Orlando Vacation Homes Rentals

posted by orlandovacationhome on Nov 24

We continue to run into executives in the travel and tourism industry that are surprised to learn about the economic impact of vacation rentals in Orlando. We did a little comparative research on the size of the national and Orlando area vacation home market, and came up with some startling, but factual tidbits.

In a 2008 research paper commissioned by the Vacation Rental Managers Association and PhoCus Wright, the following national economic data was derived:

• The vacation home segment was a $24 Billion industry in 2007 in the United States
• National hotel revenues are about 5 times as large as those of vacation home rentals
• Vacation home rentals were about 8% of all travel and lodging revenues including resorts, hotels, timeshares, campgrounds, etc… in the United States
• 21.5 million adult guests stayed in vacation rentals nationally in 2007
• Interestingly, the average party in a short term rental home is 6 persons. This compares to roughly 2.3 persons for a hotel stay.

Now let’s look at a recent Vacation Rental Impact Study for Central Florida conducted by the Kissimmee Convention and Visitors Bureau and the Institute for Tourism Studies at the University of Central Florida. For Osceola County and surrounding areas in 2007, the following economic stats for Kissimmee and Central Florida vacation homes emerged:

• The vacation home segment is minimally a $1.7 billion industry in Central Florida alone.
• Although the survey did not impute this to the national total, we can infer that approximately 7% of all US vacation home related transactions occur in the Central Florida market. 
• 1.24 million visitors rented vacation houses in the area in 2007.
• A startling $1.1 billion was contributed to the regional economy as a result of vacation homes.
• 14,500 jobs were associated with area vacation rentals

As you can see, the influence that vacation rentals have on the travel and leisure market in the United States is growing. Moreover, the number of vacation home rentals in the region is now a very significant part of the overall travel and leisure market in Orlando as well.

As we state on our main page, it pays to shop around learn about all the numerous vacation home options available in the Orlando and where the best values are possibly located.

Vacation Home Rentals

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posted by orlandovacationhome on Apr 28

Swine Flu Will Impact Orlando Florida Tourism

We have all heard about “the boy who cried wolf” (1).  This could be Orlando’s only saving grace in the wake of the media panic regarding a new virus known as Swine Flu.

Swine Flu appears to have evolved in Mexico, but has now spread to the USA with several cases reported in New York (2). As of yet, only two cases have been confirmed in Florida.

As the public remembers the media frenzy surrounding Bird Flu and Avian Flu, many are perhaps skeptical of how serious the Swine Flu virus threat is and will be.

The Orlando tourism industry has already been devastated from the global economic crisis. In February 2009 alone, Orange County experienced a whopping 29% drop (compared to February 2008) in short term rental tax (3) – taxes collected largely from hotels. Swine Flu could not have come at a worse time.

Some countries (4) have already begun to advise their citizens not to visit the USA, and this will undoubtedly affect Orlando’s hotels, timeshares, vacation homes and theme parks alike. How much this will affect Orlando tourism depends on at least two factors:

1. The significance with which the virus spreads
2. The level and type of media coverage

Historically, both the Avian and Bird flu viruses were somewhat contained and the media coverage appeared to be hysterical rather than objective.

Whether you like it or not, Swine Flu has already had a devastating impact on the American tourism industry with most US travel industry related stocks dropping dramatically as a direct result (5).

Whatever the impact the Swine Flu virus has on Orlando tourism, its impact will not be positive unless you are a tourist visiting the area looking for some incredible bargains.

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posted by orlandovacationhome on Jan 25

We had previously identified that the perfect storm could be about to hit the massive UK tourism market (approx. $1,000,000,000) to Orlando. It would appear the perfect storm is now happening.

The British pound just hit a 25 year low against the dollar and is getting worse. The cost to a British person to visit Orlando based purely on the exchange rate is now at a 25 year high.

The reason for the dramatic devaluation in the pound is due to the problems in the banking industry in the UK which have reached dire proportions and are getting worse by the day. Royal Bank of Scotland’s problems appear to be wreaking more havoc on the UK economy (2).

In conclusion, the implosion of the UK economy will be tough on Orlando tourism and the economy as a whole. A 15% to 20% decline in this market for 2009 would not be unrealistic given the current circumstances, but then no one can predict the future including us – we are incompetent non-professionals.

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posted by orlandovacationhome on Jan 21

On this post, we develop three scenario forecasts for the Orlando Florida short term rental industry for 2009 compared to 2008. This market includes hotels, vacation homes and timeshare rentals.

As we always indicate, no one can predict the future. If you had listened to economists predictions for Florida over the last two years you would realize that most of them have been stunningly wrong.

Although some Orlando short term rental products will fare better than others, 2009 will most likely be very bad and possibly have longer term systemic consequences than what is generally recognized today.

Best Case:

Occupancy Down 7%

ADR Down 8%

= Total Room Revenue Decline of 14.4%

Expected/Most Likely

Occupancy Down 13%

ADR Down 18%

= Total Room Revenue Decline of 28.6%

Worst Case

Occupancy Down 20%

ADR Down 24%

= Total Room Revenue Decline of 39%

Short term rentals in Orlando will be affected at many levels. Inferior product in inferior locations will be effected the most, while good product in the best locations will be affected the least.

We are advised from professionals in the field that large feeder markets to Orlando such as school groups, conventions and the UK are rapidly evaporating. Gas prices are also sneaking back up and affecting the drive markets. In addition, some theme park ticket prices are now at record highs for single day passes – even as short term rental properties slash their rates.

How we calculate the numbers using an algorithmic statistical regression is not disclosed, so always deem the authors of this blog as incompetent, and read our disclaimer above.

Orlando Tourism 2009

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posted by orlandovacationhome on Jan 8

Once again we diverge from our usual Orlando vacation home analysis and visit our parallel industry – The Hotel Business. Our contributing hotelier analyses what lower rates in the face of a major economic downturn mean to short term rental profitability. The similarities to the vacation home rental industry can also be drawn.

Concept 

This article explains the relationship about and between a hotel’s ADR – Average Daily Rate (1) and GOP – Gross Operating Profit (2). We contend that for a 1% drop in ADR, a typical hotel could see a 3.6%+/- drop in GOP (Gross Operating Profit) based on a typical $70 ADR and 40% GOP margin. This concept is commonly referred to in part as “flow through”. For the purpose of this theory we will contend hotel occupancy (3) is able to remain constant.

We will conclude that if a hotel’s ADR drops 28%, GOP could rapidly approach zero and severely hinder many hotels ability to pay ANY debt service – the consequences of which would be dire in 2009.

We use only theoretical generalizations, but of the five local hoteliers we interviewed, none disagreed with the concept.

Lets do the Math

Thus, using a possibly flawed theory, a 28% drop in hotel ADR could result in a 100% drop in GOP. In effect, this would leave hotels with zero dollars to pay items such as mortgage, taxes and insurance.

The Fed recently dropping interest rates is initially helping those hotels with mortgages tied to the Prime Rate (4), but only to a limited extent. When GOP shrinks to a certain level, there always comes a point when there is not enough to pay the bills.

Even a 14% drop in ADR could cut some hotels GOP by 50%. For many hotels this would be challenging, especially when the Fed has little room to move the Fed Rate any lower.

How some hotels can survive a sustained (i.e. a year long) drop in ADR of 25%-30%  in 2009 is hard to fathom because effectively many hotels would be unable to pay their bills. Banks may have to modify loan terms if they don’t want to become hotel owners. With a zero GOP and a zero mortgage, a hotel could still lose money when having to pay taxes and insurance.

Demand in Orlando is Highly Elastic

In highly competitive and fragmented markets such as Orlando, hotels will begin to quickly compete on rate. This typically will quickly deteriorate GOP. i.e. a $1 drop in ADR comes straight off (100%) a hotel’s bottom line in GOP.

Maintaining a higher rate with lower occupancy tends to be wiser as it allows a reduction in variable costs, thus not effecting GOP as quickly.

Hotels Are a Commodity in Orlando

The problem with Orlando is the hotel room is a commodity and the demand is highly elastic, thus if hotel owners do not respond aggressively in rate they run the risk of a vastly more disproportionate drop in occupancy and a significantly worse GOP.

Luxury Hotels Run Higher GOPs

This can be true, thus the theory would be modified, but one must remember these hotels can have much larger debt service levels and their ADRs (5) appear to be declining the most when compared to their mid-market and economy hotel counter parts.

Conclusion

A 25% to 30% drop in a hotels ADR even while able to maintain a static occupancy could have devastating consequences to the profitability of a hotel. If this is what the Central Florida hotel and short term rental community faces in 2009, the consequences will most likely be dire for the industry and economy as whole.

Disclaimer:

The authors of this blog are incompetent. Always consult with a qualified financial professional before making a decision of any kind. DO NOT rely on this blog. Please read our disclaimer(6). This article was written in part due to the mass of email we recieved on a previously related article(7). To help conceptualize the implications to the market place, we had the author write this as a follow up.

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posted by orlandovacationhome on Dec 28

The Daily Telegraph, a major newspaper in  in the UK, reported today the UK economy could shrink as much as 10% in 2009 (1). This forecast was not totally dismissed by the Centre for Economics and Business Research also based in the UK who estimated GDP in real terms will decline a more conservative 2.5% (1B) - still a decline of historic proportions.

As we have outlined in a prior post (2), the UK is the largest detached international market feeding the Orlando tourism economy. The impact of a major recession in the UK could wreak havoc on the local short term rental market which includes hotels, vacation homes and timeshare rentals.

The peak travel months for the British to Orlando are June, July and August. The UK is also a big market filler in the early fall when the domestic market for Orlando is relatively slow. Orlando has relied on the British in September to help “fill in the gaps”.

On the bright side, the British and the European Union governments have begun to implement a series of economic stimulus measures on a massive scale (3). The timing and effectiveness of such efforts remains to be seen, but if you live and work in Orlando, the health of the UK economy will most likely effect you.

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posted by orlandovacationhome on Dec 24

Read our post why unemployment is increasing in the short term rental industry HERE

Short term rentals include hotels, vacation homes and timeshare rentals (vacation condos).

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posted by orlandovacationhome on Dec 19

In this article we will detail how deep the economic crisis is and might be for Orlando’s largest employer – the short term rental industry. This includes hotels, timeshare rentals and vacation homes alike. We will explain the impact on employment and the need to be fiscally prudent. We will conclude that Orlando is in an economic recession and a technical economic depression is possible, the consequences of which will be far reaching and significant to the local economy.

For November 2008, the Orlando CVB is reporting even bigger drops in metro Orlando’s hotel revenues of 30%+/-(2). This would indicate possible systemic future drops in the Orlando tax collections from the hotel and short term rental industry as a whole.

As a result, much of Orlando’s short term rental industry could be laid off. This is concerning as it is also Orlando’s largest employer(3). As short term rental companies see their gross profit margins plummet they will be forced to reduce their biggest variable cost – labor.

A 20% +/- drop in tax revenues generated by hotels and other short term rentals is a real possibility for 2009, and the implications to the local Orlando economy would be significant.

Projects such as the new $480 million basketball court in downtown Orlando financed in part by hotel tax dollars (5) puts into question the opportunity cost of such a project when thousands of hospitality workers are now losing their jobs(6). The credit crunch has already forced up the cost of the bonds to finance the new Orlando arena as much as $104,000,000 indicating the increased risk of such a project that is now perceived by bond investors.(6.1).

The solution to many of the local fiscal problems are now in the hands of the global economy. As we always explain, no one can predict the future, but the basic math of the immediate problems facing Orlando’s hospitality industry are significant and possibly systemic. If Orlando’s economic GDP drops more than 10% it would be considered by many economists a technical economic depression (7).

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posted by orlandovacationhome on Dec 18

Today was not a very happy Christmas for many timeshare industry employees in Orlando. As part of a cash preserving initiative, many received layoff news today as part of one major company’s initiative to cut back four thousand workers nationally(1).

Like many timeshare companies hit by the credit crunch, financing conduits (how timeshare loans are financed) have become scarce and the terms restricted(2). This financing is a critical component to the industry when financing their sales.

Other timeshare companies have followed suit with layoffs for similar reasons(3). Unfortunately, such cash preservation measures are crucial when the near term future of timeshare financing is unclear. Although painfully hard on the employees let go, it is a measure needed to keep such vital businesses alive and healthy.

Timeshare is a key employer in the metro Orlando economy, and the impact of such layoffs will be felt in one way or another by nearly all residents.

The one silver lining for so many layoffs in the timeshare industry is it allows other businesses such as hotels, theme parks and vacation home companies to recruit from a growing pool of highly talented and well trained labor. How realistic this optimism is remains to be seen as many such businesses have also had to downsize as Orlando’s tourism industry enters deeper into economic recession and possible depression (4).

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posted by orlandovacationhome on Dec 17

As we write this post, interest rates drop to their lowest levels on record.

Although things still look grim, one of the scenarios we envisioned was that some Orlando Fl villas and resort communities would possibly become more permanent resident oriented due to the fact that home prices had dropped to such levels. They now become appealing to such user groups for valuation reasons.

It seems clear that the rental revenue to support Fl villas is currently dropping, and conversion to a primary residence potentially becomes the highest and best financial use for homes in some areas. This basic principle of finance, highest and best financial use of assets, becomes a viable option for some areas that have become the hardest hit in terms of foreclosure. We’ll keep our eyes on this potential trend.

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