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  • | 2:31 p.m. April 13, 2012
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Industry. Hospitality
Trend. Occupancies and rates at hotels on the Gulf Coast have been rising steadily.
Key. Watch for risks such as spiking oil prices.

Hotels on the Gulf Coast have been doing so well lately that some developers are planning to build new lodgings.

“We ended 2011 as the best year we ever had,” says hotelier Phil McCabe, who has operated the Inn on Fifth in Naples for 15 years and is building another 32 suites across the street from his hotel in a $15 million expansion project.

In Sarasota, real estate broker Barry Edwards and partners are building a 97-room Comfort Suites hotel on Clark Road near Interstate 75. “There hasn't been a lot of new product in the market, and we feel like the timing is right,” Edwards says.

From Tampa to Naples, hoteliers have boosted room rates as their hotels fill with guests, a promising trend that suggests the recovery is under way.

Revenue per available room, an important financial gauge of the hotel business that is a function of average occupancy and daily rate, rose from 10.9% to 18.1% on the Gulf Coast in the first two months of this year compared with the same two months in 2011, according to hotel-data tracker STR (see chart, below).

“One of the reasons why things are getting better is because we haven't seen new-hotel construction in the last three or four years,” says Dennis Reed, senior vice president with The Plasencia Group, a hotel consulting firm in Tampa.

Indeed, some hotels were converted to condos during the real estate boom. Now, rising demand from both leisure and corporate travel is boosting occupancies at Gulf Coast hotels, giving hoteliers pricing power. “For the last three to four years we've seen this retreat in rates, and this was the first year that rates were significantly improved,” says Jim Larkin, general manager of the Crowne Plaza Hotel in Fort Myers and president of the Lee County Hotel Association.

And this summer may turn out better than 2011. “Bookings look very, very promising,” says George Glover, CEO of BayStar Hotel Group in Tampa. “The business traveler is back in the marketplace.”

Raise the rates
During economic downturns in particular, hoteliers try to fill rooms by lowering rates. But occupancies at Gulf Coast hotels have been rising over the past year, finally giving hoteliers an opportunity to raise rates after years of slashing them.

“It's still very, very competitive,” says Glover. “But most folks in the industry have finally come to the realization that all of the discounting we've done for the past couple of years isn't really getting us any incremental revenue. It's just made a couple computer operators rich.”

It's hard to make generalizations about rate increases, though. “It's a street corner by street corner decision,” says Jan Freitag, senior vice president with STR.

And the competition isn't just the hotel down the street. “We're still competing with hotels in Orlando,” says Russell Bond, general manager of the Renaissance Vinoy Resort & Golf Club in St. Petersburg.

But Bond says the group business that virtually disappeared during the downturn is starting to return. “We have more groups and conventions on the books in Q2,” he says. And, in the traditionally slow third quarter, Tampa Bay area hotels will benefit from the 50,000 people expected for Republican National Convention in late August.

Russ Kimball, the general manager at the Sheraton Sand Key Resort in Clearwater Beach, says corporate business from economically hard-hit Midwest states has returned. “Rates are up some, but we've still got a ways to go,” he says.

Hoteliers in the Naples area are witnessing the same trend. “A lot of the corporate business has come back for the larger beachfront properties,” says Steve McIntire, general manager of the Park Shore Resort in Naples and president of the Collier County Tourism & Lodging Alliance.

McIntire cautions that significant rate increases could backfire if they exceed what people are willing to pay. “You can gamble and get your hat handed to you,” he says.
Still, in desirable beachfront locations such as Sanibel, hoteliers have been successful raising rates because of strong demand. For example, at the Island Inn on Sanibel, General Manager Chris Davison says the average daily rate was $321 in March, a 13% increase from the same month one year ago. “That's a nice jump,” he says.

Davison acknowledges that the Island Inn is unique. The oldest hotel on the island recently renovated its 49 rooms on 10 acres fronting the beach, providing guests with modern amenities such as wireless Internet and flat-screen televisions.

Davison's summer outlook is brightened by the fact that the inn saw surprisingly strong occupancy last year. “My summer occupancy last year was terrific; June was 90% and July was 97%,” he says.

Another encouraging sign for hoteliers on the Gulf Coast is that occupancies have been rising despite the fact that airport passenger traffic has been flat. That likely means people aren't letting higher airfares or fewer available flights get in the way of traveling to Florida and they're driving here instead. “It speaks to your area's attractiveness,” says Freitag.

Cautious outlook
Despite the stronger occupancies and room rates, hotel industry executives remain cautious about the future.

For example, rising gasoline prices could hamper summer travel, and the European financial crisis might mean fewer international tourists. Promotional incentives such as gasoline cards didn't prove successful the last time gas prices spiked, hoteliers say.

And while occupancies have risen, hotels aren't completely full. “We're not bulging at the seams as far as occupancies are concerned,” says Reed. Average occupancies need to rise to the 75% range to make sense for new development, and that's only the case in Naples.

The supply of rooms remains elevated and financing remains challenging. “The last building spurt was gigantic,” says Reed. “Hotels were coming out of the ground where they shouldn't have.”

Still, Reed says some areas may be ready for new construction. He says one of those areas is Clearwater, which might benefit from new “limited service” hotels because many smaller mom-and-pop motels closed.

In Naples, for example, Phil McCabe says the area didn't suffer from the hotel building boom elsewhere along the coast. “Inventory is down across the board in Collier County,” he says.

The chart below shows average occupancy, daily rates and revenue per available room for the first two months of 2012 compared with the same period one year ago at hotels in four of the major metropolitan areas of the Gulf Coast. Revenue per available room is a function of both occupancy and average daily rate and is an important financial gauge in the hospitality industry. The data is courtesy of STR, formerly known as Smith Travel Research.

Area Occupancy Change
Sarasota-Bradenton 69.1% 12%
Fort Myers 68.6% 7.3%
Tampa-St. Petersburg 65.9% 5.2%
Naples 75.1% 3.4%

Area Average Daily Rate Change
Naples $208.51 7.4%
Tampa-St. Petersburg $100.96 5.5%
Sarasota-Bradenton $117.17 5.4%
Fort Myers $130.13 3.7%

Area RevPar Change
Sarasota-Bradenton $80.96 18.1%
Fort Myers $89.25 11.3%
Naples $156.62 11.1%
Tampa-St. Petersburg $66.52 10.9%
Source: Smith Travel Research


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