High-end hotels, hit by corporate cuts, to face more competition
By Frank Norton
Corporate cutbacks and an imminent storm of hotel openings near Brickell threaten the neighborhood's high-end hospitality market as five top-tier competitors will soon vie for a dwindling, cost-conscious business travel segment, experts say.
"The first segment of the lodging industry to really pull back on demand was corporate groups, and that has seriously impacted the performance outlook" for Brickell hotels, said David Gray, director of Cushman & Wakefield's hospitality industry group. "At the same time there's a ton of luxury rooms opening where there were none and many more coming online nearby."
By 2004, Brickell's luxury incumbents - JW Marriott and Mandarin Oriental - will face about 550 new rooms of competition with the opening Sept. 20 of the 115-room room Ritz-Carlton in the Grove next month followed by the roughly 200-room Espirito Santo and Four Seasons hotel spaces to open on Brickell in late 2003.
With hotel occupancy in Miami-Dade down 8.6% to 56.5% in June year-on-year, its six-month low, market watchers say further slashing of corporate travel budgets will make it harder for incumbents and new entrants to be profitable in 2003.
"I see it getting fairly ugly on Brickell," Mr. Gray said.
Even invested stakeholders agreed the additional hotel rooms are ill timed with respect to current market conditions.
"There is considerable downward pressure on the hotel industry because of corporate cutbacks," said Steve Owens, president of Swire Properties, which owns 80% of the Mandarin Oriental. "But that goes for all hotel segments, luxury included."
According to Tennessee-based Smith Travel Research, occupancy in Miami's downtown market, which includes Brickell, eased 3.3% to 52.3% in June compared to the same period last year while figures from the first half plunged 10% to 61.7%. Meanwhile, room rates for the six-month period fell an average of 9% to $112.86.
"A closer look at Brickell incumbents showed JW Marriott's occupancy in step with market conditions at 53% - half full," said Marta Larrea, director of marketing.
She said part of the problem is that lower-tier hotels prop up occupancy by slashing rates, widening the price gap between luxury and other niches and making rooms harder to fill by increasingly tight-budgeted business and group travelers.
Executives at Brickell Key's Mandarin would not reveal occupancy figures but said the island palace beat performance expectations for the first half of the year.
Swire is now in the concept phase of a plan to build a condominium-hotel adjacent to the Mandarin, although further development is contingent on market conditions, Mr. Owens said.
"We had an excellent first quarter and a better than expected second quarter," said Alexandra Pangas, Mandarin communications director.
She said the hotel spa and famed Azul restaurant are increasingly looked on as profit centers rather than support amenities.
But bright spots may darken as the economy double dips and new competition moves in, some observers say.
"I don't see a whole lot of promise for anyone putting a hotel on Brickell," said Abel Iglesias, executive vice president and senior lender at Colonial Bank South Florida Region.
"I don't see hoteliers thinking profitability right now," Mr. Iglesias said. "I see them managing perception. It's sort of a herd mentality. They see high-end moving in and they, too, want to set up a presence here."
In July an un-named hotel management company signed a letter of intent to buy the 245,000-square-foot condominium-hotel space in Espirito Santo Plaza, now under construction. Developer Estoril Inc. would not say whether that space referred to the hotel space, condo rental pool space or both.
"If you're Espirito Santo your thinking, my god I've got all this space when the market is pulling back," Mr. Iglesias said. "They have to be thinking long-term."
But there is more than one way to look at new product, said Michelle Payer, spokesperson for Ritz-Carlton Hotels & Resorts.
"Miami is so under-served in the luxury hotel market that a few more hotels coming online can only confirm its status as a major cultural, business, financial and tourism destination," Ms. Payer said.
She said Ritz-Carlton's new Coconut Grove hotel would cater to business clientele much more than the Key Biscayne location.
Anwar Elgnemy, an associate with Jones Lang LaSalle, said the Grove and Gables have an edge over Brickell when it comes to nightlife, shopping and pedestrian ambiance - something that could deter business-leisure travelers in the months and years to come.