Orlando hotels struggling to fill rooms

Harry Potter will soon have his own theme park, attracting more muggles to the Orlando, Fla., area. And not too far away, Mickey Mouse's sprawling Magic Kingdom is slated to get a major beauty treatment.

That's cheer-worthy news for more than just theme park enthusiasts. Visits to Orlando are projected to be off by more than 9 percent this year and flat next year, according to the Orlando Convention and Visitors Bureau.

The drop in tourism is hurting hotel operators, retailers and a host of other businesses that rely on tourism dollars. Also taking a drubbing: commercial landlords.

Vacancy rates for apartments, retail, office and industrial space have gone up compared to last year and all categories except office are projected to eclipse national rates this year, according to Marcus & Millichap Investment Services.

"It's bad," said Duane Vinson, vice president of Smith Travel Research. "Right now what we're seeing is some of the worst occupancy levels (and) demand numbers that we've seen probably ever."

Orlando-area hotel operators saw occupancy fall 10 percent from a year ago between January and August to 64 percent, according to Smith Travel Research. In the same period, revenue per available room, a key hotel industry metric, tumbled more than 20 percent.

The glut in empty rooms stands to worsen in the short term because major hotel developments that were in the works before the economy sunk into recession have opened doors this year. More than 3,500 hotel rooms are under construction in Orlando, the fifth highest in the country, Vinson said.

Last week, Hilton Worldwide opened two hotels in the Orlando area — the 497-room Waldorf Astoria Orlando and the 1,000-room Hilton Orlando Bonnet Creek — both near Walt Disney World.

"The timing probably isn't perfect, but they'll be here for a long time and the market is going to improve, so it's kind of a matter of when," said Bill Moss, senior managing director for CB Richard Ellis' Florida region.

In August, Walt Disney World Co., sold 298 acres of land to Four Seasons Hotels and Resorts. Plans call for a 445-room hotel and golf course to be built at the site as part of an expansion of Walt Disney World Resort that will include custom vacation homes.

Construction on the hotel is expected to begin next year and be completed by 2012, with additional phases of the resort opening over the next decade.

Last month, Disney announced plans to expand Walt Disney World's Magic Kingdom, including a bigger-funner Fantasyland by 2013.

Universal Orlando Resort, meanwhile, has begun construction on the Wizarding World of Harry Potter, a new section of its Islands of Adventure theme park based on the popular series.

The theme park renovations could help bring in tourists, but not this year.

Declining sales and tight credit markets have forced many hotel operators and other commercial landlords into financial hardship, and that's led to an increase in distressed properties.

Some 110 commercial properties worth roughly $2.11 billion were in default, foreclosure or bankruptcy as of last week, according to Real Capital Analytics.

Hotels accounted for one quarter of the distressed properties.

Commercial property sales are well below last year's pace, leaving a glut of available properties on the market. Roughly $2.3 billion in properties have been put up for sale in th e 12 months ended in September, according to RCA.

Landlords with a stake in properties that aren't directly related to tourism appear to be holding up better.

Growth in the fields of medical research and education are fueling new construction of office and industrial space.

In the suburb of Lake Nona, a $2 billion cluster of medical buildings dubbed "Medical City" is being developed.

A 175,000 square-foot medical research building opened in April. And last month, doors opened at a 198,000 square-foot, five-story building devoted to the University of Central Florida's biomedical sciences school.

Plans call for more university buildings and two hospitals to be completed in 2012.

On the south side of Orlando, Flagler Development Co., is benefiting from the demand for adult education.

Earlier this year, Flagler built an 18,000 square-foot office building for Strayer University. The developer also leases space a combined 90,000 square-feet of space to the University of Phoenix and Everest University.

"They've been getting very busy," said John Guitar, market officer for Flagler's central Florida region.

Flagler has 15 buildings completed and about 1.6 million square feet of office space in its South Park Center office complex, which includes Lockheed Martin Corp., KB Home and Walgreen Co., among its tenants.

Flagler typically has at least one building under construction for prospective tenants looking to move in right away. But after the financial crisis hit last year, it decided to suspend so-called speculative building in the short-term.

"When we're finishing up one building we have another building in design," Guitar said. "But we kind of saw the writing on the wall."
   
Copyright 2009 The Associated Press.