The indoor waterpark resort and the addition of indoor waterparks to existing hotels have become more widespread phenomena since 2000 in the hotel industry in the United States and Canada. The growth of indoor waterparks is due to their popularity with children and the desire of parents and grandparents to select lodging locations that will be fun for their children. In addition, indoor waterpark resort properties are increasingly popular for short weekends and two- or three-day getaways for families that may not have time for longer vacations. Across the United States and Canada, new indoor waterparks are being added to existing hotels, and new indoor waterpark destination resorts are being constructed. The primary growth of indoor waterparks in hotels and resorts is in historically summer resort locations, although they are increasingly being developed in suburban and urban locations.
An indoor waterpark resort is defined by US Realty Consultants, Inc. (USRC) as a lodging establishment containing an aquatic facility with a minimum of 10,000 square feet of indoor waterpark space and inclusive of amenities such as slides, tubes, and a variety of indoor water play features. Although numerous hotels bill their indoor pools as waterparks, those with less than 10,000 square feet should be categorized as properties with water features rather than as waterparks. USRC has divided indoor waterpark resorts into two categories: indoor waterpark destination resort and hotel with indoor waterpark. A hotel with indoor waterpark is a hotel with an attached waterpark with between 10,000 and 30,000 square feet of indoor waterpark space where the waterpark serves as an amenity to the hotel versus a true destination. An indoor waterpark destination resort is a resort with over 30,000 square feet of indoor waterpark space which is considered a true destination resort that families visit on a year round basis primarily to visit the waterpark and secondarily to visit other attractions or events in the area. The following table indicates USRC’s definition of the three types of aquatic features, which currently exist and are being developed in the United States and Canada.
History of Indoor Waterpark
For generations, Wisconsin Dells, Wisconsin has been a popular summer tourist destination, providing vacationers with a wide variety of family-oriented outdoor activities such as shopping, dining, scenic boat tours, amusement parks, miniature golf, outdoor waterparks and similar attractions. Traditionally, “The Dells” ran at very high capacity between Memorial Day and Labor Day, but many of the attractions and hotels closed down for most of the rest of the year. Beginning in 1994 and especially in the late 1990s, the resort city became known nationally for its new indoor waterparks and other related activities.
The first theme hotel was The Polynesian, which differentiated itself from other local hotels with its large indoor pool, modest water slides and other attractions. This project was an instant success, achieving well-above market room rates and occupancy. The project also did strong business during the “off-season” when many other area hotels were closed. Families who had long come to The Dells during the summer would now return to enjoy the indoor waterpark and a brief getaway any time of year.
Hoteliers developed the resorts as they were looking for opportunities to fill rooms during the “shoulder season” that runs from Labor Day through Memorial Day. The Convention and Visitors Bureau hosts special events like the annual Flake-out Festival in January. The Dells offers four area ski hills and they are seeing more and more serious skiers. The tourism efforts by state agencies have increased the Dells’ winter visibility.
Over the ensuing years, The Polynesian, with its 232 rooms, added amenities and more guest rooms and continued to perform well. Because of this, six larger waterpark activity resorts were developed. These include the Wilderness Hotel & Golf Resort, Treasure Island, the Raintree Resort, Great Wolf Lodge (formerly Black Wolf Lodge), Chula Vista, and the Kalahari Resort.
Each of these properties features an adventure theme and extensive indoor waterpark activities. Each has been very successful, as demand has outgrown the size of their project. All six of these pioneering water activity resorts have added guest rooms to meet their high demand.
These resorts have been able to justify substantially higher room rates than the other hotels during off-season as the rate includes free admission to the indoor waterpark (up to $15-$40 value per person per day).
The resort hotels of Wisconsin Dells, Wisconsin have created a year-round family resort community, which is generating strong room rates, and higher year-round occupancy in what had once been a strictly seasonal market. Particularly on weekends in the winter and during school vacations, the Dells resorts are attracting strong family demand.
According to the Wisconsin Dells Economic Impact Study – 2004 by Davidson-Peterson Associates, the hotel market contains 7,222 guest rooms in 100 hotels. Hotel demand in the Wisconsin Dells has increased since 1994 due to the area becoming a more four-season resort. The increase in the number of rooms available at the indoor waterpark resorts is the primary reason for increased demand.
National Market Overview
Between 1983 and 2005, 81 indoor waterpark resorts opened or expanded their properties in the United States and Canada, totaling approximately 2,426,900 square feet and offering over 20,000 hotel rooms as shown in the graph below. The size of indoor waterparks has grown significantly since their inception in the mid-1980s, and the average number of hotel rooms attached to these waterparks has also increased substantially over the years.
The following table depicts indoor waterpark supply in the United States as well as Canada. As shown in the table, currently, there are 77 waterpark hotels located in the United States 39% of which are located in Wisconsin. 2005 alone saw an increase of 21 new/addition waterpark hotels with a total of 2,800 rooms and 645,000 square feet of indoor waterpark. Most of these new waterpark hotels are located in the Midwest Region, with six new/addition waterpark hotels in Wisconsin. As of our market research in May 2006, there are 25 new/addition waterpark hotels with over 1,000,000 square feet of waterpark either proposed, opened, or under construction for their completions by year-end 2006.
Financial Impact Analysis
Based on research, typically indoor waterpark hotels achieve higher occupancy and average daily rates, and also experience comparatively higher expenses. Based on the numerous studies USRC has performed over the years, waterpark hotels generally gain occupancy points between five to 30% and average daily rates between $20 and $150 above the non-waterpark hotels.
The table below indicates the year-end 2004 performances of five Great Wolf Lodge properties as recorded in their Securities and Exchange Commission (SEC) filings. The overall occupancy for these five properties in 2004 was 65% with an average daily rate of $206. The figures shown for Sheboygan represent seven months of performance, while the other properties include figures for 12 months of performance. The strong performance of these and other large indoor waterpark destination resorts is due primarily to the stronger off-season demand and a much higher quality level of property. The addition of an indoor waterpark extends the season and length of stay for a resort hotel.
Operating statistics indicate that indoor waterpark resorts located close to higher population densities in traditional summer vacation destinations are achieving higher levels of performance than those properties located in areas with lower population density or without such traditional summer vacation destination attractions as amusement parks, beaches, or other family-friendly destination activities. The addition of an indoor waterpark also increases various expense ratios especially in the area of salaries for lifeguards and waterpark staff, utility costs, and repairs and maintenance. Our review of a variety of indoor waterparks indicates that overall utility costs for an indoor waterpark resort are similar to a typical full-service hotel, running between 4% and 6% of revenue. The dollar amount, however, increases because of the addition of the indoor waterpark.
Waterpark Development Cost Analysis
The development cost of indoor waterpark varies primarily with the size, location, and amenities, however, the general cost of building an indoor waterpark has increased over the years. Generally, the cost to build an indoor waterpark (excluding other amenities such as gift shop, arcade, spa, meeting space, and restaurants) ranges from $250 to $500 per square foot. This per square foot does not account for the cost of building a hotel adjacent to the indoor waterpark nor the cost of the underlying land.
A number of indoor waterpark resorts in the Midwestern states have used the sale of condominium hotel units in raising funds to construct indoor waterpark additions. Prices for condominium units, which are then rented out by the management company, range from $200,000 to $500,000 for a two- to three-bedroom unit. Condominium buyers typically use the unit only one to two weeks per year. They hire the hotel management company to rent the unit out on a nightly basis and the management company receives between 40 and 50 percent of the room revenue.
Thoughts and Conclusion
Planning and feasibility analysis for an indoor waterpark resort is complex as successful properties require a strong demand base of families interested in the indoor waterpark concept. Studies for these resorts analyze population, income, and employment levels in the surrounding market by utilizing ring studies and other demographic tools. An analysis is performed of local hotel occupancy and average daily rates by day and by month to analyze the rate sensitivity in the market. Comparisons are made with existing indoor waterpark resorts to compare the demographics of the surrounding areas from which guests come, supply and demand levels, amenities, and various other factors. Demand interviews are conducted in the market to determine potential interest in the project. A competent feasibility study is strongly recommended for an indoor waterpark resort due to the large investment required to develop the project.
We project continued development of indoor waterpark resorts in the northern United States as they offer an attractive year round leisure opportunity for families. However, based upon the construction costs of the waterpark, we feel indoor waterpark resorts will be selectively developed in throughout the nation.
USRC is a national hospitality consulting and real estate valuation firm with offices in Columbus, Chicago, and Miami. We have performed more than 2,300 hotel and 100 indoor waterpark market feasibility and/or appraisals in the United States, Canada and the Caribbean. USRC specializes in the hospitality industry including hotels, resorts, indoor waterparks, outdoor waterparks, timeshares, condominiums, ski resorts, golf resorts, mixed-use developments, and other income producing properties. Please contact Jeff Walker (Principal and Managing Director) 614-221-9494 X 150 if we be of assistance.