After a rough 2016, Miami hoteliers hoping to rebound
 
After a rough 2016, Miami hoteliers hoping to rebound
26 JUNE 2017 7:36 AM

Miami hotels took a hit in 2016 when a conflux of surging supply, Zika virus fears and political strife in Brazil siphoned off demand. But new infrastructure, including a redesigned and expanded convention center, might signal better times ahead for the market.

MIAMI—Record gains in revenue per available room in 2015 gave way to tough times for the Miami hotel market in 2016, punctuated by supply that is outpacing demand, Zika virus fears and political turmoil in Brazil and other Latin American countries. But now, sources said, there are signs that the dark clouds may be parting somewhat for the beleaguered seaport.

Supply growth concerns continue unabated—with 78 hotels representing 13,386 rooms in the pipeline (in construction, planning or final planning stages) for Miami as of May 2017, according to data from STR, parent company of Hotel News Now.

Another sap on demand has been caused by the closing of the Miami Beach Convention Center while it undergoes a $615 million expansion and redesign, which began in December 2015 and should complete by 2018. Half of the facility remained open until early last December, when the entire facility shut to accommodate heavy construction.

The revamped venue will include more than 500,000 square feet of exhibit space, six acres of outdoor space and 81 new breakout rooms along with a new headquarter hotel: the 1,700-room Marriott Marquis Miami Worldcenter, which MDM Development Group is poised to begin construction this year.

William D. Talbert, III, president and CEO of the Greater Miami Convention and Visitors Bureau, expects the facility to help jumpstart the city’s hotel business upon reopening.

“The convention center has been dark and, like Zika and other issues, that’s had an effect on the city’s business,” he said. “But there’s pent-up demand for conventions in Miami, and we’re seeing that in the bookings.”

Good vibes
Similar optimism was expressed by Robert Finvarb, CEO of Robert Finvarb Companies, the private real estate investment and development firm behind six Miami properties including the Hyatt Centric South Beach and two of the city’s Courtyard by Marriott hotels.

Finvarb said he isn’t concerned about oversupply and expects new hotel inventory will be absorbed over the course of several years.

“Miami is a global destination on par with New York, (Washington) and Los Angeles, and people will continue coming to visit, and that bodes well for the city’s future,” he said. “We may be going through a bit of a lull right now, and that I think will continue for another 24 months, but I think we’ll come out much stronger on the other end.”

Finvarb’s bullish outlook isn’t simple conjecture. Miami had a record 15.7 million overnight visitors in 2016, nearly two-thirds of whom stayed in a hotel, according to the Miami CVB. The number of visitors is expected to grow with investment in infrastructure, including a new rail service that will connect Miami, Cocoa, Fort Lauderdale, West Palm Beach and Orlando. Also next year, the world’s largest cruise ship, Royal Caribbean’s 5,494-passenger Symphony of the Seas, will begin western Caribbean sailing from a new $247 million terminal at Port Miami next year.

“There’s private investment here, and it’s global money,” Talbert said. “Miami is accessible, it’s safe, and it’s affordable when you look at prices compared to other global cities. So there will be a return on investment. Real estate is a good buy here.”

Hurdles ahead
For the meantime, however, the Miami market still faces challenges.

“We’re projecting occupancy to decline for the next two years, and room rates will be flat this year, despite the occupancy decline,” said Jan Freitag, SVP of lodging insights for STR. “So there won’t be RevPAR growth, but the decline will be manageable at less than 1%.”

STR data for May 2017 shows the Miami-Hialeah market saw a 2.4% drop in occupancy in year-over-year comparisons; that followed occupancy growth in March (+2%) and April (+0.4%), a dip in February (-0.7%) and a sharp decline in January (-4.8%). Year-to-date figures for May 2017 show supply growth (+4.8%) outpacing demand growth (+3.6%), while average daily rate plummeted 4.9%, resulting in a 5.9% decline in RevPAR.

Giovanni Beretta, VP of Swire Hotels U.S. and GM of the East Miami hotel, finds the discrepancy between supply and demand disconcerting. He said it reminds him of the sharp drops in rates that hotels used during the 2008 recession to build occupancy.

The East Miami is the Hong Kong-based brand’s first property in the U.S., and since opening last year, has not yet achieved 100% occupancy, Beretta said. About 75% of the hotel’s bookings are transient.

Beretta, who wants to grow the hotel’s group business, noted that aside from a few times during the year when big events drive demand, the city’s hotels are seeing diminished occupancy and lowering rates as a result.

“Luxury hotels will always survive because once their rates drop too low, they eat business from upper upscale and midscale properties,” he said. “If you can spend $300 a night on a hotel room, wouldn’t you rather stay at a Mandarin Oriental or the Four Seasons?”

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