Demand Outpaces New Hotel Construction

But the problem is new construction isn't keeping pace with demand, finds Art Gering, a market analyst in the Phoenix office of Marcus & Millichap. Tourism and convention traffic will account for net demand of over 7,000 new rooms this year, while total construction is forecast at just over 1,500 rooms.

"This imbalance is expected to lead to RevPAR growth of 7.75%," the analyst says. An additional 5.5% increase is forecast for 2005 as both ADR and occupancy make substantial gains. The difference in supply and demand is expected to be erased by 2007, Gering says

"Resurgent tourism has propelled Orlando forward in 2004," he says. "The most marked contrast in Orlando has been the disparity between supply and demand." Annual average occupancy is expected to rise to 67.1%, a 430 basis point increase from 2003.

"Many investors have found a foothold in the market this year as 12 properties traded hands through mid-year," Gering notes. "At this pace, 2004 will be one of the most active of the past five years."

Among chains nationally, the most active in terms of total projects planned or under way is Hampton Inn with 66 properties. Hilton Garden Inn and Marriott Hotels have 62 and 61 new projects respectively. Holiday Inn Express and Residence Inn round out the top five with over 50 projects each.

The biggest year-over-year gain in occupancy was garnered by the upscale segment, which experienced an increase of 190 basis points. The Marcus & Millichap analysis found the greatest pricing power in the luxury arena with a robust 10.7% gain in ADR.

"This fact speaks to the rising confidence of the US consumer," says Gering. "The willingness to indulge in luxury items bodes well for the stability of the current [industry] expansion."

He adds, "Even the segments that have struggled recently, mid-price [hotels] without food and beverage and economy [class] managed RevPAR growth of 3.2% and 1.7% respectively, over the past 12 months."