Orlando hotel market hits an inflection point

The Wyndham Orlando Resort International Drive recently finished a two-year renovation of its guestrooms and public spaces.
The Wyndham Orlando Resort International Drive recently finished a two-year renovation of its guestrooms and public spaces.

The Wyndham Orlando Resort International Drive recently finished a two-year renovation of its guestrooms and public spaces.

National Report – The city of Mickey is in for a nice stretch run. That’s what happens when the economy takes a rosy turn, giving travelers—particularly families—more ease of mind to take a vacation to mega leisure destinations Walt Disney World and Universal Orlando Resort.

And as long as times are good, developers will look to position and build hotels to take advantage of the uptick in travel. No doubt inbound numbers to Orlando are on a heady trajectory. According to the Orlando CVB, in 2013 visitor volume reached 59.2 million, a 27-percent increase from 2009 and a 3.5-percent jump over 2012. Meanwhile, there are currently around 455 hotels in the Orlando metro area with 118,100 rooms. And as of July 2014, year-to-date occupancy was 77 percent with an average daily rate of $111.17.


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Greater Orlando lodging market performance by sub-market

  Occupancy ADR RevPAR
Sub-market 2012 2013 Change 2012 2013 Change 2012 2013 Change
Metro Orlando 69% 71% 3.2% $97 $102 4.4% $67 $72 7.8%
Orlando North 57% 62% 8.9% $71 $72 1.8% $40 $45 11.0%
Orlando Central 62% 66% 6.6% $76 $78 2.8% $47 $52 9.6%
Orlando South 70% 73% 4.5% $99 $99 0.4% $69 $73 4.9%
71% 72% 1.4% $109 $112 2.6% $77 $80 4.0%
Lake Buena
76% 78% 2.7% $104 $113 8.8% $79 $88 11.8%
Kissimmee East 62% 64% 2.9% $75 $78 4.3% $46 $50 7.4%
Kissimmee West 54% 55% 1.2% $65 $62 -5.0% $35 $34 -3.9%
Source: Smith Travel Research


Orlando has made great strides since the Great Recession, shaking off the doldrums and slowly building back its industry fundamentals. Orlando is one of the biggest leisure destination in the world, so it’s no surprise that it was one of the hardest hit. However, as Chuck Ross of PKF Consulting’s Tampa/Orlando office points out, barring any black swan-type of event, O-Town will be ok.

“In the last 18 months, there has been a strong resurgence as far as metrics go,” he said. “It’s going to continue for remainder of this year and barring catastrophe, be true for 2015. Hotels are enjoying a resurgence.”

According to PKF, Orlando RevPAR is expected to grow 7.9 percent in 2015.

But could it do better from a rate standpoint? Hoteliers were able to grow ADR around $11 between 2010 and 2013, to where it came in last year at $101.84, according to PKF. (STR, for comparison sake, had it at $101.53.) Orlando has long been a city that has been skittish to raise rates. According to PKF data, between 1988 and 2013, year-over-year percentage change in ADR was only 2.6 percent. The good news: ADR growth expectations are increasing, 5.7 percent versus the past four quarters’ rate of 5.6 percent—well above the rather paltry long-run average.

The Loews Royal Pacific Resort will soon undergo an expansion of its meeting space.

The Loews Royal Pacific Resort will soon undergo an expansion of its meeting space.

Modest rate increases are symptomatic of the Orlando resort area, said Paul Sexton, a VP in the Orlando office of HREC-Hospitality Real Estate Counselors. “It’s a very family-friendly destination,” he said, “so there has always been downward pressure on rate. They wanted to keep rates down, because they knew families were traveling, and [during the recession] didn’t have a lot of the business travelers on corporate accounts.”

PKF’s Ross echoed the same. “Orlando is a market notorious for relatively low room rates compared to other markets because it’s an intensively competitive market for leisure guests,” he said.

What it means is that when we get into a cycle of building, we are late to the party, Sexton said. “There is not as much hotel development in the market compared to others.”


But there is some development and it’s mostly large projects.

This includes Universal’s Cabana Bay Beach Resort, which opened in June of this year, and the Four Seasons Orlando at Walt Disney World, which opened in August. The former added around 1,800 rooms to the market, while the Four Seasons pumped in an additional 440 rooms.

The Four Seasons Resort Orlando at Walt Disney World opened in August and joins other luxury offerings, including a Ritz-Carlton and Waldorf Astoria.

The Four Seasons Resort Orlando at Walt Disney World opened in August and joins other luxury offerings, including a Ritz-Carlton and Waldorf Astoria.

In addition to these now-opened properties, Universal, along with Loews Hotels & Resorts (which already operates four other Universal resorts), will open the 1,000-room Loews Sapphire Falls Resort at Universal Orlando in summer 2016.

Not surprising, Tom Roditus, SVP of Loews Hotels & Resorts, is bullish on the Orlando market. “We are positive about Orlando. It’s a great combination of leisure and group markets and that’s what is exciting,” he said. “The market is moving back to a scenario where we are achieving or gaining on those peak years of 2006-2007.”

Top U.S. markets with the most guest rooms in construction, June 2014

New York City New York City 14,100
Houston Houston 4,500
Miami-Hialeah, Fla. Miami-Hialeah, Fla. 2,700
Los Angeles-Long Beach, Calif. Los Angeles-Long Beach, Calif. 2,200
Washington, D.C. Washington, D.C. 2,100
Source: STR

Loews is also set to expand its meeting space capabilities at its Loews Royal Pacific Resort in Orlando. Roditus said work should wrap on the expansion by the fourth quarter of 2015. It will see its meeting and event space go from 85,000 square feet to more than 140,000 square feet.

Meanwhile, new-builds are back in vogue.

“Because the market has done well, developers are looking to build new,” Ross said.

Is there cause for oversupply concern? Not really, said Ross. “Orlando has gone through cycles, but each time it’s been able to absorb what’s thrown at it,” he said.

But new supply is definitely coming, climbing 1.7 percent versus the past four quarters’ rate of 0.1 percent, though still under the long-run average of 2.7 percent, according to PKF.

Predicted Orlando ADR for 2015.


Source: PKF Hospitality


There’s little doubt that the new supply hitting the market skews upscale and beyond. And much of it is coming online as economy hotels exit the system.

New supply in Orlando tends to come in large waves as opposed to piecemeal, Sexton said. “It grows by leaps and bounds, not just one-offs,” he said. “There is a lot of aging stock right now. Older hotels that are exterior corridor, not even branded, are going out of the system and being replaced by larger hotel projects at [places like] Disney and Universal.”

And with these new additions, rates in Orlando should be on the rise. That also goes for newly renovated properties, which include the Wyndham Orlando Resort International Drive. It recently emerged from a multimillion-dollar renovation that included guestrooms, meeting and public space. The renovation project was a two-year job.

“The Orlando hotel market has seen strong growth this year with several new accommodation choices feeding a high demand for the destination,” said Rich Larkin, GM of the hotel. “Developments within Orlando will continue to fuel increasing interest in and attention to the market, particularly the revitalized International Drive area, which now offers an abundance of new shopping and dining attractions.”

And as Sexton put it, renovating properties now gives hoteliers the chance to push up rates, as the market did with gusto in 2006.

But in the years in between, rate gains have been minimal. “People are more hesitant to raise rate like they did back in 2006 when we saw 10-percent increases, because they are scared about occupancy and OTAs that control room nights,” he said. “We won’t get the same increases, but are at point where people are raising rates. But you can only do so if you renovate.”


Transaction volume in Orlando is picking up as well.

“Up to the beginning of this year, the area was still working through distressed inventory, where sellers were lenders or special servicers, but we reached an inflection point around the beginning of this year,” Sexton said. “We are now seeing things trade on a non-distressed basis. We are in the middle of a normalized market, where people are valuing on cash-flow upside—not buying stuff on the pound. Those who bought years ago are starting to recycle now and take their gains.”