While the major markets receive a lot of attention from hotel investors, there’s quite a bit going on in the suburbs that investors are overlooking.
In recent months, our South Florida consulting practice has conducted several market studies close to home in the West Broward market. West Broward is the suburban market west of Fort Lauderdale’s major tourism demand drivers of the beaches, the seaport (3.8 million cruise passengers per year), the airport, downtown and the Las Olas entertainment district. To cap off these assignments, we attended the Urban Land Institute’s second annual “Fort Lauderdale Emerges” half-day session with outstanding speakers from both the public and private sectors.
For the past two decades, West Broward has been best known outside of South Florida for the Sawgrass Mills Outlet Mall, a “must-stop” destination that has name recognition throughout Latin America, second only to Orlando’s Disney and Universal theme park-complexes. Those of us in Miami-Dade County and especially in Miami Beach have considered Fort Lauderdale’s tourism market much as people who live in Manhattan have traditionally viewed Brooklyn—another community that has “emerged” in recent years from the shadow of its better-known neighbor.
Signs of change
Several developments and achievements of Broward County have earned it increasing notoriety, as a place to relocate, to reside and to vacation:
- The 2018 PwC/ULI Top Cities for Real Estate Investment rank Fort Lauderdale as No. 6 in the United States.
- The South Florida Education Center, in Davie, features a 300-acre university campus containing two main campuses and three satellite campuses of local universities, the largest of which—Nova Southeastern University—has recently been approved for the addition of a medical school and 200-bed teaching hospital, increasing the university’s focus on health sciences graduate education.
- American Express has consolidated its Southeast U.S. operations headquarters to a brand new 400,000 square foot building across from Sawgrass Mills Mall.
- Broward County’s westward suburbs have reached the Everglades development boundaries so that current development is focused on infill and higher density, rather than a continuation of suburban sprawl.
- Bloomberg’s list of 20 worldwide places to visit in 2019 included Fort Lauderdale among only three U.S. cities on the list.
- Fort Lauderdale Beach has completed its transition from Spring Break to family vacation destination and is now becoming a full-fledged luxury resort destination like Palm Beach to the north and Miami Beach to the south.
- Condominiums at the new Auberge Beach Residences in Fort Lauderdale have sold for prices exceeding $2,000 per square foot.
- Hard Rock moved its headquarters to Hollywood, Florida, from Orlando as the expansion of the hotel to 1,200 rooms is in progress, featuring an iconic 16-story guitar-shaped tower.
Implications for the hotel market
For several decades, the West Broward Hotel market could best be described as stagnant. With no luxury-tier hotels, the top accommodations west of the Florida Turnpike are found in three upper-upscale tier properties. The youngest of the three was built in 2002. The Hard Rock was built in 2004, but its casino and entertainment center separate it from the mainstream lodging market as the hotel complex itself is the strongest driver of demand. In the upscale-tier market, four hotels were built in West Broward in 2001 and 2002, but no hotel development has taken place in the 17 years since.
Traditionally, the Broward market had three sub-markets, each with an associated price tier. The beachfront hotels maintained the highest pricing, downtown and airport market hotels came next, and finally the West and North Broward markets. The logic was that distances are not great in the county, and before congestion was such an issue, West Broward hotels feared that if rates were higher, they would lose customers to the downtown market. The few downtown hotels feared that if their rates were not significantly less than those of beachfront hotels, they would lose visitation to the Fort Lauderdale Beach market (just three miles away).
So, in the West Broward market, with upscale average daily rate levels in the $95 to $120 range for most of the past decade and upper-upscale hotels in the $120 to $145 ADR range, it was not attractive to build new inventory with total development costs in the $150,000- to $250,000-per-key range, including land.
However, with close to a dozen upper-upscale and luxury hotels having been developed in the Fort Lauderdale Beach market since the first condo-hotel, The Atlantic, opened in 2005, the rate ceiling has finally lifted. In 2018, Broward’s countywide ADR increased by more than 7%. Developers are now taking a second look at West Broward as the relationship between development cost and potential ADR is changing.
And of course, the millennials
We cannot talk about change over the last two decades without mentioning the influence of the millennial generation. As we read about generational shifts, one of the trends seen in the last decade is the attractiveness of downtown areas as places to live. Downtown Fort Lauderdale boasts residential growth of 30% between 2010 and 2018, while Broward County’s population grew during the same period by 9%. Much of this downtown growth comprised young professionals, and much of the new housing inventory is located in Flagler Village, just north of the central business district. In addition to condominiums and rental apartments, ground floor restaurants and retail add to the convenience and walkability of the neighborhood.
It is another millennial trend that individuals tend to remain single longer and have children later in life than previous generations. Therefore, when couples move to the suburbs, in this case West Broward, to have more space for their growing families, their expectations of convenience and walkability are well entrenched, especially as South Florida continues to be a growing community and congestion increases.
Zoning authorities and developers have responded with urban-feeling mixed-use developments at critical points throughout the suburban West Broward area, as they have in other cities in proximity to mass transit stations and other hubs. The new suburban residents want healthy food and local innovative dining options like they had in the downtown area, so the fast-casual chains are beginning to give way to new restaurants with local chefs. Similarly, less traditional hotel brands are being replaced by more social and design-forward brands like Vib, AC by Marriott and Curio Collection in suburban hubs around the country.
West Broward is now getting more interest from hotel investors, developers and branded operators. These industry players need to be cognizant of the more discriminating taste of many of the young families who are moving to the area after spending extended periods as urbanites. With an increasing volume of young business and leisure travelers visiting West Broward from similarly urbanizing suburban “hub” locations (such as can be found in Bethesda, Maryland, Uptown Dallas, Little Italy, San Diego, West Loop, Chicago and Anaheim, California for example), the next wave of hotel development will need to focus on brands and/or boutique hotels that have more character in design, food and beverage strategy, social spaces and wellness programming than was traditionally needed when developing additional hotel inventory in suburban markets of the past.
Andrew Cohan, MAI, is the managing director of the Horwath HTL office in Miami, primarily serving Florida and the Caribbean Basin. A seasoned hospitality professional with extensive real estate, marketing and account management skills in North and Latin America, Andrew has consulted for leading branded management companies such as Canyon Ranch, Six Senses, Montage, Solage and Bulgari. He has extensive experience with health and wellness resort properties and has performed numerous feasibility studies for planned resorts in the Caribbean and Central America. He especially enjoys working on greenfield projects, teaming with land planners to determine the optimal resort configuration in order to fit market demand with destination and site attributes. As health and wellness have moved from the margins of the industry to become important components of mainstream hospitality projects, his expertise has been in demand to conduct an increasing number of assignments for proposed resort properties, particularly in Central America, the Caribbean, Mexico and the “sunbelt states” of the United States.
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