Tampa Lodging Market: Cause for Optimism – Co-written by Allison Fogarty and Anu Lamichhane
Ever since it was first settled and incorporated as a tiny village back in 1849, Tampa’s population has shown a remarkably consistent growth trajectory with its subtropical climate, affordability, and robust local economy continuing to attract new residents from far and wide. Mirroring this population increase is the number of annual visitors making their way to this coastal Florida metropolis, which has subsequently led to a surge in hotel developments aiming to capitalize on strong demand growth. It is therefore little surprise that both demand and supply are expected to grow at above the long-run US average in the near future as Tampa approaches a critical phase in the real estate cycle.
Local and Regional Economy
An in-depth study performed by the University of Central Florida predicts healthy real growth in several key economic and demographic metrics for the Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area through 2021. The population of the MSA is anticipated to grow at a mean rate of 1.4% annually, while unemployment is expected to remain low, averaging four percent over the period. Finally, personal income is projected to grow at a very healthy annualized rate of 6.6%.
Additionally, the Tax Cuts and Jobs Act introduced in November 2017 particularly benefits consumers and companies in Florida by capping federal tax deductions, with the legislation’s positive impact expected to outweigh the effect of further federal interest rate hikes in the near future. The state of Florida is projected to achieve a strong average real Gross State Product (GSP) growth rate of 3.6% from 2018 to 2021, with a peak of 4.3% in 2018 slowing down to 2.8% by 2021. Nevertheless, this average is 0.7% higher than the nationwide figure for the same period and bodes well for both Tampa’s local and regional economy. As a result, existing migration flows to Florida, particularly from states such as California, New York, Connecticut, and Ohio, should in theory be further strengthened in light of Florida’s robust economy and notable lack of a state income-tax.
Key Demand Drivers
Tourism in particular has increased significantly in recent years. Pristine beaches, a bustling port which serves numerous cruise lines, and sites such as the Busch Gardens and Adventure Island theme parks have all proved to be huge draws for leisure travelers. Meanwhile, the City’s climate and facilities continue to attract major sports events including the NHL All-Star Game in January of 2018 and the NFL Super Bowl for the fifth time in 2021. Intrigued by the City’s attractions, over $20 million tourists visited Tampa in 2017, generating a combined six billion economic impact. These numbers are set to further increase as Tampa International Airport, already rated as one of the best nationwide, undergoes significant expansions and upgrades. The project is expected to cost $2.6 billion and includes an expansion of the main terminal that will help facilitate higher future visitor numbers, additional concession and retail stores, and a new air traffic control system. Furthermore, Tampa’s port had a total cargo shipment of $37 million tons and a cruise passenger count of over one million in 2017. With the recent tourism boom, the City has finally been designated a ‘high impact’ destination. It collected over $30 million in bed tax in 2017, giving Hillsborough County the authority to increase bed tax from 5% to 6% if it so desires.
Moreover, the City is home to several colleges and universities that help drive room demand and prices at key times in the year. Most notably, the Tampa campus of the University of South Florida enrolls a massive 44,000 students. Additionally, the University of Tampa and Southern Technical College are two smaller institutions in the area, while Hillsborough Community College, with a total enrollment of over 40,000 throughout the county, has several campuses located in and around Tampa. Finally, 23 miles outside the city in neighboring St. Petersburg, but still within the wider Tampa Bay area, lie four of St. Petersburg College’s 11 campuses.
Another key demand generator, the Tampa Convention Center, has over 600,000 square feet of meeting space and usually hosts over 300 events every year, including annual events such as the Tampa Bay Comic Con, the Florida Bar exam, and MetroCon. By facilitating large events, the Center creates a demand of over 150,000 annual room nights for nearby hotels, particularly in the downtown area. While the Center itself cannot easily be expanded further, a new JW Marriott that recently broke ground as part of Vinick’s massive Water Street Tampa project will provide the City with significant additional meeting and convention space.
Tampa benefits from a remarkably diversified set of major industries that dominates its economy with manufacturing, healthcare, finance, defense, technology, and the government all playing key roles. This wide range points to a promising future for the City, as the potential risk of overspecializing in one segment is significantly reduced.
Supply continues to rapidly increase as investors try to take advantage of the local lodging industry’s solid performance in recent years. The current market consists of a room supply of over 17,700, with an additional 1,700 in the downtown market and 1,300 in the airport district which are in various stages of development. New developments, of which there are 44 in the overall Tampa area pipeline, are predominantly in the lower-priced and select service range.
A three billion district development project in the waterfront neighborhood in downtown Tampa is currently in the works. It includes a massive 519-room JW Marriott with over 100,000 square feet of meeting space opening in 2020 opposite the Convention Center. The overall development project in Water Street will create nine million square feet of residential, commercial, and retail space and is utilizing close to 3,000 daily workers during the construction phase. When complete, the project is expected to have a transformative effect on the City’s downtown core, linking the waterfront and the Convention Center with the City’s downtown offices and residential districts.
A new 175-room Marriott AC Hotel recently opened in the Westshore business district adjacent to the airport. The $125 million project is strongly millennial-focused and should help fulfill the needs of an age group that continues to rapidly increase its buying power. Meanwhile, the first five-star hotel in Clearwater Beach, 25 miles from Tampa, is anticipated to be developed in a $120 million project as a JW Marriott with 166 rooms and 36 luxury condos.
One suburban development of particular significance is the Seminole Hard Rock Hotel & Casino, which is currently undergoing a $700 million renovation and expansion that is slated for completion in mid-2019. The project is expected to generate over 1,000 part time and full time jobs in addition to over 4,000 direct and indirect jobs during the construction process. With the casino’s adjoining hotel also being doubled in size, this may have a significant impact on nearby hotels that rely heavily on overflow demand.
Hotels in the Tampa Bay area were dealt a blow in the short-run in the buildup to Hurricane Irma, as hotels were evacuated in advance of the storm. Luckily, with minimal damage to local hotels, the industry rebounded quickly and the overall 2017 occupancy level of 74.1% was virtually unchanged from the prior year. Indeed, recent industry performance has been strong with Tampa’s RevPAR growth placing it in the top five U.S. lodging markets for each of the last three years. As of May 2018, Tampa’s RevPAR was up by 4.2% on a year-to date basis, bolstered by slight increases to occupancy combined with strong rate growth. Occupancy growth is expected to be somewhat moderate in the coming years as new supply is added which may exert downward pressure on rates.
Overall, despite the rapid increase of hotel room supply in the area posing a potential risk to future occupancy and RevPAR figures, Tampa’s economy has been booming in the past few years with tourism at an all-time high, new developments creating an abundance of jobs, and strong state growth figures driven further by the recent Tax Cuts and Jobs Act. These factors, in addition to the City’s affordability and continued inward migration flows, have fostered a healthy environment for future projects and should help ensure robust hotel demand going forwards.
Allison Fogarty is the Managing Director of Pinnacle Advisory Group’s Florida and Caribbean Practice Group. Ms. Fogarty has extensive experience in hotel and resort development and has directed and completed market and financial analysis engagements for hotels, resorts and gaming companies in the eastern United States and the Caribbean. She can be reached at email@example.com.
This article was Co-written by Anuraag Lamichhane, Intern at Pinnacle Advisory Group. Anu is to begin his third year at Cornell University’s School of Hotel Administration, with a Minor in Real Estate.
About Pinnacle Advisory Group
Since 1991, Pinnacle Advisory Group has provided advice and analysis on the full spectrum of hospitality properties throughout the US and Caribbean: hotels, resorts, conference centers, mixed-use projects, convention centers and exhibition centers. Pinnacle’s services include development counseling, appraisals, acquisition due diligence, asset management and litigation support. Our clients include leading hotel companies, REITs, universities, major banks, and municipalities. We specialize in providing personalized advice on complex projects, carefully tailoring our services to each client’s individualized needs.