2012 marked the eighth consecutive year of growth in RevPAR for Brazilian city hotels, with an increase of close to 9% compared to 2011.¹

Brazilian hotels' operating results continued to show gains at above inflationary rates, with average Gross Operating Profit (GOP) increasing by 7.9% over 2011 levels.

While the hotels' performance was positive overall, the softened economic growth in 2012 had a negative impact on occupancy rates given the strong correlation between change in economic growth and hotel demand.

Hotel occupancy rates in 2012 were 5.6% below what was achieved in 2011. The decline in occupancy has different explanations depending on each market, but in general the segments that showed the greatest decrease were groups and individual tourists.

The decrease in occupancy was more significant on weekends. The continued growth of consumer demand generated by the growing middle class has caused upward pressure on the prices of hotel accommodations, airline tickets, meals and entertainment.

The elevated cost of travel has caused a reduction in the number of participants in event associations and Brazilian tourists traveling to the larger cities on weekends.

During the week, occupancy rate levels remained high, reaching peaks from Tuesday to Thursday nights in a number of markets, supported mainly by the commercial business sector. This demand compression has enabled significant growth in average daily rates, which increased 15.2% compared to 2011.

Trends

According to the information provided by FOHB, the performance of hotels in 2013 thus far has shown the same trends that occurred in 2012: a decrease in occupancy rate and a concurrent rise in average daily rates.

With this backdrop, we expect overall RevPAR growth in 2013 to mark a slight deceleration from 2012 levels. Based on this information and our market analysis, we estimate that RevPAR will grow between 5% and 7% in 2013.

For 2013, the higher increase in salaries and prices of goods is expected to result in slower year-over-year growth in GOP, to match the rate of inflation.

After several years of very muted hotel supply growth, several cities will see the opening of new hotels in 2013. This new development cycle will likely have a temporary impact on the performance of existing hotels in cities such as Belo Horizonte and Salvador.

Interest in investing in hotels in the short and medium term in Brazil is expected to continue at a healthy pace. The diversification and decentralization of the country's economy and growth in purchasing power will allow for a multitude of hotel investment opportunities in the country over the next ten years.

1 - 8.8%

Read full report HERE.