Rooms to Grow

Rooms to Grow

HOSPITALITY by Jean Gruss | Editor/Lee-Collier

Room rates at Gulf Coast hotel rooms have been steadily rising, spurring construction of new hotels from Tampa to Naples. But high land and materials costs could undercut the boom.

You would have been hard pressed to find a hotel room in Tampa during the first six days of July. Blame the Imperial Council Session of the Shriners of North America, whose members gobbled up 30,000 room nights that week.

It's a sign of the good times in the hotel business, and Gulf Coast hoteliers are raising room rates to new levels. That's prompting developers to build new hotels once again in places such as Clearwater Beach, downtown Tampa and up and down the Interstate 75 corridor to Fort Myers and Naples.

"The hotel market is performing extraordinarily well," says Daniel Peek, managing director of Regent Street, a hospitality transaction firm that is an affiliate of The Plasencia Group of Tampa, a hotel consulting firm.

Revenue per available room, a closely watched indicator of a market's health, showed strong growth up and down the Gulf Coast for the year-to-date through July 31 versus the same period a year ago. Revenues were up 8.5% in Fort Myers, 8.4% in Sarasota-Bradenton, 5% in Tampa-St. Petersburg and 3.4% in Naples, according to Smith Travel Research in Hendersonville, Tenn.

That's despite the fact that occupancy rates appear to have leveled off after two strong years in 2004 and 2005. Jan Freitag, vice president with Smith Travel Research, says hotel operators are not cutting rates to fill rooms. "Sophisticated operators don't cut rates as soon as occupancies are a little soft," he says.

For example, occupancies at Tampa hotels fell in March by 5%, but average daily rates climbed 8%. "You always want to sell for a higher rate than fill another room," Freitag says.

Naples hotels charged an average daily rate of $162 last year, the highest in the region. Observers attribute that largely to the small number of hotels and little room for more competition. Naples was followed by Fort Myers ($104.53), Sarasota-Bradenton ($98.13) and Tampa ($93.36).

Now that the hotel industry has fully recovered from the downturn that followed the terror attacks of 2001, developers are building new hotels. Smith Travel Research estimates there are 153 hotels in various stages of planning and construction. Seventy-five of those are in the Tampa area, representing about 8,200 rooms. However, Freitag cautions that, as a rule, only a quarter of the hotels in the planning stages ever get built.

Observers say downtowns and exits near I-75 will see the most growth in new hotels. For example, Hilton Hotels Corp. recently opened its 1,000th hotel near I-75 and Corkscrew Road in Lee County and InterContinental Hotels Group is scheduled to open a stylish 95-room Hotel Indigo boutique hotel in downtown Sarasota in October. In downtown Tampa, a 360-room Embassy Suites is scheduled to open in October near the convention center.

Clearwater Beach renaissance

One of the first new luxury resort developments in years on the Gulf Coast is rising on the site of the old Clearwater Beach Hotel, torn down a year and a half ago. In its place, JMC Communities is building the Sandpearl Resort & Residences, a 253-room luxury hotel with an 11,000-square-foot spa, fitness center and beach club, 20,000 square feet of meeting space and 117 condominiums.

"I think Clearwater Beach is going through a rejuvenation and repositioning," says Kerry Mitruska, vice president of sales and marketing with Coral Hospitality, the Naples-based manager of the Sandpearl. For years, Clearwater Beach has been known for its moderately priced hotels. But many of those hotels and motels are being torn down and redeveloped.

The Sandpearl is the first of many luxury projects planned in that area. "We've got $1 billion worth of new construction on Clearwater Beach," estimates Carole Ketterhagen, executive director of the St. Petersburg/Clearwater Area Convention & Visitors Bureau.

Ketterhagen says visitors to Clearwater Beach have become increasingly upscale. "In March and April, we were seeing median household income in excess of $125,000," she says.

But the redevelopment boom on the beach may hit a bump ahead, courtesy of the slowdown in condo sales. Fact is, many of the new resort projects have condo components that help developers finance the high cost of land acquisition and escalating construction materials.

"Now that the condo speculation and preconstruction-sale market has slowed significantly, those projects are not getting the sales that they needed," says Peek.

Still, the St. Petersburg-Clearwater area has lost an estimated 5,000 rooms to condo conversions in the last few years.

Meanwhile, the number of visitors has climbed from 4.7 million in 2000 to 5.2 million in 2005, according to Ketterhagen.

"We estimate that within the next couple of years we will have regained back to 40,000 [rooms]," Ketterhagen says. "We're a destination in major transition."

Hotels mushroom along the interstate

Hotel development has been particularly hot at major intersections up and down I-75. In Lee County, for example, about a half dozen hotels are planned at various interstate exits.

"The last three months have been unbelievable," says D.T. Minich, executive director of the Lee County Visitor & Convention Bureau.

It's easy to understand why. Southwest Florida International Airport last year opened a $438 million passenger terminal, Florida Gulf Coast University is drawing thousands of students and two new malls totaling nearly 3 million square feet are sprouting in Bonita Springs.

One of the first out of the ground was an Embassy Suites near Corkscrew Road and I-75 in Lee. William Selesky, director of operations for Fort Myers-based Carroll Property Investments, says the hotel's 150 suites sold out for four days in July shortly after it opened on June 26. The hotel's introductory room rate will rise from $139 now to $279 in February, he says.

In more urban areas such as Tampa, the new hotels on I-75 will replace older motels, says Peek. In Sarasota, there's speculation a new Radisson hotel will be built at I-75 and Fruitville Road, says Erin Duggan, public relations manager for the Sarasota Convention & Visitor's Bureau.

Duggan says she fields calls every week from companies doing market research for hotel developers. "I suspect we'll have a lot of projects come on line in the next year," she says.

Gulf Coast hotels fill up and charge more

Guests are paying more on average to stay at hotels from Tampa to Naples, signaling a recovery from the travel downturn that followed the terrorism attacks of Sept. 11. Although occupancies flattened in 2005, average daily rates are still rising, according

to Smith Travel Research.

Tampa-St. Petersburg

Occupancy Average Daily Revenue per

Year (%) Rate ($) Available Room ($)

2000 64.3 87.19 53.45

2001 62.2 91.35 52.84

2002 60.1 84.12 48.24

2003 60.7 83.60 48.56

2004 65.7 84.90 53.88

2005 66.4 93.26 59.52

Sarasota-Bradenton

Occupancy Average Daily Revenue per

Year (%) Rate ($) Available Room ($)

2000 63.3 82.70 52.33

2001 62.5 78.75 49.23

2002 58.5 81.15 47.51

2003 60.3 82.78 49.91

2004 72.7 88.34 64.26

2005 69.0 98.13 67.72

Fort Myers

Occupancy Average Daily Revenue per

Year (%) Rate ($) Available Room ($)

2000 63.1 116.04 73.18

2001 59.3 116.38 69.06

2002 56.3 110.64 62.27

2003 58.6 111.03 65.06

2004 68.9 106.77 73.61

2005 67.6 104.53 70.61

Naples

Occupancy Average Daily Revenue per

Year (%) Rate ($) Available Room ($)

2000 63.8 140.77 89.75

2001 60.9 148.98 90.66

2002 57.0 143.74 81.97

2003 58.8 147.11 86.49

2004 67.1 148.74 99.74

2005 65.1 162.08 105.45

Source: Smith Travel Research