Steamboat’s occupancy plummets, revenues soar, what is going on?

Steamboat’s occupancy rate “supposedly” plummets 13% from last year, yet accommodation taxes are up an astonishing 48%.    Why is it important to focus on occupancy and sales taxes? How accurate are either of these numbers?  What does this mean for real estate?

What was in the data regarding occupancy and accommodation taxes:

1. Occupancy rate : Occupancy rates supposedly dropped about 13% from last year
2. Accommodation taxes soar: Accommodation taxes, the taxes collected on each night of rent, are up an astounding 48% year to date
3. Sales taxes up: Sales tax numbers are also up 26%

A huge decrease in occupancy is statistically impossible

I began questioning the occupancy numbers as the quote in the paper is by an organization that is lobbying against nightly rental regulations.  Unfortunately, in real life the numbers tell a different story.

First, I don’t believe the occupancy numbers, and neither should you.  Every time I drive by the hotels in Steamboat coming into town the parking lots are full.  Furthermore, traffic patterns on the roads show that the weekend in towns like Steamboat are now Wednesday to Sunday which would further increase occupancy.  Trail heads are busting at the seams with visitors both in state and out of state.  All these people are staying somewhere!  On a side note, another data company, Desimetrics, showed occupancy down a marginal 2.9% across 17 resort towns and as of July 31, on-the-books occupancy for the upcoming winter months of November through January is down a moderate 4.9 percent compared to this time last year.

The accommodation tax numbers are showing a 48% rise in revenues (this is what is actually collected from the city of Steamboat Springs).  Note, there has been no increases yet in the tax rate on nightly rentals as this will go to a vote in November.

On the flip side nightly rates are up about 36% over the last three years.  To see a 13% decline in occupancy even with higher room rates is not possible.  If occupancy stayed the same and room rates increased 12% (36% divided by 3 years to average) this means that accommodation tax revenue would increase 12% not the 48% that we are seeing.  Based on the sales tax number either room rates need to have risen over 50% in the past year (which they haven’t) or occupancy is higher than reported.

Another metric to look at is sales tax numbers.  If occupancy is declining one would expect less people in town to spend money, but yet sales tax numbers in June are up a huge 26% (inflation is running around 8%/year so this is not the reason). Steamboat is not a daily drive-up destination so people spending money are staying in the area. Long and short occupancy is being substantially undercounted as accommodation taxes and sales taxes could not realistically be up by such large percentages with a decline in occupancy

Is the bottom falling out in Steamboat and other resort communities?

From the Steamboat Pilot article, it sounds like there is an impending crisis:

“Lodging numbers are falling fast, and the effects of a recession and record inflation are likely reducing demand for Steamboat Springs as a vacation destination,” wrote Robin Craigen, the vice president of the Steamboat Springs Community Preservation Alliance, a nonprofit group who advocates on behalf of short-term rentals, in a press release.

Fortunately this is not the case. Occupancy is only one metric to look at when analyzing the hospitality industry and I’m highly skeptical of the current occupancy numbers being published.

It is important to also look at room rates (how much is someone paying for each night).  For example a hotel could cut rates and easily achieve 100% occupancy, or they could raise rates substantially and have a lower occupancy.  Currently in Steamboat and other Colorado mountain towns, room rates are rising substantially.  Here is an excerpt from the author of a study published by desimetrics:

“While summer occupancy is lower than any time since 2014, those extraordinarily high rates are giving travel suppliers struggling with staffing issues a bit of a breather without having much, if any, impact on their bottom line.”

Long and short, average daily rates  (ADR) have been soaring.  When looking three years ago, the pre-pandemic booking period for the 2019-20 winter, occupancy is down a mere 2.9 percent with ADR up a strong 35.6 percent.  The prices hotels are charging each night are leading to substantially greater profits for the hospitality industry even with slightly lower occupancy levels.

 

Is the decline in occupancy due to the new nightly rental regulations?

The decline in occupancy is not impacted by the nightly rental regulations.  The decline in occupancy is clearly a result of large jumps in room rates.  As room rates have jumped 36% in the past 3 years, the amount of people able/willing to pay this amount has decreased which has led to a modest decrease in occupancy.  This is basic economics.

What happens to Colorado ski real estate prices the remainder of 22?

With occupancy down it is hard not to think about what this does to real estate prices.  Currently we are seeing real estate in Steamboat and other ski towns soften along with Denver and the rest of the country.  I don’t think that occupancy levels are the driver behind this softening as rising room rates have allowed owners to rent less while at the same time still increasing their revenue.  This factor should actually increase the value of real estate as a prospective owner could theoretically use their property more while making the same amount of money.

The real culprit behind declining real estate prices in Steamboat and other ski towns is due to macroeconomic factors. Interest rates have basically doubled, consumer sentiment has plunged, a stock market correction has occurred, and there is considerable uncertainty about a recession.  All these factors combined have weighed on real estate prices.

Summary

The sky is not falling on ski real estate in Steamboat or other Colorado ski towns.  Accommodation tax revenue continues to soar while at the same time sales tax revenue continues to increase.  These two metrics are much better indicators for the health of Steamboat and other ski towns.  Although real estate throughout the country is on the decline,  real estate in Steamboat and other Colorado ski towns should outperform real estate in other areas as room rates continue to rise  along with revenue which shows there is still strong demand for the area.

 

Additional Reading/Resources

1. https://www.steamboatpilot.com/news/july-occupancy-rates-were-down-but-theres-reason-for-optimism/
2. https://www.steamboatpilot.com/news/june-sales-tax-revenue-sees-large-increase-in-construction-as-marijuana-sales-continue-to-fall/
3. https://www.vailvalleypartnership.com/2022/08/mountain-occupancy-at-2014-levels-daily-rates-hover-at-near-record-highs-in-western-mountain-destinations/

 

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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