More Room at the Inn
HOSPITALITY by Jean Gruss | Editor/Lee-Collier
An increase in the supply of hotel rooms along the Gulf Coast sent occupancies down. But hoteliers have successfully raised room rates.
For the second year in a row, new rooms and a drop in demand are pushing occupancy down at Gulf Coast hotels.
If occupancy continues to decline, the room-rate increases that hotels have been able to charge guests in recent years may not continue.
For the year through July, hotel occupancy declined in every market on the Gulf coast except Naples, according to Smith Travel Research. They dropped 3.9% in the Tampa Bay area, 8.2% in Sarasota-Bradenton area and 5.6% in Fort Myers. Only Naples had rising occupancy, though it was a slim 1% increase.
So far, the decline in occupancies has been offset by strong rate increases. In the Tampa Bay area, for example, the average daily room rate rose 6.3% so far this year through July, according to Smith Travel.
Hoteliers always try to balance occupancy with rates. The trick is to charge high enough rates without driving down occupancy too much. "You want to drive rates, but you also want to run a flourishing business," says Darryl McGarity, director of sales and marketing for the Renaissance Tampa Hotel at International Plaza.
Naples is the strongest hotel market on the Gulf Coast, the numbers show. Revenue per available room - an important industry metric - jumped 8.5% in Naples so far this year. That's on top of a 12.1% increase in 2005 and 3.8% increase in 2006. Because of the relatively small size of the market and the lack of available land, the supply of rooms dropped 5.1% so far this year. It has declined every year since 2003.
But Naples is the exception. From Tampa to Sarasota and Fort Myers, the supply of hotel rooms is increasing and demand is falling. If the trend continues, it may force rates down.
Supply and demand
Florida's Gulf coast hotels rebounded from the downturn in travel after the terror of Sept. 11, 2001. But for several years after the attacks, few hotels were built. When travel rebounded in 2003, rooms filled up quickly and rates spiked.
In response to strong rate increases and higher occupancies, developers started building hotels again. For example, there are 16 hotels under construction in the Tampa area with 1,552 rooms. Another 41 hotels are in the pipeline that could bring another 3,500 rooms. A total of 5,000 new rooms amounts to 12% of the hotel-room market. "That's a lot," says Jan Freitag, vice president of global development for Smith Travel Research. "Especially with occupancies going down, that is a little alarming for the existing hoteliers."
"If you look across the state, everyone is seeing declines in occupancy," says Steve Hayes, executive vice president of the Tampa Bay Convention and Visitors Bureau.
The rate increases haven't necessarily ended up on hotels' bottom line. That's because hotels were forced to raise rates to pay for dramatic insurance-rate increases following the devastating hurricanes of 2004 and 2005. "Everybody had to find a way to pay for that," says Tim Bogott, president and CEO of Trade Winds Island Resorts on St. Pete Beach. Bogott says the Trade Winds' insurance costs jumped to $2.1 million last year, up from $675,000 the previous years.
In the Sarasota area, there are as many as 2,000 rooms planned in a market with just 5,000 rooms. If all those rooms were to be built at once, it would pressure rates significantly. Virginia Haley, president of the Sarasota Convention and Visitors Bureau, says 300 new rooms per year could be absorbed without saturating the market.
But those rooms may not be built if developers consider the latest figures. Occupancy has dropped 8.2% so far this year on the back of a 7.5% decline in demand. Sarasota's weak spot are the hotels that were built in the southern part of the county. During the housing boom, these hotels housed workers and prospective homebuyers. Now that the residential market has turned, those hotels are seeing big drops in occupancy and demand.
Meanwhile, high-end hotels in Sarasota are still doing well. That fact resulted in a 7% increase in average daily rates so far this year. "There are some hotels doing really well and charging a premium, and those are the ones driving up the rates," says Smith Travel's Freitag. "The demand number is going down so you would expect rates to go down, so I guess some are doing really well," he says.
The Fort Myers area also has seen a jump in new supply. In March, the South Seas Island Resort on Captiva island opened with 465 rooms, helping to boost the area's supply of rooms 4.9% so far this year, according to Smith Travel Research. The resort's prices also helped boost the area's average daily rate by 8.6%, nearly three times the overall rate of inflation.
"I do know that occupancy is down in Lee County," says Teri Lamaine, regional director of sales for Guest Services, a hotel-management company that manages one hotel in Bonita Springs in south Lee County and another in Naples. "At my Bonita Springs property we run lower rates to get occupancy," she says.
Despite the fact that Lamaine's properties are less than five miles apart, the Naples hotel she manages can attract higher rates because of its location. "Demand is stronger in Collier County," she says.
The Naples market is the only area that has seen occupancies rise. What's more, average daily rates are the highest in the region, hitting $250 at the height of the tourist season in March. Even during the middle of the week, occupancies were hitting a relatively high 85% during the season. Revenue per available room rose 8.5% and average daily room rates rose 7.9% so far this year. "That implies a lot of hotels are sold out and they have no problem charging for it," says Freitag. Although demand has fallen 4.6% so far this year, supply has declined an even greater 5.1%.
The lack of new hotel rooms is helping existing hotels in Naples. "From a rate standpoint, this market has continued to be up there near the top," says Jim Gunderson, general manager of the Naples Beach Hotel & Golf Club. "I haven't heard anything in the grapevine about a project being planned," Gunderson says. "What we have right now is probably what we're going to stay with for a number of years."
Slower fall, stable winter
Since the hurricanes of 2004 and 2005, fall business has declined substantially. "We don't look very good for the fall," Bogott acknowledges, adding, "We have reasonably good bookings next year, especially in groups."
But the downturn in housing has scared a lot of people and Bogott says he's concerned people might cut back on travel. In Sarasota, Haley hopes to maintain market share. "In light of stock market volatility, that would be great," she says.
"Transient business is down more significantly because businesses are cutting back," says Hayes. "Convention-wise, if we can hold our own for the rest of this year that'll be great."
"The softening is across the board," says McGarity. But he says the hotel market has been booming and business is returning to a more normal pace. "We're coming off two or three stellar years," he says.
Still, hoteliers in the Tampa area are hoping for a good fourth quarter and look forward to the winter season. "Looking into 2008, we're ahead of 2007 at the same time," McGarity says. "It's not blowing it out of the water, but it's on pace."
"You can't help but be a little bit nervous about the [upcoming] season," says Gunderson. But he says so far there's been healthy interest from business meetings and conventions in particular. "The phones are ringing and people are getting winter set up."
Lamaine says bookings are on pace for the winter season. But Easter is going to come early this year and that will cut the tourist season short. "We all tend to drop our rates after Easter," she says.
BY THE NUMBERS
Gulf Coast Hotel Market Snapshot
Year Occupancy rate Revpar* %chg. in revpar
2005 66.5% $59.59 15.4%
2006 64.9% $63.32 5.8%
2007** 67.5% $72.83 2.1%
Year Occupancy rate Revpar %chg. in revpar
2005 69.1% $68.63 14.6%
2006 66.6% $73.10 8.8%
2007** 67.3% $84.78 ?1.7%
Year Occupancy rate Revpar %chg. in revpar
2005 67.3% $71.52 ?1.8%
2006 63.4% $75.19 8.3%
2007** 66.2% $94.54 2.6%
Year Occupancy rate Revpar %chg. in revpar
2005 65.0% $105.48 12.1%
2006 64.8% $110.75 3.8%
2007** 72.9% $148.97 8.5%
*Revenue per available room; **2007 figures are year-to-date through July and revpar comparisons are with the same seven-month period in 2006. Source: Smith Travel Research Inc.
Trend. Falling occupancies, rising rates
Key. A large number of new hotels under development may impact room rates if demand weakens.