OCEAN CITY — The beach equipment rental business remains lucrative, judging by the results of a recent auction of the parcels in the downtown area.
During Monday’s Ocean City Mayor and Council meeting, City Clerk Diana Chavis announced the results of December’s beach equipment rental parcels in the downtown area south of 27th Street. The town’s beach equipment rental franchise parcels, or informally beach stands, are auctioned in a three-year cycle with geographic areas including the north end, the middle and the south end.
In December, most of the south-end parcels from 27th Street south to the Inlet went up for auction. A total of 34 parcels were included in the section and the contracts for six of them were renewed for another three-year term at an annual fee of 10% greater than the initial term. The remaining 28 parcels were auctioned, and with spirited bidding for most, the town’s revenue for the south section will increase by nearly 67%.
Chavis explained the totals for the 28 parcels auctioned went up from $439,689 the last time around to $733,400 in December’s auction, representing the 67% percent. With the six renewed parcels included, the south-end totals increased from $619,399 the last time around to $931,081 in December, representing a 50% increase.
“It was very successful to say the least,” said Chavis. “We had a great auction and there was spirited bidding for most of the parcels. One new operator alone gained 14 parcels.”
By and large, the Mayor and Council was pleased with the results and praised Chavis and the Beach Remediation Board for running a spirited auction.
“That’s a fantastic revenue increase,” said Councilman Tony DeLuca. “I’d like to thank you for what was a great auction.”
Various market forces are at play in the bids for beach stands. Some are influenced by new real estate developments such as a new hotel or condo project. For years, the traditional beach equipment rental franchise business has been challenged by the proliferation of cheap, practically disposable umbrellas and chairs from deep-discount rental stores. All in all, however, the bids for the south-end parcels indicate that area remains lucrative.
Of the 28 parcels auctioned, just two saw their values decline for one reason or another. Again, the average increase was around 67%, but there were some that saw triple-digit increases. In one anomaly, the parcel at 11th Street increased from $745 the last time around to $25,000 in the latest auction, representing an astounding increase of 3,257% for reasons unknown, other than the competitive bidding. There were no significant changes to the landscape at 11th Street that would appear to warrant such a remarkable increase.
Again, there are complicated market forces at play in the beach rental franchise business. In some cases, operators bid overly high on a parcel adjacent to one of his or her best performers day in and day out during the summer to insulate a strong parcel from direct competition from a neighboring operator. In that example, an operator attempts to obtain blocks of adjacent parcels from an economic and practical standpoint.
Of the 28 south-end parcels that went up for auction in December, one operator obtained 16 alone, while another obtained seven. Most of the rest obtained one or two scattered parcels. The single-highest bid for one parcel was 14th Street, which went for $60,000, representing 187% increase. The second-highest single parcel was the Inlet, which was among those renewed for a second three-year term at $50,820.