Higher Room Rates Could Put Damper on Tourism
Hotel room rates pushed up by demand during the past year might now be hindering tourism amid increasing inflation, state tourism officials said.
As the Visit Florida tourism-marketing agency celebrated record first-quarter tourism numbers while meeting last week in Orlando, staff and board members also expressed concern that increasing cost of hotel rooms is slowly affecting occupancy rates.
“I think we're starting to see, just over the last couple of weeks or so especially, inflation actually starting to catch up with us in most markets,” said Jacob Pewitt Yancey, Visit Florida director of consumer insight and analytics.
“Now, overall room revenue is still up in every market statewide, because the growth in rates has been more than enough to overcome the decreased level of demand,” Pewitt Yancey said. However, he added, “I think we're starting to enter a time period where that might not be able to continue to be true anymore.”
Hotel occupancy across the nation slowed as expected following Memorial Day, according to STR, Inc., which provides data to the hotel industry.
STR did not show any of the top 25 U.S. markets with occupancy increases during the May 29 to June 4 period over the same time in 2019, before the COVID-19 pandemic.
Occupancy nationally was at 63.2 percent, which was down 12.1 percent from a similar time frame in 2019. Meanwhile, the average daily rate was up 11.3 percent, to $147.35, from the 2019 period. Even with the increase, revenue per available room was down 2.2 percent.
In STR’s weekly survey, Miami posted the largest average daily rate increase nationally --- up 37.8 percent from 2019 to $209.55.
With occupancy at 68.9 percent, Orlando was the closest of any national market --- off 2.5 percent --- from its pre-pandemic mark.
The numbers also come as business travel remains far behind pre-pandemic totals.
Outgoing Visit Florida Board Chairman Danny Gaekwad, owner of MGM Hotels, said hoteliers and other businesses must make rate adjustments.
The question is finding a balance with daily rates that maintain profits.
“We did the profit-taking when the ADR (the average daily rate) and occupancy both were rising,” Gaekwad said. “And now the inflation and whatever is the other reasons, the gas prices or whatever you want to say it is, we need to adjust the rates or we’re going to have a lower occupancy.”
Last month, when Gov. Ron DeSantis announced a record 35.98 million total visitors --- mostly domestic travelers --- between the start of January and end of March, his office said Florida’s average daily rate was up over 38 percent from the same period in 2021 and the occupancy rate increased by nearly 24 percent.
Those gains might not be matched in the second quarter of 2022.
For every 10 percent that room rates increase, demand is down 6 percent now in Florida, Pewitt Yancey said.
Until the past couple of months, total room demand in the state had been above 2019 levels, and in many weeks was above 2021 levels, Pewitt Yancey said. However, demand wasn’t evenly distributed.
“Up until about a month ago, what was going on is that demand everywhere other than Orlando was just crazy, particularly Sarasota,” Pewitt Yancey said.
Orlando’s lag could have been attributed to business travel not being back to pre-pandemic levels, Pewitt Yancey said.
But in the past month, the demand for rooms in Orlando is outpacing 2021 numbers, but the rest of the state has dropped.
“Every market in the state, in terms of room demand, is down. But Orlando now is so up, compared to what it was, that it's keeping the statewide numbers positive,” Pewitt Yancey said.
The drop-off outside Orlando isn’t just below the 2021 tourism resurgence. Pewitt Yancey said it's “starting to fall back down below 2019 levels in about a third of the markets in Florida.”
Board member Lino Maldonado, president of BeHome 247 Technologies, said Airbnb operators who were in major demand during the pandemic are trying to find a balance between rates and occupancy to determine profitability.
“We're still north of 2019 numbers, but certainly ADR I think is going to be coming down,” Maldonado said.