such as during Iowa football season, the Olympic wrestling trials, Cyclo-Cross World Cup and commencement ceremonies — this volume of increase is sure to have an impact on hotel tax collections. As supply grows, many area hotel operators will drop rates to fill rooms, and that lowering of market ADR will have an impact on hotel tax revenue. Hotels will need to compete that much harder. Service and amenities will rule the day, and as a result, it is likely a few of our current hotels will decide to just call it a run.

So it’s going be a bit of a wait and see. There is some comfort in that seven of the nine hotels being developed are being done so by local, smart and competitive ownership groups. They all report sharing the preceding supply and ADR concerns but also know this market (and the numbers) as well as anyone.

Josh Schamberger is president of the Iowa City/Coralville Area Convention and Visitors Bureau.