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).
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).
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.
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.
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.
posted by orlandovacationhome on Dec 6
If the most recent data is to be believed, hotel revenues in Orlando are dropping at possible catastrophic rates, and this could be an indicator of what some may have already felt in the metro Orlando vacation home industry.
Data for Orlando vacation home occupancy and rate is difficult to collect, as the industry is very fragmented. However, as market indicators, we are inclined to consider hotel data trends to help as a mirror to the vacation home industry.
Recently SMITH TRAVEL RESEARCH, a provider of hotel industry data, reported that revenue per available room tumbled 13.2 percent nationally during the week Nov. 9-15, 2008 compared to a year earlier. Revenue per available room, or RevPar as it is termed, is a key gauge of a hotel’s revenue performance.
At the local level, metro Orlando has begun to see the largest drops in both rate and occupancy across the board for the hotel industry since 2001. For the week ending November 15th, 2008 hotel Rev PAR dropped by a whopping 27.3 % according to the ORLANDO CVB records .
So what are the ramifications for the Orlando vacation home market? Hotel data now tells us that a short term combination of rate and occupancy are in a state of significant decline. Not a surprise given the current economic environment, but the level and rate of the decline is much more devastating than what is being reported on some media outlets. It remains to be seen if these short term indicators become longer term trends for the Orlando market and can provide some basis for an Orlando tourism forecast.
Possible ramifications in the vacation home industry could include:
1. Rev PAH (Revenue per available home), is going to most likely drop significantly, as occupancies decline and some owners and home managers alike, quickly drop their rental rates.
2. This could impact vacation home prices due to the fact that vacation homes would have a lessened ability to generate income, which would logically be reflected in the underlying home sales prices.
3. Like any business, those homeowners that are best positioned to “hunker down” will be the ones that survive. Such factors could include: limited levels of debt, high rental occupancies, good locations and marketing strategies, excellent maintenance, and the overall experience of a good vacation home management company.
The good news for families, and even some event type groups seeking economic alternatives to hotel rooms, is that they may now logically consider the benefit of vacation homes. This helps the vacation home option become more mainstream. Please see our other posts detailing the economic viability of renting Orlando vacation homes and the value they provide to consumers. In addition, the best run vacation home management companies will most likely survive and the services they provide will become more essential.
In conclusion, there is no sugar coating the data. The drop in both rate and occupancy appears to have come so quickly and deeply that major media, and even many in the tourism industry, do not yet recognize. Expect possible systemic failures in Orlando’s tourism industry if these trends continue. Unfortunately, no one can preidict the future including us.
As always, our blog tries to inform you objectively, so subscribe. Check the ORLANDO CVB data here.
