There’s a strategy going on in Orlando that is lifting all boats. It’s called reinvestment.
“Orlando is a year-round destination anchored by large theme parks that continue to invest heavily in their offerings,” says Ian Glastein, co-head of real estate at Monarch Alternative Capital LP. “This dynamic, which attracts leisure travel from across the world, keeps occupancy high relative to many other markets.”
Those theme parks must be doing something right. Metro Orlando’s hotel occupancy was 70.5 percent in December 2023, according to Visit Orlando. Despite this being down 3 percent from the previous year, it’s still significantly higher than the average U.S. hotel occupancy for that same period, which stood at 52.6 percent, per CoStar, a 1.8 percent decline from 2022.
“Competition for leisure travelers by destinations and the cruise industry is intense, but continued investment by the theme parks keeps Orlando fresh and new,” says Daryl Cronk, director of hospitality analytics at CoStar. “Additionally, hotel demand is likely to benefit from the investment Orange County has made in the local venues, and to attract future sporting events.”
New attractions attract attention
Theme parks like Disney World, Universal, SeaWorld and Legoland offer family friendly entertainment and reasons to enjoy an elongated stay. Still, these attractions could become a one-and-done trick pony if they don’t consistently provide new incentives to visit.
This includes adding new destinations, such as Epic Universe, the fourth theme park within the Universal Orlando Resort. The 750-acre destination will include five differently themed worlds, including Nintendo, Harry Potter and How to Train Your Dragon, giving guests plenty of reasons to come back.
It also gives hotel investors plenty of reasons to get in on the action. Universal alone will open three new hotels, Universal Terra Luna Resort, Universal Stella Nova Resort and Universal Helios Grand Hotel, when the theme park opens in summer 2025.
Marriott is working on a 400-room W Hotel adjacent to Epic Universe, while the Marriott Element by Westin Orlando just behind the park sold to Crescent Real Estate in September for $39 million. That same month, the dual-branded Marriott Aloft & Element hotel was acquired by Monarch and HHM for $36.2 million as part of a four-property Orlando hotel portfolio bankruptcy auction. The seller, AD1 Global, had filed for Chapter 11 in January 2023.
“Hotels in the vicinity of Epic Universe are likely to benefit when the theme park opens in 2025,” Cronk explains. “Hotel demand and ADR in the area are expected to rise, although the three hotels totaling 2,000 rooms currently under construction at Epic Universe will absorb some of the higher demand.”
That hasn’t deterred Glastein. He notes the theme parks’ consistent reinventions is one of the main reasons he’s bullish on the Orlando market.
“The opening of new theme parks and attractions in the area is a positive support for investment decisions when it comes to buying and renovating hotels,” he says. “We believe the excitement around the development of Epic Universe will increase hotel transaction activity in Orlando, both ahead of Epic Universe’s opening, as well as after the effects of increased visitors are demonstrated.”
The other properties Monarch acquired through its winning bid include Staybridge Suites Orlando, as well as Royale Parc Suites in Kissimmee and Crown Plaza Orlando Lake Buena Vista, which enjoy a close proximity to the Disney resorts.
“We plan to continue to invest in our Orlando properties, improving the offerings for our guests, including at our newly renovated Hotel Landy, a Marriott Tribute Collection Hotel on Universal Boulevard, as well as significant planned investments at our Holiday Inn Resort Orlando Suites – Waterpark near Disney,” Glastein adds. “Depending on the opportunities the market will present, we would continue purchasing in the market.”
The 2,000-bed Evermore Orlando Resort opened on New Year’s Day across the road from Disney’s many resorts. The project includes the 433-room Conrado Orlando. AIC Hotel Group is also hard at work on an expansive resort near Disney Springs that will include four hotels totaling about 2,000 rooms. One of those offerings will be a 300-room Nobu Hotel. The land was purchased by AIC in 2018 from Great Wolf Resorts for nearly $33 million. That indoor water park resort never came to fruition.
Not everything is magical
Though every company and venture is different, AD1’s bankruptcy and Great Wolf’s abandoned plans prove that not everything is golden in Orlando.
Despite the recent activity and enthusiasm, hotel sales are down. As of last September, nearly 20 hotels had changed hands in Orlando in 2023 with a total sales volume of nearly $250 million. September 2022, by comparison, had racked up nearly 70 sales at a value around $630 million, according to CoStar.
One only needs to look as far as the current economic conditions to account for the discrepancy.
“The rise in interest rates and tighter lending standards slowed sales,” Cronk adds.
There is also the threat from increased competition. This comes both in the form of new hotels – more than 5,000 rooms were under construction in Orlando as of November, a 40 percent increase compared to 2022 – and short-term rental sites like Airbnb.
“Given the large amount of vacant land throughout Orlando and the ease of travel around the area, Orlando faces the potential challenge of material new hotel supply, either from new hotel development or the growth of the ‘alternative lodging’ sector, such as home rentals,” Glastein says. “If supply growth outpaces demand growth, hotel investors could face pressure on average daily rates, which could impact cash flow generation at hotels in the area.”
Glastein notes, however, that Orlando’s current hospitality market is relatively balanced. The pandemic limited the hotel construction pipeline, which he says created a supply and demand equilibrium that allowed hotels to maintain pricing power.
Speaking of balance, Glastein also appreciates Orlando’s diversification. Theme parks may grab the headlines, but the area draws in people for more reasons than one.
“The diversity of demand generators, including leisure travel, convention and group business, and business transient travel, mitigates the risk of any one segment of the market softening,” he says.
This was an important factor coming out of COVID when the return of in-person meetings and conventions remained uncertain.
“Hotel performance in Orlando was a little slower to recover than in some of Florida’s beach locations, such as South Florida and the Florida Panhandle, largely due to Orlando’s heavier reliance on conventions and group meetings,” Cronk says. “Group activity was slower to recover than the leisure segment, but Orlando’s group segment began a robust recovery in the spring of 2022.”
The city currently boasts the third-largest convention center in the U.S. Attendance wasn’t the only victim of the pandemic, however. Funding for the center’s $560 million expansion was halted in 2020 as the tourist tax revenue slowed to a crawl amid COVID. Talks to continue the project resumed late last year, with the Orange County Board of County Commissioners voting to once again allocate those tourist tax dollars toward the project.
Unfortunately, just as one crisis winds down, another ramps up. This time, it’s in the form of soaring insurance costs due to inflation and natural disasters like hurricanes.
“There is some concern that the rising cost for property insurance in Florida could deter some potential buyers,” Cronk adds.
Still, Cronk thinks savvy investors can weather this storm (no pun intended) despite Florida having some of the highest premiums in the country. His confidence harkens back to the reasons Orlando is a popular travel destination to begin with.
“The outlook for Orlando’s hospitality market is very positive,” he continues. “The industry has demonstrated remarkable resilience through economic downturns and black swan events, such as the 9/11 terrorist attacks and a pandemic. Risks can’t be avoided, or often anticipated, but history indicates Orlando’s tourism industry will continue to grow.”