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The 2012-2013 South America market overview, trends and opportunities.
Monday, 9th December 2013
Source : HVS South America
 

The 2012-2013 Overview highlights the latest tourism trends for the main cities in South America, as well as hotel market performances on a yearly and YTD June 2012 and 2013 basis.

Based on our extensive research, the team provides insight and future outlook to individual hotel markets, including:

Argentina:

In 2004-2011 international visitor arrivals increased dramatically from 3,457,000 in 2004 to 5,663,000 in 2011. The trend started to reverse at a moderate pace in 2012.

The primary reasons for this decrease are the country’s inflation and exchange controls, together with an unfavorable business climate, which together have made Argentina more costly for foreign visitors. Market demand prospects are uncertain for the current and upcoming year.

The market average rate in US dollars will probably go down as the expected rate rise in Argentine pesos will be lower than the expected exchange rate depreciation.

Additionally, the strong competition in the market resulting from a drop in occupancy levels hinders increase in average rates. It is interesting to notice that in recent years, the rise in average rates in Argentine pesos has been lower than the rate of inflation, so that the former cannot keep pace with the increase of most operating costs, hence affecting profitability margins.

This phenomenon is one of the major concerns for hotel owners. In addition, it discourages potential investors in the hotel industry.

Brazil:

In the last nine years, international visitor arrivals climbed slightly from 4,793,000 in 2004 to 5,677,000 in 2012. Rio de Janeiro has always been Brazil’s most expensive market and, in the past years, the country’s growing demand and expanding economy have contributed to a rise in hotel occupancy and average rates in the city.

The situation in Sao Paulo partly coincides with hotel industry expectations as a result of the economic slowdown and the ensuing business and travel volume shrinking. With regard to the Sao Paulo’s hotel industry prospects, a recovery of business volumes is expected which in turn will fuel occupancy demand.

Sao Paulo attracts more than 50% of visitors in the business and MICE segment. These two segments will very likely generate the largest demand in the near future, with the added stimulus of a growing number of events held in the country and a significant flow of travelers generated in the domestic market.

Chile:

In the last nine years international visitor arrivals nearly doubled from 1,785,000 in 2004 to 3,394,000 in 2012. Santiago is Chile's capital and most important city.

Chile´s steady economic growth has transformed Santiago into one of the Latin America's most modern metropolitan into Chile. We estimate that market demand will stay in an uptrend in the coming years, mostly as a result of the country’s and the region’s favorable economic indicators.

Colombia:

During the period of 2004-2012, international visitor arrivals doubled from 791,000 in 2004 to 1,591,000 in 2012. Positive economic performance plus a series of security actions implemented by the Government have been key drivers of Bogota’s positioning as a business hub (trade and finance) and leisure travel destination.

Taking into account the country’s economic performance and global projection, along with the marked increase in international arrivals in 2002-2012, Bogota enjoys a favorable outlook, despite the presence of new supply in the market.

Given the new hotel projects under way and announced for the next few years, a readjustment of supply will continue in the short term and hence of hotel performance. Market prospects are however positive.

Peru:

In the last nine years international visitor arrivals more than doubled, from 1,349,000 in 2004 to 2,846,000 in 2012. Lima is the capital and most populated city of Peru, as well as its financial, industrial, commercial, political and cultural center.

Besides being the gateway to the country’s main tourist destinations such as Cusco, Machu Picchu and The Sacred Valley, it has become an important destination in South America itself. Prospects for the market are very encouraging, in line with the country’s performance, both regarding occupancy levels and average rate.

Also, Peru will continue to attract investment and increase the number of corporate travelers in the hotel segments in question. Furthermore, we expect a hike in leisure and convention/conference travelers in view of the country’s expansion in event-hosting and Luxury & Upper Upscale and Upscale hotel room capacity.

Its strategic location and increasing air connectivity are indeed two factors that will contribute to positioning this destination. This good news has encouraged the development of a large number of projects in Lima in most segments.

Uruguay:

Between 2004 and 2011, international visitor arrivals skyrocketed from 1,570,000 in 2004 to 2,588,000 in 2011. Montevideo is Uruguay’s capital city and the country’s major economic and financial hub. It is also relevant from an institutional viewpoint as it is the seat of the Mercosur and of ALADI (Latin American Integration Association).

Additionally, the city boasts an important natural port that facilitates Uruguay's trade with the rest of the world. In the period 2006-2012 (with the exception of 2009) Montevideo experienced an important increase in terms of RevPar.

In 2012, the upward trend in occupancy and ADR reverted and worsened during the first half of 2013. The main reason for this drop in occupancy is the region’s dependence on Argentine visitors.

The marked increase in demand in recent years, along with the promotion and incentive law for the development of tourist projects in Uruguay, has attracted national and international investors, who are already building or assessing hotel developments in the Montevideo area.

It is estimated that as competitors enter the market, especially from 2014 onward, average occupancy rates will drop on account of the sharp increase in the number of available rooms. From 2014 onward, the arrival of new competitors in the market and demand expectations would probably push rates down.

For a complimentary copy of The 2012-2013 South America Market Overview, please click here.

Authored by HVS South America Managing Director Fernanda L’Hopital and Consulting and Valuation Analysts Guillermo Reddig and Pablo García Rosa.

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