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Galveston's Economic Climate
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Galveston Island, Texas

Galveston's Economic Climate
LOCATION, LOCATION, LOCATION!

Located on beautiful Galveston Island, an Island Resort Community just 50 miles south of Houston, Galveston is Houston's #1 playground! Explore the treasures it has to offer – 32 miles of beaches, relaxed atmosphere, abundant leisure activities, excellent medical facilities, first-rate restaurants, educational opportunities, a vibrant historic downtown and numerous attractions. Galveston has the amenities of a larger city but small town friendliness. Temperatures are moderate, so outdoor activities are enjoyable year-round.

Galveston is situated well for bringing in both international travelers and those from across the nation with two major airports located in Houston, just an hour's drive away. Galveston's airport was recently upgraded to International status and currently supports many Canadian charters. The Port of Galveston is the homeport for Carnival Cruise Lines' Celebration offering 4 and 5-day sailings to exotic locations along the Mexican coast. Carnival began operating a second cruise ship from the Port of Galveston,  the Jubilee, August 2002, and a third ship in the "Fantasy class" will arrive in 2003. The Royal Caribbean started seven day sailings from Galveston on the Rhapsody of the Seas October 2001, 10 day sailings on the Splendor of the Seas, 2002, and will home port the largest American cruise ship from Galveston in 2004.

Quote from Port Director -2001:
"Calculations reveal that by the end of this year (2001), Carnival, RCI and Seabourn will attract over 145,000 new visitors to Galveston. We feel confident that by the end of 2004, cruising from Galveston Island will have enticed 300,000 new vacationers to our Island."
-Katherine D. Moore, Port Director

Local Economic Impact from Cruise Terminal:
- Approximately $42 million annually from one cruise ship and passenger spending
- Approximately 145,000 passengers visited Galveston in 2001
- $2.8 million has been expended to promote Galveston Cruise Packages
- Carnival and Royal Caribbean have undertaken national and international advertising programs.

The Texas cruise market is comprised of a seven-state area with a population in excess of 30 million people. Within Texas lie two of the largest metropolitan statistical areas in the U.S. - Houston and Dallas. Marketing studies undertaken by Carnival Cruise Lines and current bookings on the Celebration confirm the strength of the marketplace for cruise passengers. Original estimates included 50 percent "drive-to" passengers aboard Celebration. Current bookings indicate "drive-to" passengers in the 80 to 85 percent range, additional confirmation of the strength of the cruise passenger market in the seven-state area.

The annual estimated economic impact of a home ported vessel like Celebration sailing from Galveston seventy times per year is approximately $42 million per year. Additionally, a Price Waterhouse Report estimates that passenger spending will be $150 per passenger per sailing, adding another $21 million in local spending.

The island has a multifaceted economic base that contributes to a strong, diverse economy; tourism, the medical field, marine based education and industries, education, banking, and insurance. The University of Texas Medical Branch, the largest medical school and teaching hospital in Texas, the Texas A&M University, Galveston College, and American National Insurance Company not only contribute to the economic base, but also attract many corporate and business travelers year round.

The Galveston Island Convention Center attracts convention venues from across the nation. Expansion of the current convention center and the development of a new Seawall Convention Center will greatly increase the number and size of conventions that Galveston will attract in the near future as well as new restaurants, and attractions. The new Seawall Convention Center is scheduled for completion early in 2004, with bookings already taking place. The new convention center will have exhibit space and amenities to compete for the major national conventions with Houston, Dallas, and San Antonio. The Galveston Convention Center, situated on the beach, will have great draw and appeal to many convention planners. The "Convention Season" is primarily during Galveston's "Off- Peak-Season,"  October through May. Galveston's climate, it's many attractions, restaurants and night life will all be incentives for convention planners. Currently, regional conventions fill the Island's lodging facilities to capacity. It is anticipated that additional hotel rooms will be needed to accommodate future convention needs.

The continued growth of Galveston Island is also reflected in numerous retailers opening for business on the Island. Academy Sporting Goods, Home Depot Building Center and Target Department Stores opened for business on the island during 2002 and 2003. Several new restaurants have opened 2001-current: Joe's Crab Shack at Pier 19, Rainforest Cafe, Fuddrucker's at the Strand, Brother's Petronella on the Strand, Saltwater Grill, Salsa's on the Seawall, expansion of the Cafe Michael Burger, expansion of Mario's Itallian Restaurant on the Seawall, and second location for Queen's Barbecue on the Strand.

It was announced in late 2002 that one of the Island's large hoteliers, Tillman Fertitta, the owner of the San Luis Hotel and the developer of the new Seawall Convention Center, plans to develop a waterfront theme park attraction, reminiscent of the Pleasure Pier from the turn of the century. Architectural drawings showed Victorian Era turrets and building components congruent with turn of the century architectural styles. The development is planned for the current Flagship Hotel pier. A completion date was not targeted.

In May 2003, the Galveston Park Board of Trustees announced that they are sending out over 1,000 Requests for Proposals to individuals and companies in the amusement and theme park industry in June of 2003. Requests are to be returned by August 15th, 2003, and the capital improvements for the multi-million dollar water park are to be completed within 18 months, ready for the Summer of 2005.

In July 2003, Sunhill International Corporation announced it would break ground by summer's end on a multi million dollar project on the old Jack Tarr Hotel site on Galveston's East End. The 12-story Mediterranean-style residential tower above 65,000 square feet of retail and restaurant space will provide 102 luxury units, aimed at commuters, full time residents and buyers of second homes. Prices will start at $250,000 for the residential units which will range from 800 square feet to 1800 square feet. Penthouses and custom build outs will also be available.

In August 2003, the "BeachTown Galveston" project was given approval by the General Land Office and Galveston's Planning & Zoning Department. BeachTown is a 125 acre, $75 million residential and commercial neighborhood development to be built on Galveston's East End, just east of the Galvestonian Condominiums. The project will include 300 single-family dwellings, 200 apartment units, and two mid-rise condominium towers, one with 30 units and the other with 50 units. The residential and retail spaces are expected to complement downtown Galveston's architecture. Many of the homes will look much like the narrow, multi-story homes that are typical of San Francisco. The concept entails establishing a village or town in itself that focuses on plazas and pedestrians. The residential units are expected to begin at about $150,000.

On August 8th, 2003, it was announced that a $50 million development is planned for Galveston's West End. Groundbreaking for Beachside Village, a residential and commercial development, is expected by mid-September. The 60 acre development, which includes lots for 155 homes and 4 acres for retail spaces will be built as a Traditional Neighborhood District, reflecting Galveston's historic areas, with shiney tin metal roofs and white wood picket fences as building requirements. The commercial area is slated to have a fine dining restaurant, grocery store and other retail spaces. The $50 million development will have parks, be pedestrian friendly and have a community pool. Lots will sell from $39,000 to $265,000. Homes will range from $200,000 to $600,000. Of the 155 residential lots, 88 have already been reserved. Only 4 of the 24 waterfront lots remain unreserved.

[In late 2003, it was announced that Schlitterbaum will be building a water attraction on Galveston Island. Details will be updated on this page soon.]

Growth on Galveston Island is being seen in every facet of the local economy. Future growth and new developments are being fostered through the Galveston Park Board of Trustees and their new President and CEO, Gil Langley, and with partnerships in both the public and private sectors. The Park Board of Trustees has key people assigned to marketing Galveston Island both domestically and internationally. The Mermaid & Dolphin hosted a Canadian travel consultant in June 2003, whose focus is informing Canadians on the many facets of travel to Texas and particularily to Galveston Island.

Galveston is a year round destination with good occupancy all seasons and peak occupancy during the summer season (May-September), October (Ghosts of Galveston), November (Thanksgiving Week) December (Dickens' Festival and Christmas/New Years Holidays), February/March (Mardi Gras & Valentines), and March (Spring Break), May (Homes Tour Weekends). The beach is only one of dozens of enjoyable leisure-time attractions in Galveston. The excellent restaurants, shops, museums and special events, which lure millions of tourists to the island each year, also make it a fun place to live. You’ll find, as many islanders do, that Galveston has an appeal that’s undeniable and hard to leave. Few great cities have this appealing packaging of amenities – rich history, natural beauty, cultural events and stunning architecture!

Galveston Island is the perfect place to buy and operate a bed and breakfast inn. The strong economy combined with an established year round tourist destination, and the fact that Galveston has relatively few competing B&Bs (currently only 10 established B&Bs and guest houses), makes the overall business climate very appealing. Consider other locales where the high density of B&Bs, makes the market much more competitive. Key West, an Island community, much the same as Galveston, only a much smaller Island, has 120 B&Bs and guest houses! Galveston is a prime tourist destination and a prime location to purchase and operate a well established B&B! Galveston's tourism industry combined with the mix of full time upscale residents both in the historic neighborhoods and the boom of upscale housing developments on the East and West ends, make Galveston the right community in which to consider other business ventures directed at the general public, such as the fine dining restaurant in the Mermaid & Dolphin's dining facility.
Remember, LOCATION, LOCATION, LOCATION!

Chief Characteristics of the B&B Industry

The B&B industry is one of the fastest growing industries in the U.S. In 1985, the U.S. government estimated that less than one-tenth of 1 percent of the American public has stayed at a B&B. By 1995, the number of travelers seeking out a B&B had grown at least a hundredfold (Notarius & Brewer, 1996, p. 7). B&B’s are predicted to be among the most successful businesses into the twenty first century. There are over 20,000 B&B’s nationwide, and the number is growing. Davis, Hardy, et. al. (1995) point out that although the industry is new in many ways, there is clearly public interest, reflected in their prominent coverage in national media from Newsweek and the Wall Street Journal to Vogue. This is further supported locally by recent articles appearing in the Houston Chronicle, The Dallas Morning News, AAA Tour Guides, and others.

The profile of the inn guest tends to be the upper-middle class couple, twenty-five to fifty-five years of age, with expensive tastes and in search of something different. Potential guests choose inns for their hospitality, furnishings, antiques, location, private baths, full breakfasts, and other amenities.

Competition Analysis

There are currently 9 operational B&B’s on Galveston Island of varied sizes, appearances, and rates of success.

There are also two lodging facilities in Galveston that are not operated under the City's Bed & Breakfast Ordinance, but advertise as B&Bs:

Paradise Guest House (Gay & Gay Friendly),  7 Rooms, $60-150
Stacia Leigh Boat, 11 Rooms, $125-175 (Sunk 2004, Not salvaged, Closed)

B&B statistical information points to the necessity of at least 5 rooms to operate successfully. The Gilded Thistle, the Lion's Paw, and Away at Sea offer only 3 guest rooms, some with shared baths. Garden Inn has 4 rooms but two share a bath, leaving essentially 3 rentable rooms. The Victorian Inn has mostly shared baths. The Inn at 1816 Postoffice has all private baths, but is only open weekends except during school vacation. Queen Anne and Coppersmith Inn currently are open daily and both have private baths.

Although The Mermaid & Dolphin is one of the newest and largest Inns on the Island, and has the highest Average Daily Room Rates, it is consistently able to refer calls & potential guests to other establishments that have not been able to fill on their own accord.

The Mermaid & Dolphin has a strong web presence which has greatly contributed to its success. The Mermaid & Dolphin’s web domain is easily navigated and provides comprehensive information and pictures. The web domain is well linked and is also cataloged with the major search engines. Data is collected from each reservation on how the guest has learned of the Inn, tracking sources. Many respond, "On the Internet" and we further question guests to learn if they have accessed the site through another site or if a search was completed on one of the engines. From this information we have been able to discern which Internet marketing strategies work best.

In May 2001, the Inn began taking reservations online. The unavailability report, just on the Online Reservation System, from 05/01 to 12/31/01 revealed  949 records of people requesting rooms (requesting from 1 - 5 nights) at The Mermaid & Dolphin, for which there was no availability! Online unavailability, January 2002 - August 6th 2002, was 1294 records requesting from 1 to 7 day stays, for which the Inn had no availability. This does not count the numerous phone calls for requested reservations for which the inn does not have vacancy. The call volume is generally 90% higher than Online volume. The Inn is very successful and could easily fill additional rooms with completion of expandable space.

The strong local economy (many middle to upper income residents with the University & Medical Facility), combined with a year-round tourist economy, make Galveston the perfect place to consider a small, fine dining restaurant. The Mermaid & Dolphin currently has full restaurant certification, commercial kitchen, and a dining room with seating for 36. Basic restaurant formulas calculate 1/3 for overhead, 1/3 for food, and 1/3 profit. Because the building facility, equipment and operating utilities are already in place, development of a restaurant could be a very profitable venture. Essentially, a restaurant venture in the present dining facility would only have to absorb the costs of the food products, and possibly some minimum wage or tip-only based employees. The profit margin would be much greater than the basic 1/3 formula. The formal, historic decor of the facility, combined with an appealing menu, would certainly cater to a fine dining experience, with average per person tickets of $40-$60 without alcoholic beverages. If the facility operated two seatings per evening, "By Reservation Only", with current seating capacity of 36 people, the restaurant could expect to serve between 60 - 72 people per evening. If the seating capacity were increased to 48, which could easily be accomplished by incorporating a different table configuration, the facility could expect to serve between 80 - 96 people per evening. Calculating a mid-range ticket price of $50 per person, it could be anticipated to have average earnings between $3000 and $3600 with current seating capacity or between $4000 and $4800 with seating for 48 each evening. The dining facility could also be marketed to specialty populations for event dinners. The inn has already been approached by several American and Canadian bus tour operators for "Tour & Dinner" events. Seating capacity could be even further increased by utilizing unused space on the lower level of the inn, should a new owner desire to finish out the space. Male & female guest restrooms are already in place on the lower level to accommodate functions scheduled in the dining room.

Further development of the dining facility, the formal parlor, and the tropical gardens could include the wedding market. Galveston has very few venue options for weddings and receptions other than the large hotels. The wedding market has not been marketed by the current owners, but could easily bring in additional revenues with some strategic low cost advertising. Relationships with local wedding officiants has revealed their greatest source of leads/referrals to be produced through very economic advertising media. Additionally, should a new owner so desire, additional income could be garnered through performing the wedding ceremony. In the State of Texas, lay people can become wedding officiants fairly easy. Most of the local officiants charge between $100 - $150 per wedding ceremony, and many perform in excess of 10 ceremonies per weekend.

For an entrepreneurial owner, there are countless ways to further develop revenue streams for the Mermaid & Dolphin. The building has great untapped potential and space that could easily be converted to revenue generating possibilities. A Day Spa facility could also be incorporated into unused space on the lower level, should a new owner desire to provide further spa services such as soaks, body wraps, salt scrubs, etc., with completion of space and addition of soaking tubs and shower/rinse tables. The possibilities are only limited by the enthusiasm and creative abilities of a new owner.

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Priced at $1.95 M