However much it is defined by the youthful revelries of Spring Break, Panama City Beach is a place of contrasts. Walking by seniors strolling along the beach or sitting studiously at benches playing cards, it’s hard to imagine the clamor of an enormous inrush of students to this peaceful beach city. With high-rise condominiums the dominant lodgings on the beach, who would surmise that this was once the “Redneck Riviera?”
Attracted by the region’s 320 days of sunshine and an average temperature of 74 degrees, sun lovers have found their way to Panama City Beach for more than 40 years. Located on the Florida panhandle, the area is draped with nearly 27 miles of white-sand beaches extending to the emerald waters of the Gulf of Mexico. The 7 million visitors that the area receives each year describe a wide-ranging demographic, including family and leisure summer vacationers and around 15,000 wintering “snowbirds.” The group that perhaps defines Panama City Beach most comprises more than 250,000 high school and college students who saturate the area’s beaches and lodgings during less than 40 days in spring, earning the city the title of “Spring Break Capital of the World.”
As the city’s economy diversifies, so does the make up of its visitors, of whom business and weekend/short-term travelers are growing segments. This article examines the forces behind this growth and what changes the city’s lodging industry needs to undergo to accommodate it.
An era of transformation
The city of Panama City Beach, once known as the “Redneck Riviera” due to aging homes and downtrodden motels, has been undergoing a major transformation since early 2000. At that time, the City loosened its zoning restrictions, thereby allowing for the development of large upscale condominiums along prime acres of beachfront.1 This change triggered the interest of major developers, who purchased old motels and vacant properties; approximately 60 motels were closed in all. As a result, many beachfront properties have quadrupled or more in value; at its peak, beachfront property sold for upwards of $60,000 per “front foot” (linear foot).2 Condominium development has thus been heralded as the market’s highest and best use.
Panama City Beach is presently on the verge of another transformation, signaled by the $330-million airport relocation project and the new Pier Park, a 1.1 million-square-foot complex offering retail, restaurants, and entertainment. Such is the potential for Panama City Beach that CNNMoney named it the #1 real estate market in America for the next five years in November of 2006.3 To satisfy the growing demand, the city needs more branded hotels, for at least two reasons.
Reason #1: The new airport
More business and business travelers will be induced by the new Panama City-Bay County International Airport as a result of improved convenience and possible reductions in airfares.
The current airport is the highest-priced of the 19 commercially serviced airports in Florida. It also has the shortest commercial runway in Florida, which means that the airport cannot accommodate large jets—including those from discount carriers such as JetBlue. Along with such carriers, the $330-million airport relocation project, scheduled for completion in 2009, will bring approximately 14,000 jobs and an estimated $449 million in new operating revenue to Bay County. The new airport is expected to bring an additional 500,000 visitors per year, and it is projected that the total number of condominium, motel, hotel, and single-family units available for rent may still not be enough to house all of these visitors. The airport will be part of a $4.4-million, 75,000-acre mixed-use project comprising commercial, office, and industrial space; marinas and other recreational facilities; 5,500 homes; and 30,000 acres for environmental preservation.
In 2008, business and community leaders established Coastal Vision 3000 to create a consistent, branded identity for the region. Currently, the organization’s primary goal is to attract low-fare airlines, and they have already made progress: U.S. Airways, the largest low-cost airline in the United States, began service from Panama City Beach on April 6, 2008.
For evidence of how low-cost airlines help the local economy, we can look to the launch of AirTran Airways’ service at the Charleston International Airport in May of 2007. Since its launch, the average one-way fare from Charleston decreased by 19%, and passenger traffic increased more than 31% between June and December of 2007 compared to the same period in 2006.4 Furthermore, the launch of AirTran Airways induced more businesses in the area. Google, Inc. intends to invest $600 million in a new data center, which will be located approximately 20 miles from the airport.5
Similarly, Coastal Vision 3000 seeks to attract more business in the tailwind of low-cost airlines, and thereby diversify and broaden the scope of Bay County’s economy. According to the Panama City Beach Chamber of Commerce, spring breakers generate approximately $60 million and snowbirds generate about $28 million in direct expenditures for the Panama City Beach area. The city of Panama City Beach can reap new revenues by capturing demand from business and weekend/short-term travelers with affordable, appropriate lodging facilities.
A study of Southwest Florida International Airport in 2005 showed that air visitors tend to stay longer and spend more than “drive” visitors.6 As of 2007, 21 percent of annual visitors to the area came from Atlanta, Georgia. Most of these visitors opted for the six-hour drive from Atlanta in favor of battling the limited flight schedule, small aircraft, and expensive tickets associated with the airport in Panama City. Bob Warren, an Executive Director of the Bay County Tourist Development Council, says that “Atlanta is a major market for northwest Florida, and the new airport will give us [Panama City Beach] a much more affordable and convenient regional air service for people from Atlanta and other areas trying to get here in a timely manner.”7
Reason #2: New tourism attractions
The second call for more branded hotels comes from an expected increase in the number of weekend or short-term travelers brought on by local tourism attractions, the most significant of which is Pier Park. Pier Park is 1.1-million-square-foot, open-air regional lifestyle center with retail, restaurants, and entertainment on approximately 112 acres of prime gulf-view property. Phase I opened in February of 2008 and contains nationally recognized chain stores and restaurants. Pier Park is expected to generate approximately $500 million in annual sales8 and add almost 5,000 jobs9 to the local economy. Still under development, Pier Park will be a key attraction to Panama City Beach and a consistent source of demand throughout the year.
Another master-planned development, the Towne of Seahaven, offers a wide range of recreational activities that appeal to leisure travelers outside of the Spring Break demographic. Still undergoing development in stages, the resort’s 52 acres will offer an exceptional array of retail, restaurants, and recreation. Plans for the development also include a 60,000-square-foot Conference Center, which will be the largest conference center in Panama City Beach.10
Commercial lodgings in Panama City Beach currently include ten branded hotels offering approximately 1,500 rooms, 39 motels offering roughly 3,500 rooms, and an overwhelming number of condominiums. Condominiums typically have individual owners who rent their properties out via an independent Web site or through a reservations company. Rental terms may mandate a length of stay from two nights to one week or more. Rates vary depending on location and quality; however, in general, condominium rental rates are higher than the average room rate for area hotels. During the low season in Panama City Beach, which falls between November and February, average daily rate is approximately $150 for condominiums and $88 for branded hotels in Panama City Beach. Amenities such as a full kitchen, a living room separate from the bedrooms, and a balcony account for a large part of this price discrepancy.
While an ocean view is standard at many condos, the amenities and overall condition can run the gamut. The inconsistency inherent to these privately owned and operated properties can create anxiety and confusion for business and weekend/short-term travelers, who tend to favor the surety of brand standards provided by well-known hotel chains.
Furthermore, such travelers do not necessarily seek extended-stay amenities such as a full kitchen or washer and dryer. According to a publication by the Cornell Hotel and Restaurant Administration Quarterly, hotel guests rely on brand names to reduce the risks associated with staying at an unfamiliar property. The paper’s authors also report that 85% of business travelers and 76% of leisure travelers preferred branded hotels over independent properties.11
Of the ten branded hotels in Panama City Beach, two are resorts, three are mid-scale limited-service properties, and five are economy hotels. These hotels usually sold out during weekends in April, May, and September and all week during June, July, and August. Five of the hotel properties were built after 2001, and two new hotels—a 90-room Sleep Inn and an extended-stay hotel—are expected to open within a few years. A 300-room luxury hotel is also planned for the market.12
Perhaps the best example of the potential success for branded hotels in the area is the Comfort Suites, which opened in May of 2005. According to the hotel’s management, the Comfort Suites has captured a high level of demand from business and leisure travelers, thereby achieving the highest occupancy and fourth-highest average daily rate in the market—where the competition includes two resorts—a mere two years after it opened. The hotel’s offering of medium-sized meeting spaces also helped to attract business travelers who were staying for the development of Pier Park.
For perspective on the need for more branded properties in Panama City Beach, we can once again look to the Charleston International Airport. The Charleston area already had enough lodging supply to accommodate demand associated with the airport and the convention center; however, following the launch of AirTran Airways, the city of North Charleston experienced a rush of new hotel construction, and six hotels are currently under construction within 15 miles of the airport.
The opening of the new Panama City-Bay County International Airport will induce more businesses and a more diverse array of visitors to the Panama City Beach area. The recreational, retail, and dining establishments at Pier Park and Towne of Seahaven will add to the draw. A greater number of branded hotel properties are needed to complete the chain and generate more revenue for the area by welcoming diverse visitors and longer stays. Panama City Beach already has one of the most beautiful beaches in the world, a vibrant visitor culture, and a friendly resident populace. With so much potential rolling in, hotel franchisers should think seriously about following the tide.
2 Wikipedia, <http://en.wikipedia.org/wiki/Panama_City_Beach,_Florida>
3 Business 2.0 Magazine, November, 2006 <http://money.cnn.com/popups/2006/biz2/newrules_bestinvest/>
4 Charleston Regional Business Journal, February 22, 2008 <http://www.charlestonbusiness.com/dailyjournal/3_89/full-issue.html>
5 Important Economic Boosts for Summerville & Charleston Area-Google, DuPont & AirTran, January 15, 2008 <http://summervillerealestate.wordpress.com/>
6 Economic Benefit of Air Visitors and Air Service Development Plan Prepared for Horry County Department of Airports and the Myrtle Beach International Airport, November 2006, prepared by BACK Aviation Solutions
7 Tharpe, Jim. “Fight for airport creates waves in Panama City” The Atlanta Journal Constitution, January 17, 2007
11 O’Neill John W. and Xiao Qu, “The Role of Brand Affiliation in Hotel Market Value” Cornell Hotel and Research Quarterly” August 2006