Wednesday, December 26, 2007

Is Upscale Tourism the Next Bubble to Burst?

Upscale Tourism. Seems everyone is debating it these days.

But Key Westers should be asking themselves if it is for real - or is it another speculative bubble, ready to burst?

To answer this question, take look at where this Upscale Tourism Bubble came from.

The Upscale Tourism Bubble was built atop the Real Estate Bubble. As Key West real estate turned to mania, it propped up the idea that everything in Key West is now upscale.

During the Key West real estate bubble, speculation ran wild. It appeared that everyone was flipping properties. Money was easy to get as lenders, realtors, and mortgage brokers handed loans to everyone. House prices jumped from $150,000 to $300,000 to $600,000 to $1,200,000 - all in the span of 8 years.

And it was precisely at this time that the notion of Key West tourism going upscale was born. Speculators thought to themselves, "Heck, if people would pay $1 million for a Conch shack, why not make them pay $300-$500 for a Key West hotel room?"

Developers and speculators, drunk on real-estate-bubble-profit dreams, thought everything was going upscale - and bought up hotels, motels, and other property - thinking they'll get a huge return on their investment.

No doubt, hotel room rates in Key West have increased significantly over the past few years. But this is mainly due to a decrease in the supply of hotel rooms. At least 800 rooms have been offline over the past two years - and the room rates show it.

But can Key West become "upscale tourism" while the housing bubble bursts?

The answer is likely to be no - since one bubble was built atop the other.

As the real estate bubble bursts, the Upscale Tourism Bubble will burst as well.

Fortunately, since empty hotel rooms are like empty "for-sale" houses, room rates will fall - especially from the lofty levels many developers have been throwing around.

So, get ready for the next crash. As the hotel rooms come back online, rates will fall. This may not happen immediately - since the Spottswoods are planning to tear down 500+ hotel rooms in their effort to create a major Upscale hotel/timeshare/condotel/whatever out of 5 of the last affordable hotels left on the island.

Unfortunately, the Mayor of Key West appears to be painting the community into a corner - betting the ranch on upscaling and ignoring the bulk of our visitors - a base which took decades to build.

He's hanging onto a sinking ship - called the SS Real Estate Bubble, and has tied the tourism industry, along with the livelihood of everyone in Key West, to it.
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23 comments:

Saratica said...

Thank you. Tearing down all those hotel rooms will not "create" higher prices. That tourist base we've been building for years just won't come here. You can't get blood from a stone ya know.

Sally O'Boyle
www.so-real.com

Blogger doesn't let you sign in with anything other than your gmail account. Really annoying.

Cayo Dave said...

Righto Saratica.
Sorry about the comment registration. I didn't mean to restrict it to only Google accounts...guess I hit the wrong setting.
Anyway, I'm going to once again open the blog to anonymous comments. (I shut it down due to unproductive sniping in the Cay Clubs post comments)
Hopefully I can keep the blog as open as possible - it surely makes it more interesting.

madjacks of key west said...

Greetings from the Hill

Now you have 'it' in perspective.
My gay neighbour says "Honey,
you ain't seen nothing...
prices will be by the queer inch,
not a straight foot," ready
to die in paradise naturally.

Visit my Blog above solaris hill
Best wishes,
MJ

Anonymous said...

This comment was submitted, but accidentally deleted. I'm republishing it here.
This was submitted by Anonymoun:
Every one I know in the vacation rental industry in town can't keep pace with the amount of tourists who want to come to our island. We are still quite reasonable when compared to other resort areas (Hawaii, Provincetown, Martha's Vineyard, etc.) so our rates will not drop. More and more people are coming to the island to visit and demand can not keep pace with supply - most agents are booked a year in advance for major events and even the usually slow times are doing a brisk business. Don't believe me? Call any vacation rental company on the island, call the Key West Innkeepers Association, call the Chamber of Commerce or call someone in the know - but DON'T RELY ON MISINFORMATION OR SPECULATION! You just look more foolish that ever.

Cayo Dave said...

Lets do exactly what the previous commenter suggests and check the Chamber of Commerce.
According to their website, which published monthly tourism statistics, the number of tourists arriving in Key West via the airport is down 4.7% this year. Last year was down 12%.
This means, nearly 40,000 less people arrived at Key West airport in 2006 compared to 2005. For 2007, Key West will likely have seen another 10,000 person drop.
The main point is this: do you really thing there are enough people willing to pay $350-$500 per night to stay in Key West. Maybe a few weeks of the year - but there is no way all these restaurants, watersports, attractions, and galleries can survive with only a few weeks of visitors.
And once all the ammenities lose their ability to survive and prosper, how much of the upscale crowd will still want to visit?

Anonymous said...

If the hotels, B&B establishments and other resorts want to stay competitive, they will offer our high end clientele a vast amount of amenities to suit their tastes. We have Yacht Clubs of America to service your every need for your partaking from concierge services to maintanence of your vessel to serving gourmet dinners from your salon while aboard. Not to mention offering a vast array of cleaning and maintenance while away in your other homes not in the Florida Keys. We have charter captains who take out tourists for high excursion fishing trips and cruises. We have upscale hotels to supply your every whim from inhouse gourmet chefs to prepare meals in your lodging to private day trips for scuba diving, day trips and anything you can imagine. The list goes on and on.

Sure, life in the rinky-dink waterholes will suffer but not unless they can change their spectrum to appeal to the new rich clientele. The old days of drunken walks down Duval Street to pick up any grub handy to eat are over. Get with the new face of Key West - the service industry will adapt to the changing palate and I for one will be glad to make a lot more money from the new rich visitors that will come. Can you see a casino in our future? And how about those conventions - money! money! money to be made for those who have the knowledge to climb aboard! Quit complaining and join the new Key West (and thank God we will finally have a market that will enable those in the service industry to make a decent buck!) Thank you Spottswoods! Thank you Swift! Thank you TDC for realizing the obvious solution needed to keep Key West a destination for the upscale tourist - and they have the money to spend so why not here?!

Anonymous said...

And thank you Pritam Singh too. Those with deep pockets will propel Key West into the new century. Unlike the speculators like Cay Clubs, those who know these islands will benefit. And guess what? Harbor House and Kings Pointe are selling and selling well. So are Parrot Key. Figures don't lie - they are all closing deals left and right. Just because you don't know don't assume there isn't anything going on. You just aren't in the know.

rhett said...

I have been a visitor to Key West for the past 18 years; I started in college with a group of friends whom have all become professionals now. We made a pact to always set 1 week a year aside to go on vacation together and without fail we have done so every year. As some of us have become Doctors, and Lawyers and sales managers our income has increased. So has the cost of coming to Key West. In 2006, in 5 days I spent just over 4k off season (multiply that by 11 of us and that’s a little chunk of money). While high end tourism (and uber high income cliental) are less affected by minor hiccups in economy all the mid to low end loyal cliental will not be able to keep up. My friends and I choose Key West for its character, its slow pace and that fact that it was unique. If it becomes an ultra high end vacation spot you will attract a less loyal cliental who may choose powder white beaches, and less over fished waters. The Character in you city is the story’s your cab drivers tell about hard luck and happiness, and the bartenders that came on vacation and loved it so much they never wanted to leave, the sunset celebration (when we stood in the dirt), and crappy old bars in one of the oldest cities in Florida. I didn’t even have time to mention the history of the city. Key West is not and can never be Hawaii, but people used to feel comfortable here, and that’s why as a collage kid, I saved every penny from the day I got home from spring break until the moment I crossed the 7 mile bridge.
In short, we are already anticipating our 2009 trip to go to New Orleans anticipating the continuing rise in the cost of tourism in Key West.

Anonymous said...

Glad to see you go. As for being a doctor or a lawyer - sorry , you just don't have the income needed to become a 'high end client' of our island tourism economy. Want to relive your college days? Do it in New Orleans. Want to act like an adult and enjoy the amenities only a high end locale will be able to offer? Come to Key West shortly after we get rid of all the riff raff and low life local Conch scum that are servicing and living here. In the meantime, why not grow up? And so sorry - you may have earned a little money but you can't buy class and that is the type of tourist we will attract and demand in the near future.

rhett said...

You seem so hurt and angry with people in general. I'm not saying that Key West is not a wonderful and beautiful place, but I think you want to believe that you can turn a small overdeveloped city into Maui, and that is highly unlikely. Professionals will come to your island, and spend more there in other costal communities because of the cities history, character, and uniqueness. The "conch scum" (which I hate to even repeat) do most of the working and sweating and dieing in that town. Please do not forget that some one has to clean the toilets and from the sound of you it's not going to be you.
If you limit your tourism to the uber rich you are really limiting your clientele, and you will need that small population to come back..with an attitude like that you are far from hi-end customer service minded, and it’s the population of a place that contributes to the feeling one gets in a vacation destination. You can only tell so many tourists “glad to see you go” before you are alone talking to yourself. Try to cheer up a little, and remember that one day (you actually already do you just don’t know it yet) you will need to depend on someone that makes less money than you.

Anonymous said...

Provincetown, Martha's Vineyard, Aspen, Vail, - all depend on the uber rich. They bus in their workforce and many are more than eager to service the nouveau riche as the tips are tremendous and the hob-knobbing with the higher classes does much to improve the self esteem. Take a good look - tourists don't come here to gawk at the local Conch bums, the puke ridden bars, the slutty t-shirt shops, the overpriced overcooked fish that never changes from one eating establishment to another or to be enveloped in history. They come to a tropical island to rest, relax, to be pampered and to be waited on hand and foot if need be. They pay for it, they expect it and we are gonna provide it for them. Perhaps we need to keep our billionaires happy by letting the punny millionaires work for them - a nice change. I see private clubs, secluded and invitation only events, anything to keep out the unwanted and everything to encourage our new upscale tourist to return again and again. This is the face of the future - this is the face of the NEW Key West. And I gladly welcome it with open arms - and open cash registers (can you here the jinggle of new more money being pumped into this town from the new class of tourist?) YES!

Anonymous said...

Well said. I visit Key West and I pay enough to expect nothing less than the very best. I travel a lot and I know that in order to keep the clientele happy and returning, you have to provide something special, somthing unique and something lavish. I like to stay at 5 star hotels, have specialized concierge services and to enjoy my vaction on my terms. I don't come to Key West for the architecture or the bars. I come with my boat for the yacht races and I come with my family to enjoy the warm weather, the water and the luxury services available to me. I am especially pleased in the new resort/marinas in Marathon and in the Historic Bight area and have purchased a unit in Key West so I will continue to make this a stop on my travels. No, I don't want to live here full time but the time I do spend here I want to be something special. I want to be pampered and embraced by your tropical breezes and your hospitality.

Cayo Dave said...

I can't believe the previous Anonomous comment is genuine. Looks like the same person that wrote the other comment is responding to himself.
Anyway - it was amusing.
So, you come to Key West for its luxury ammenities, specialized concierges, and to be pampered by our tropical breezes and hospitality? I don't think the Key West you describe is even here yet.
Good luck, in your ideal Key West world, finding quality employees to treat you as royally as you think you deserve.
I mean, now that you have a "unit", you are going to need services: repairs, furnishings, groceries, utilities, and countless other goods and services. Who's going to board up your "unit" when a hurricane comes?
Do you think employess will be able to survive on two months of season? They won't - and they, along with most of the businesses, will be gone.
Most of the luxury ammenties that you claim to enjoy in Key West will be gone. Then what?

Anonymous said...

It's time to change - quit complaining and start embracing what life here in the Florida Keys has to offer. The way everyone talks you would think this has never happened before. I've got new for ya - it has. This was a Navy town for years and years where nary a tourist ventured except those that liked to fish. Seems when the newbies came to town in the 70's they saw a quaint little town and decided everyone should come see it - hence we got to be the new hot spot on the gay radar and the baby boomer tourist market. Now you are complaining? Where were you 20 years ago or more when the train could have been stopped? Now we have to accept the fact, like it or not, that, to quote the Jeffersons "we're movin' on up". Does this mean we finally get a 'piece of the pie'? I'll have Key Lime, thank you!

Anonymous said...

hob-knobbing with the higher classes does much to improve the self esteem.

wow, what an a-hole

that's pretty funny the guy is having a conversation with himself

post some pics of the "yacht" and "unit"

Anonymous said...

This town sold itself out years ago and now you want to start complaining? Where were you in the 1980's when Pritam Singh began his assault on the island? Where were you BEFORE Jimmy Buffett parrotheads, the gay invasion and the developers/investors/realtors came to town? Where were you when the Bubba system took hold? Where were you? As I have said before, will the last Conch to leave the island please turn out the light?!

Anonymous said...

'wow, what an a-hole'

Yes, you are if you really believe this town in 10 years won't be a haven for the rich tourist and the rest of us will be waiting on them or have left for beter. Low salaries, no benefits, high rents, working day and night to make ends meet. We done sold our souls to the company store. This ain't no paradise - this is slavery.

Yeah, right said...

Looks like a couple of trollers
have made it their project to post
a bunch of class-warfare BS here.
Not a chance in hell that the
people that they CLAIM to be would
be posting such tripe here. Yo,
dudes, grow up...!

Anonymous said...

If you don't like the way Key West will become, a mecca for the super rich I suggest you leave now and take your foul rantings and ravings with you. WELCOME RICH PEOPLE - WE LOVE YOU AND YOUR MONEY!!!!!

Anonymous said...

Yes, you are if you really believe this town in 10 years won't be a haven for the rich tourist and the rest of us will be waiting on them or have left for beter. Low salaries, no benefits, high rents, working day and night to make ends meet. We done sold our souls to the company store. This ain't no paradise - this is slavery.

Well I don't know about "us" stuff, I don't actually work in the service industry so I will won't be waiting on anyone. Although part of my income comes from tourism, I'm not really sure if going "high end" or whatever will help or hurt that.

I don't really care that much about island politics, although entertaining , I find fishing and diving way more interesting.

I do know the price of real estate going down is great, I hope it really tanks. Unfortunately, as messed up as the reef is its still the only one in the US so I probably won't be leaving right away.

Although Belize does look pretty nice ....

Anonymous said...

Key West ain't paradise - get used to it. You want Key West to prosper? Then show me the money honey or shut up and dance!

Anonymous said...

I just returned from a one week stay in KW - my fifth trip there in the past 30 years or so. The guesthouse manager insisted that it would be very tough to fit us in for an extra night because "it's filling up for the weekend".

But on Friday and Saturday Jan 11 and 12 I looked around at signs when we were biking throughout the island - and saw only one guesthouse with a No Vacancy sign.

If the cheap places creep up to $400 or or $500 per night then lots of folks like me will look elsewhere for tropical vacation spots. I really love the laid back vibe, the weather and the sort of funky Caribbean back street feel that much of Oldtown offers. But if I can stay a full week elsewhere for what a few days on Key West costs I will look for options.

Gidget said...

Does everything have to be about someone's money? Where is your heart? When the market takes a crash and the elite lose their money then what? Money buys what we need and nothing else. Rich snobs that only value people who what they have will lose in the end always. Get a life. People are what matters and yes someone has to the work.............