Sales and room rates remained flat in the first six months of the year while occupancies crept up slightly. With average first-half occupancy at the 71.9% level and average daily room rates at $71.69, investors and lenders remain cautious, even though the first-quarter total visitors count was up .2% to 20.1 million, the report finds.
"Hospitality fundamentals in the Orlando area will continue to gradually improve, but are sensitive to public concern regarding war, terrorism and other uncertainties, and will be perceived as more fragile by investors and lenders alike," says the study, prepared by senior market analyst Adam P. Weber in M&M's Phoenix office.
Occupancies have rebounded since the recession, but are not yet back to historical levels, Weber says. "Incentive has been required to draw guests, causing ADR to drop from $76.07 in July 2002 to $71.69 in July 2003, a decrease of 5.8%," the analyst says.
Although occupancies increased by 2.9% in the January to July period, "the increase has not yet been large enough to offset the lower rates," Weber says. As a result, revenue per available room was down by 1.8% to $51.55 in July.
New product is also dwindling. "Following four years of significant construction, completions will fall to 3.3% of inventory in 2003 and 2.1% in 2004," the report states.
On the investment sales side, there is little movement, with only a few sales recorded in the first half. The reason, Weber says, is that "potential sellers have priced properties based on expected future revenues and likely appreciation, but buyers are seeking bargain prices in light of the market conditions of the past two years." The result: "The gap between asking prices and bid prices has kept transactions from closing," Weber says. Only a few economy motels in northeast Orlando, away from the Disney World area, have changed hands this year.
"This trend reflects the increase in financially distressed and foreclosed properties in Central Florida, as well as decreased revenues for these assets," the analyst points out. But "as the economy improves over the next 12 months, buyers will raise offers to narrow the gap with sellers, and sales velocity is likely to increase."
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