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.
In October of 2008, tourist tax collections dropped a whopping 9.1%(1).
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 16
Is the local Orlando economy facing an economic crisis? Probably. And it could get much worse before it gets better. We highlight some of what is effecting the Central Florida economy. We conclude that Orlando’s economic correction is painful, but allows for great deals to its main economic driver - tourists.
According to the Mortgage Bankers Association, (1) an incredible one in ten mortgages in the USA are now one month or more behind in their mortgage, or in foreclosure. This was up 7.3% from a year earlier.
Florida continues to share the brunt of the foreclosure crisis (look up by zip code here(1A)). The statistics specific to the metro Orlando vacation home market are difficult to assess, but they do appear to be on the front line of the foreclosure crisis.
USA unemployment has surged losing 533,000 jobs in November (2) alone. This was the most in 34 years. The unemployment rate also increased to 6.7% according to the labor department. Many economists are predicting a 8+/-% unemployment rate nationwide (3) by mid 2009.
Unemployment is also hitting Florida hard, especially in markets such as Orlando where the hospitality industry has been laying off thousands of employees (4). In addition, metro Orlando has begun to see systemic drops in the number of tourists visiting the area in November 2008 (5) .
There are rumors major Orlando hospitality employers may be making larg cut backs in January 2009 which may only add to the overall local economic problem.
It would seem the only good news about the Orlando economic correction is the fact that tourists can get great deals renting Orlando vacation homes and hotels alike. Eventually the market will correct itself as it always does, but Orlando’s pain is now a big gain for those tourists seeking great value.
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posted by orlandovacationhome on Dec 12
This post assesses if the perfect storm in 2009 could hit Orlando’s massive UK tourism market. We will also detail why metro Orlando is dependent on this market segment for a healthy and vibrant tourist economy.
In 2007, approximately 990,000 British tourists(1) visited the Orlando and Kissimmee area populating Orlando vacation homes and hotels alike. The British spent approx $1,000,000,000 dollars in the metro Orlando area in 2007.
For 2009, the UK market could be negatively hit in a significant manner for the following reasons:
- The “wheels” have come off the UK economy(2). With the economy forecasted to slow as much as 2.3% (2B) by some to an incredible 5-10% by others(2C).
- The British pound(3) has depreciated in value about 30% in the last three months against the dollar. America as a destination is now 30% more expensive for a British visitor.
- The British typically book their big summer vacation in January, so Orlando has not yet been booked in many cases for the summer of 2009. This January window could slip by due to the dire condition of the British economy and Orlando could lose the chance of capturing this business.
- Air fares have not dropped significantly(4), despite the drop in oil prices making Orlando very expensive when compared to destinations closer to Britain.
- The British are some of the worlds heaviest credit card users and these lines of credit are becoming restricted (5).
So a significant drop in UK tourists for 2009 would be significant to the local Orlando economy and could be a real probability. If you reside in metro Orlando, this would most likely affect you.
In conclusion, Orlando relies on the British tourism market especially in September when the domestic vacation market is relatively slow. What the future holds no one knows - no one can predict the future - including us. We merely offer non-professional opinions.
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posted by orlandovacationhome on Dec 10
Yesterday Wyndham Worldwide announced it is laying off 4000 people nationally. Previously, Westgate Resorts also announced it is making major lay offs. Both companies are major employers in the Orlando hospitality market and vital to the local economy. In addition, hotels around Orlando have been quietly laying off hundreds of employees every week and some major restaurant companies have even closed. Other hotel and timeshare companies based in the Orlando area have yet to publicly announce similar cut backs, but rest assured, they are underway.
Hospitality corporations in the Orlando area are cutting back on previously sacred items such as Christmas parties and even birthday cakes for long term loyal employees. Some theme parks according to Reuters may also be looking at significant scaled job cuts . Hotel revenues recorded a free fall in November 2008 in the metro Orlando area and everyone employed in hospitality is now feeling the pinch.
Convention groups are cancelling at record rates, and the ones that are coming are booking very slowly. Companies who were about to book groups in the Orlando area are hesitant to do so, as they are looking for ways to trim budgets.
Orlando’s largest international market, the UK, has seen the British Pound drop like a stone and the cost for a British tourist to visit Orlando shoot up 30%+/- in the last 3 months alone. The UK booking window for the peak summer months is typically done in January. Orlando can expect to see a significant decline in the number of British for the summer of 2009 as the UK economy falls apart. The British will most likely go to destinations much closer to home such as Spain and within Great Britain itself.
All these concerns indicate that the vacation home industry will also get hammered over the next year or two. This is of particular concern to us.
There is no sugar coating this scenario. The world economic crisis impact on the Orlando hospitality economy is having a very bad effect, and about to get worse, much worse. We anticipate the worst economic downturn in Orlando possibly since the great depression, but then no one can predict the future, including us. We are incompetent non professionals just expressing an opinion.
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posted by orlandovacationhome on Dec 9
Given all the hoopla that often comes with a new hotel entering the metro Orlando market, we thought we would offer some thoughts different from our usual vacation home industry analysis. A friend of ours in Orlando wrote the following about the hotel industry. The parallels to the vacation home industry can also be drawn.
Some new larger hotels who entered the Orlando market as “newbies” went after the “convention market” and frowned upon regular theme park tourists as not being a viable market. Typically, a new hotel will learn within a year of opening they need to have a comprehensive business mix if they are to survive.
Many large convention hotels in the metro Orlando area are now experiencing significant declines in their “pick up rates”. Given the global recession, this is to be expected. But worse, some convention groups (i.e. many financial services companies) no longer exist. The Orlando CVB documents hotel room revenues dropping 30% +/- in November 2008 for the metro Orlando area. Orlando hotels who have never expereinced a big Orlando market downturn will now learn what it is all about.
The well seasoned and super efficient players such as Harris Rosen understand only too well how the Orlando game works. His world famous Rosen Hotels and Resorts operates debt free to make themselves recession proof even during dire times.
When business is slow, it is not uncommon for some upper level convention hotels to sell inventory for well under $100 a night through various distribution channels. For some newer hotels with debt levels at costs north of $100K (and in some cases more than $200K a room), this can be a devastating thought. Often, even under the best due diligence, failure to plan for economic recessions (on average every seven years) can be a rude awakening for both new hotel owners and their lenders alike.
If you are thinking of developing a hotel in the metro Orlando area, take several local hoteliers out to lunch first and get their opinion. You may also want to join some of the fantastic local hospitality organizations before you launch a project of any kind. Such simple things could be the best pre-investment you make. Relying on MBA type financial analysis by people who do not know the market at an intimate level is always a sure path to disaster.
Many of the plans to build new convention hotels in Orlando have now been shelved, but those that have opened in recent years or are about to open will soon understand why tourism experts in the area call Orlando a “unique market”. Good luck.
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