According to a recent study by Jones Lang LaSalle (JLL), the Florida Keys have become one of the best-performing tourism markets in the country. Hotels in the island chain saw RevPAR returns jump 15 percent in 2013 to $218 per room, nearly 20 percent stronger than Miami’s $183. Through June of this year, the Keys’ RevPAR climbed even further to $234.38.
Consistent, robust demand enables the Florida Keys to regularly outperform other markets. For example, during the economic downturn, the Keys recorded only a nominal decline in RevPAR at 6.3 percent, whereas the national average showed a 17.4 percent decline in 2009.
Hotel investors are taking notice of the market. Twenty-three properties in the Keys, representing 27 percent of the market’s inventory, have changed hands since 2011. That produced $853 million in sales volume, or roughly $375,000 per key on average. This past May, Northwood Investors, LLC sold the 148-key Parrot Key Resort to Hersha Hospitality Trust for $100 million, or $675,700 per key. Three months prior, the Carlyle Group purchased the 79-unit Hampton Inn & Suites Islamorada.
Part of what makes the Florida Keys such a draw to investors is its inherent scarcity of land. The Keys consists of a 126-mile long chain of approximately 1,700 islands, and there is only about 137.3 square miles of land area. The shortage of land, combined with a highly restrictive rate of growth ordinance (ROGO), has created a market with high barriers to entry for investors and developers alike.
While land in the Keys may be limited, financing is not: Debt capital is at its highest level since the 2008 downturn. With nowhere to build, many investors are using that capital on renovation projects. At the moment, four budget hotels, totaling 500 rooms, are undergoing full renovations and are set to reopen as freshly branded select service hotels in 2015.
The upgrades should allow those properties to raise room rates—and have a ripple effect on the Keys’ hotel economy. “These renovations will put pressure on other hotel owners and operators to update their properties in order to maintain their market share,” says Carolina Lacerda, vice president for JLL. “Ultimately this will drive even higher RevPAR rates for the entire region.”
