Within the past five years, a new concept has developed: the water park resort, a pairing of lodging facilities with an indoor water park. The concept was conceived in the Wisconsin Dells, when the Polynesian Resort added indoor water features, in an attempt to improve that property’s occupancy rates. The project was an immediate success and other properties quickly followed suit with indoor water features of their own. At last count, there were 18 properties in the Dells with some type of indoor water features. In addition, some 30 water park resorts have been developed in other parts of Wisconsin and the Upper Midwest.
The increasing popularity of the water park is illustrated by the concept’s success in the Dells. A study of the Dells lodging industry revealed that the 18 properties in the Dells with indoor water park features accounted for 85 percent of room revenue there, while the 44 properties without indoor features accounted for the remaining 15 percent. Moreover, as a group, the water park resorts in the Dells had combined occupancy rates that were 26.9 percentage points higher than the other 44 properties and average room rates that were $69 higher. Given the astounding performance of the Dells’ water park resort performance, it is little wonder that the concept is proliferating at an increasing rate.
Despite the success of the water park resort, as with any venture, there are challenges and pitfalls. Since it is a new industry, data is generally limited regarding water park resort planning, and questions abound regarding such issues as sizing of the hotel, the guest rooms and the water park “box” or “footprint”. Lacking solid information, many would-be water developers are making the trek to the Dells to “see how it is done”. Herein lies the problem: What is best for the Dells may not be best for the next market. And the type of water park resorts developed in the Dells may work well there but not everywhere.
Over the past few years, we have made a concerted effort to become better educated regarding the water park resort, seeking to learn the good as well as the bad. We have developed a spreadsheet of more than 50 water park resorts in the U. S., and approximately 80 in Canada. We have made numerous contacts among water park owner/operators as well as designers, architects, engineers and builders. Many of these serve on the World Waterpark Association’s task force and participated in the first annual water park resort workshop held in Las Vegas in October, 2002. Surely but slowly, the water park resort industry is beginning to jell and develop a data base and standards that has been a hallmark of the outdoor water park industry for over 20 years. More and more, it is becoming apparent that for the water park resort industry to achieve its full potential, individual projects must be designed and built with the help of professionals possessing the expertise and knowledge of the water park resort concept.
It is generally recognized that the planning process for any income property should begin with a market and financial feasibility study. However, until fairly recently, few such studies had been conducted and the body of knowledge required for such studies was limited. That situation has changed rapidly as more water park resorts are built and their operating experience is shared with others in the industry. However, it should emphatically be noted that every project is different and the developer who copies from another project may be doing so at his peril.
We are of the opinion that making a tour of the Wisconsin Dells water park resorts will not necessarily provide reliable answers to these questions. And here is why.
Over the past two years, Bill Haralson and Jeff Coy have conducted a number of feasibility studies for water park resorts. None of these were in the Dells, but more importantly, we concluded that not a single proposed project could achieve occupancy rates comparable to the Dells’ resorts, based solely on water park room sales. We have yet to work on a project outside of the Dells that did not need support from other market sources to achieve occupancy rates above 50 percent.
For this reason, the first step in the feasibility process is to get a handle on occupancy rates and trends in market area. This information is available from a company called Smith Travel Research. If their report indicates extremely low occupancy rates in our client’s market area, we do not automatically assume that the proposed project will do much better. An anecdote will serve to illustrate this point.
In December of 2002, we were on a field trip in the Upper Midwest. At 6:00pm, on a Monday night, we pulled into the parking lot of a water park resort containing some 300 rooms, We observed that there were about 10 cars in the parking lot. After a brief walk-around of the resort, we inquired about renting two rooms. We were quoted $175 each. We walked out and went down the street where we rented two rooms for $69 each. The point of the story is that market segments other than water park users may not have a very high propensity to stay at a water park resort, especially if they have a wide choice of other properties. In any event, we need to be convinced that our client can achieve a mix of room sales from various market segments, not just water park users.
For those assignments involving existing lodging facilities, an additional task is included in our analysis: a property audit. The obvious reason for conducting an audit of the subject property is to ascertain its current level of occupancy and the potential for increasing occupancy with the addition of an indoor water park. However, an additional reason for the audit is to determine the property’s current guest mix. Our research has revealed that the impact of adding an indoor water park will vary greatly depending on guest mix. For example, adding the indoor water park to a property that has strong room sales to commercial travelers will usually result in strong positive impact during winter months because commercial travelers rent rooms during the week, while water park users will rent rooms on weekends. By contrast, adding an indoor water park to a ski resort is likely to have less positive impact since both skiers and water park users will want to rent rooms on weekends. The challenge in evaluating the impact of adding an indoor water park to any existing property, then, is determining how the demand by water park users fits into the property’s current guest mix.
Question #2 regards the number of rooms to be built, assuming a new property and the size of the water park. The number of rooms to be developed is often a given from the client; however, we reserve the right to recommend a different number of rooms, especially if the market seems to be insufficient. Given that the water park resort concept is still relatively new and not proven in most markets, we tend to take a conservative tack with the proviso that the project can usually be phased if the operating experience of the first phase is sufficiently favorable. In addition to recommending the number of rooms, we also provide recommendations for support facilities, including food and beverage, meeting space and other facilities consistent with the type of property being proposed by the client.
An issue of critical concern in a water park resort feasibility study is the size and cost of the water park. More often than not, clients propose water parks that are too large. This attitude is influenced by the experience of the Dells, where there are a number of large water parks and a mantra that “bigger is better”. We question this assertion. It is our opinion that there is not a direct correlation between the size of a water park and its entertainment value. In other words, we question whether doubling the size of an indoor water park doubles its appeal to the users However, we do believe that doubling the size of the water park doubles the cost of building and operating the park.
We believe that the size of the water park should be determined by capacity requirements. Our research has revealed that there is a correlation between the size of the water park and the number of rooms in the lodging facility. Actually, the correlation is between the size of the water park and the number of pillows in the lodging facility. At the lower end of the spectrum - under 100 rooms – the ratio of water park space to rooms is approximately 100 square feet per room. However, for larger properties – 200 to 300 rooms-water parks contain some 200 square feet per room. Based on these ratios, a 100-room property would need 10,000 square feet of space in its water park, while a 300-room property would need 60,000 square feet in its water park.
The above statistics notwithstanding, we believe extreme care should be given in determining the size of the water park. We make this assertion for two reasons. First, the ratios of square feet of water parks is simply a reflection of what has been done in the industry during its first few years of existence. We doubt that much research was conducted to determine the right ratio of water park space per room. Secondly, simply applying these established ratios to a proposed hotel’s room count ignores the guest mix projected for that property.
To derive a more meaningful recommendation for the sizing of the water park, we project attendance at the park based on guest mix. Market segments usually include some business travelers and groups, as well as water park users. Other segments might include skiers, golfers, casino gamers and other leisure guests. For each segment, we estimate room sales, persons per room and water park participation. Then, attendance from all segments are combined to derive total water park attendance. Next, total annual attendance is reduced to so-called design period attendance. This is accomplished by estimating monthly, weekly and daily attendance for peak periods, and, then, estimating the percent of peak daily attendance that can be expected to be in-park at any one time. Having established peak in-park attendance, we apply a standard of square feet of space per attendee to derive total square feet required. This figure is a net figure and does not include mechanical space or any other support space, which we assume will be calculated by the park’s design and engineering consultants.
While most water park resorts restrict attendance at their water parks to their own guests, some allow in non-guests. In the Wisconsin Dells, there are two resorts that have this practice; however, they limit outside attendees to 250 persons per day at one resort and 300 at the other. We assist our clients in determining their policy in this regard. The advantage to allowing outsiders access to the park is the added revenue that is generated. However, potential disadvantages include park overcrowding and the objection by hotel guests to having to share the park with outsiders. We believe that there is not one policy that fits every situation, and each park must consider their own pros and cons.
The third question to be resolved regards water park resort economics. The advantage to developing and operating a water park resort is that higher revenue is generated as a result of higher occupancy and room rates. The disadvantages are higher development costs and operating expenses.
As previously noted, most water park resorts restrict access to their parks to hotel guests. These guests are charged a water park “premium” at the time of check in, which may or may not be rolled into the room charge. Some resorts make a point of issuing bracelets for a separate charge to avoid paying franchise fees on the water park premiums. The amount of the water park premium is primarily a function of the size of the water park and the level of entertainment value offered. Small resorts tend to average around $5.00 per person per day, while larger resorts command premiums of as much as $25.00 per day. Further, to maximize revenue, we encourage our clients to achieve a high average number of persons per room by designing larger rooms that can accommodate two queen beds and a queen sofa sleeper. Some properties also have “kids suites”, replete with bunk beds that permit higher occupancy. Resorts that sell admission to outsiders are generally charged more than the premium charged of hotel guests. One resort in the Dells is currently charging $34.95.
Operating expenses per square foot for indoor water parks are relatively high, compared to outdoor water parks. Not only do indoor parks incur the same expenses as outdoor parks, indoor parks also have the added expense of heating and cooling their indoor space. Further, indoor water parks are open year-round, compared to a 90 to 100 season for outdoor parks. Currently, operating expenses for properties that we are familiar with are averaging around $50 per square foot. We believe this figure to be fairly constant with parks of different size, although there might be some cost savings in labor at larger parks.
Development costs per square foot are also much higher than those for outdoor parks. Although indoor parks have a much smaller footprint than outdoor parks, indoor parks incur the cost of a building that is 30 to 40 feet high. Water park professionals differ in their estimates of development costs for indoor parks; however, the range of estimates to is $200 to $400 per square foot.
"We project continued interest in development of indoor waterpark resorts in the northern United States because they offer an attractive year-round leisure opportunity for families and attractive investment returns for developers."