HOTEL WATERPARK RESORT INDUSTRY REPORT 2005

23 New Hotel Waterparks Open,
52 Under Construction
Including Some at Condo Hotels

By Jeff Coy and Bill Haralson

The USA hotel industry reached 64.3% for the first eight months of 2005, up almost two points over a year ago and nearly one point higher than benchmark Year 2000. Hotel room rates averaged $90.59, which is more than $4 higher than the last several years.

USA HOTEL INDUSTRY TRENDS

Source: Smith Travel Research. YTD August

USA Hotel Industry Performance

Revenues, supply and demand all showed positive growth for YTD August 2005 compared to a year ago. Revenues per available hotel room were up 7.8% over 2004. New hotel construction rose only 0.7% while demand for lodging increased 2.8% --- allowing both occupancies and room prices to rise.

Summer of 2005 was better than last summer for the hotel industry despite $3.00 per gallon gasoline prices and the impact of several hurricanes. In August 2005, occupancy reached 68.5% --- up 2.1% from 67.1% in 2004. Hotel room revenues were up 8.6% over 2004.

USA HOTEL INDUSTRY TRENDS

Source: Smith Travel Research

In the first eight months of 2005, luxury and midscale hotels showed the most improvement in occupancy while luxury, upscale and midscale hotels among the chains showed equal improvement in average room rates compared to a year ago. Upper upscale hotels ran the highest occupancy at 72.2% among the price tiers followed by upscale-priced hotels at 71.5% compared to a year ago.

Resorts and airport hotels ran higher occupancies in 2005 than 2004 and achieved higher occupancies than all other types of lodging --- urban, suburban interstate and small towns.

USA Resorts achieved 69.6% occupancy for 2005 through August, up from 69.1% during the same period a year ago while airport hotels reached 69.8%, urban hotels reached 68,6%, suburban hotels ran 64.8% and interstate and small towns hotels peaked near 58%.

Resorts produced average room rates of $129 for 2005 through August, which is higher than all other types of lodging.

TOP PRODUCING HOTELS BY LOCATION

Source: Smith Travel Research, YTD August 2005.

Families in the USA bit the bullet on higher gasoline prices and refused to abandon their vacation plans. Many vacationed closer to home and escaped for weekends at nearby regional resorts --- a growing number of which now offer indoor waterparks and family entertainment centers. The leisure traveler segment continues to breathe life into the hotel and travel industries. In addition, business travelers have now returned to hotels in greater numbers.

Currently, the most lucrative states for hotel investment are Hawaii, New York and Florida where the revenues and their growth rates are the highest in the nation. Nevada, Rhode Island and Alaska, while posting high revenues per available room, slipped a bit from last year. Hotel revenue per available room (RevPAR) is the key indicator that takes into account supply, demand, occupancy, scarcity and pricing.

HIGHEST REVENUE PRODUCING HOTELS BY STATE

Source: Smith Travel Research. YTD August 2005.
RevPAR is Revenue Per Available Room.

RevPAR is a measure of asset productivity that often points developers to the most attractive locations for new construction, although many of these desirable locations also have high barriers to entry.

In 2005, the most desirable hotel markets, in terms of their ability to generate the highest revenues per available room as well as double-digit growth rates, are New York City, Oahu, Miami, Washington DC and Los Angeles. Some of the leisure destinations like Tampa, Anaheim, Denver and Phoenix recorded 12% to 13% improvement in revpar compared to last year.

HIGHEST REVENUE PRODUCING HOTELS BY MARKET

Source: Smith Travel Research. YTD August 2005.
RevPAR is Revenue Per Available Room.

In sum, the USA Lodging Outlook reveals:

• Hotel room revenues supply & demand all showing positive growth over last year.
  
  
• Room revenue up 8.1% over last year.
  
  
• Summer 2005 better than Summer 2004.
  
  
• Industry near pre-9/11 levels of Year 2000.
  
  
• Resorts did better than last year and better than other types of lodging.

USA Resort Performance

Hawaii is the leading resort destination with 82.9% occupancy (up 4.0%) and $166 average room rate, up 8.0% over last year. This compares to the national hotel occupancy of 64.3% and average room rate of $90 in the USA.

Florida and Nevada are trailing close behind with 72.7% and 72.5% occupancies, respectively. Arizona and Florida recorded the biggest gains in occupancy improvement over last year.

The highest resort room prices were found in Hawaii at $166, Nevada and Florida at $103 and California at $102. Hawaii and Florida recorded price jumps of more than 8% in 2005 compared to last year.

HOT & COLD RESORT DESTINATIONS

Source: Smith Travel Research. YTD August 2005.

Wisconsin and Minnesota achieved statewide occupancy under the national average in both occupancy and average room rates. However, these two states have the highest number of hotel indoor waterpark resorts, and the top hotel waterpark resort properties recorded occupancies and room rates far above the national averages and equal to many of the Sunbelt resort destination states.

In fact, due to the double-digit growth of indoor waterparks over the last several years, Coy and Haralson formulated 17 predictions on the future of resort development.

• Regional drive-to resorts will attract more guests than national fly-to resorts.
  
  
• Business travel will become more an elective and less a requirement.
  
  
• More Americans will telecommute.
  
  
• Mixing business & leisure 24/7 will lead to greater stress.
  
  
• Never disconnecting will cause greater stress.
  
  
• Lodging and entertainment concepts will continue to merge.
  
  
• Resorts will become more like theme parks.
  
  
• Resorts will grow faster than other types of lodging.
  
  
• More resorts will become part of mixed-use developments.
  
  
• Future resorts will focus more on guest participation and interaction.
  
  
• Theme parks and resorts will use more simulators to create virtual reality.
  
  
• Resorts will increasingly become a teacher.
  
  
• Seasonal resorts will become year round operations.
  
  
• Resorts will build more and more indoor recreation facilities.
  
  
• Resorts will increasingly incorporate water into their designs.

For more information, see 17 Predictions on Future of Resort Development.

USA Hotel Waterpark Resort Performance

In 1994, Stan Anderson, owner of the Polynesian Resort in Wisconsin Dells WI and pioneer of the hotel indoor waterpark resort installed some water gizmo in his indoor pool and weekend occupancy skyrocketed. That started the 11-year trend of building more than 100 hotel waterpark resorts that extend from the Midwest to the Northeast and Pacific Northwest.

During 2005, twenty-three (23) new additions and expansion projects are expected to open by year end, bringing the total to 104 hotel waterpark resorts open and operating in the USA. Fifty-two (52) projects are under construction or will break ground during 2005.

Clearly, hotel waterpark resorts are not a fad but here to stay. About 121 projects are in the development pipeline, up from 69 in 2004, 46 in 2003 and only 19 in 2002. The waterpark sector of the resort industry has experienced rapid growth in the last several years.

Jeff Coy and Bill Haralson formed Hotel Waterpark Resort Research & Consulting, a collaborative effort of JLC Hospitality Consulting of Rochester MN and William L. Haralson & Associates of Richardson TX.

Coy, a hotel consultant, and Haralson, an attractions consultant, joined forces for the purpose of building an industry database for this product sector. Both chair the Resort Committee of the World Waterpark Association and produce the annual Waterpark Development & Expansion Workshop, where they present their latest research and a variety of expert speakers. Go to www.waterparks.org.

This Fourth Annual Industry Report includes supply trends, sizing components, construction costs and operating expense ratios with a focus on Wisconsin Dells where the concept originated and numerous hotel waterpark resorts are clustered in one market.

In 1990, before indoor waterparks, Wisconsin Dells ran a 40% annually hotel occupancy and had a 100-day peak season. Today, it has 18 hotels with indoor waterparks and has a 365-day peak season. The largest hotel waterpark resorts are running occupancies in the high 70s and low 80s --- 15 to 20 points above the national hotel average.

Wisconsin Dells Hotel Performance

In 2002, hotels WITH indoor waterparks achieved 26 points higher occupancy and $69 higher average room rates than hotels WITHOUT indoor waterparks in Wisconsin Dells.

In 2004, we updated that research survey to determine the impact of 9/11, the economic recovery and what happened to the haves and have-nots in Wisconsin Dells over the last three years. Eighteen (18) hotels WITH indoor waterparks captured 85% of the total market hotel revenue in Wisconsin Dells while forty-four (44) hotels WITHOUT indoor waterparks were left with only 15% of the total market hotel revenue. As a result, we referred to Wisconsin Dells as "the land of haves and have-nots."

In 2005, the top two hotel waterpark resorts achieved average room rates above $200. The 18 haves achieved average room rates of $130, while the 44 have-nots achieved $65. Hotels WITH indoor waterparks recorded ADRs that are 2X that of hotels WITHOUT indoor waterparks. And the ADR trend over the last three years is getting higher for the haves and lower for the have-nots!

This trend begs the question, "How long can you succeed in Wisconsin Dells as a hotel without an indoor waterpark?" The biggest properties are getting bigger while the smaller properties continue to lose market share.

USA Competitive Supply of Hotel Waterparks

One hundred and four (104) hotel indoor waterparks are open and operating in the USA, including six properties scheduled to open in the final months of 2005. Hotel waterpark resorts opened over the last three years in the following states:

HOTEL WATERPARK RESORTS OPEN

Source: HWRRC, Coy & Haralson.

These properties have a total of 17,574 rooms, nearly 2.4 million square feet of indoor waterpark space and 397 meeting rooms covering 935,000 square feet of meeting space. The following chart illustrates the growth over the last three years.

HOTEL WATERPARK RESORT INDUSTRY GROWTH TRENDS

Source: Hotel Waterpark Resort Research & Consulting, Coy & Haralson.

Independent Versus National Branding

Of these 104 hotels, 60 are independent while 44 are affiliated with a national hotel brand. We counted the six Great Wolf Lodges and two Kalahari Resorts as independents, although these familiar names are two emerging national brands. Properties in resort locations tend to be independent while properties in urban, suburban and highway locations tend to be franchised.

Brand names include AmericInn, Baymont, Best Western, Comfort Suites, Country Inn & Suites, Days Inn Hawthorn Suites, Hilton, Hojo, Holiday Inn, Marriott, Microtel, Nickelodeon, Quality Inn, Ramada, Sleep Inn, Super 8 and Wingate.

Whether or not to affiliate with a brand is a major issue in this product sector of the hotel industry. Two companies, Great Lakes Companies and Kalahari Resort, are reproducing their prototypes in multiple locations --- in effect, starting their own brand. Great Lakes Companies signed a license agreement with Ripley's Entertainment for its Great Wolf Lodge in Niagara Falls, Ontario --- which is a first step in becoming a franchisor in the hotel waterpark resort industry.

While several hotel chains, like Marriott and Holiday Inn, are creating indoor waterpark prototypes, two entertainment companies, Six Flags Inc and Nickelodeon have recently opened hotels.

Top 25 Largest Hotel Waterpark Resorts in the USA

Hotels with the largest indoor waterparks are concentrated in Wisconsin Dells WI where 18 waterpark resorts now exist. The Polynesian Resort in Wisconsin Dells is generally acknowledged as the first hotel indoor waterpark in 1994.

TOP 25 LARGEST HOTEL WATERPARK RESORTS IN USA