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Has South America’s hotel industry weathered the storm?
Tuesday, 7th February 2017
Source : JLL Real Views

Recent years have been hard on hoteliers in many South American cities: Falling prices for commodities such as oil and gas, currency devaluations and inflation have depressed the economies of resource-rich countries like Brazil and Argentina; Corruption scandals have shaken several governments. If that weren’t enough, a major earthquake rocked Ecuador and the Zika virus crisis emerged.

Yet, despite these challenges, South America’s hoteliers have reason to be optimistic. Hotel visits are on the rise as local economies largely stabilize, and the Olympic Games inspired major brands like Marriott to invest more meaningfully in the region than ever before.

Real Views sat down with Ricardo Mader, Managing Director, in JLL’s South America Hotels & Hospitality Group, to discuss how the impact of the recent turbulence on the South American lodging industry and its prospects for the future.

How are key South American destinations faring?

After a period of stagnation, several South American leisure destination cities such as Bogota, Colombia, and Santiago de Chile in Chile, have registered double-digit tourism growth in the past year. The upside of currency devaluations is that the exchange rates across the region create an attractive, affordable vacation opportunity for U.S. travelers to South America. Conversely, the exchange rates make it costly for South Americans to travel abroad, so they are traveling around the region instead.

Additionally, investments in infrastructure that are helping propel travel growth. Colombia, for example, has launched its $30 billion, Fourth Generation infrastructure program building and revitalizing roads, ports, airports, river navigation and railways—comparable to building the Panama Canal four times over. Of course, it will take years to see the full impact, but these infrastructure investments improve access to markets and help boost overall travel activity.

What key changes are shaping today’s hotel industry?

The landscape is now completely different to how it was 10 years ago. Back then, the hotel owners tended to be families who also owned other businesses and investments, but took great pride in being the prominent owner of the best hotel in town. In contrast, our hospitality industry today includes professional, experienced investors, and global operators and developers who enable the sector to operate more efficiently. It’s not unusual for a global brand to enter a market simply by acquiring a domestic chain.

Construction in general has slowed in the past year or two. However, over the past eight to 10 years, we’ve seen a host of new hotel developments, usually attached to global hotel brands. The majority of new hotel developments during the past decade have usually been attached to global hotel brands.

How are investors responding to South America’s maturing hotels market?

Historically, international investors have been much more interested in office or industrial than in hospitality assets. However, the maturing of South America’s hospitality sector is creating growth opportunities for professional hotel management companies and international investors. BHG, Atlântica, Royal and Decameron Hotels & Resorts and Fën Hotels are examples of local hotel companies that have been acquired by international investors.

Similarly, activities in key gateway cities in South America illustrate the growing maturity of the lodging industry. Domestic REITs and private investment funds are acquiring strategic, institutional-quality hotel assets.

What challenges does the sector face in the coming year?

Although economists are predicting lackluster economic growth for most countries in South America, the overall sentiment in the business community is that the worst is behind us and a moderate economic recovery is in order.

In recent times, Argentina, Brazil and, to a lesser extent, Colombia, have all implemented austere macroeconomic monetary and fiscal policies that have had severe negative impact on economic growth. If successful, as anticipated, this short-term pain is expected to bring inflation under control, spur economic growth and restore investor confidence.

JLL’s research into key South American lodging markets supports cautious optimism, and suggests that the actual performance of lodging markets such as Buenos Aires, Lima and Guayaquil, Ecuador, has been stronger than revenue-per-available room statistics—or RevPar, a standard hotel performance metric—might indicate.

How do you see the sector developing in the future?

Several encouraging dynamics may strengthen the lodging fundamentals going forward. One is the number of hotel rooms per person in a given country. Although every country in South America is different, the number of hotel rooms is very small compared to the quantity available in developed countries. Argentina and Columbia have less than two rooms per each 1,000 residents, whereas the United States has 16 rooms per each 1,000 residents, suggesting significant room for increased capacity.

Another encouraging factor is that, as the economy regains its strength, hotel developers and investors will find opportunities to expand. The engagement of major global hotel brands suggests long-term confidence in the region as a hospitality market. For example, the Olympic Games inspired the second Hyatt investment in Brazil. It is in a joint venture to invest in nine Hyatt Places in Brazil and just opened the first one in November 2016. Marriott is another global brand that operate a number of luxury hotels in South America’s major cities.

The world is getting to know South America in new ways, both from a business and tourism perspective. We still have work to do to improve our local economies, but we have every reason to believe that business is trending up for hotel owners across the region.

This article was originally published on JLL Real Views, JLL’s news site exploring the big trends shaping the real estate industry’, with ‘Real Views’. www.jllrealviews.com. Reprinted with permission.

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