SAHIC 2016 offers murky glimpse into future of Latin American hotel development

Vintage cars still travel the street of Havana.
Credit: Roxana Gonzalez

The annual South American Hotel Investment Conference (SAHIC), in Ecuador, was a mixed bag as far as forecasting the future climate of hotel development in the region, particularly as pundits sparred undecidedly over Brazil's and Argentina’s potential to turn the corner in the next year.

One especially bright spot came just at the conference close when Cuba’s Vice Minister of Tourism Luis Miguel Diaz Sanchez and SAHIC President and Founder Arturo García Rosa announced the inaugural SAHIC Cuba event, to take place at the Melia Cohiba Hotel in Havana, May 15-16, 2017. In discussing future tourism development projects, Diaz Sanchez noted that tourism to Cuba, where there are currently 16,000 existing hotel rooms and another 6,000 rooms in private homes, grew 17 percent last year and occupancy was at 62 percent—though noting that occupancy rates vary by season.

Moreover, he acknowledged the imminent influx of U.S. visitors. “It’s no secret to anyone that there will be more inflow from the U.S. and we expect that to be gradual and have been getting ready by improving infrastructure in order to meet the needs of this new demand, but we don’t want to destroy the quality of the country,” he said.

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Cuba rises, Latin America trails

Along with a contingency of eight additional Cuban tourism officials and business executives, the group highlighted plans for the upcoming Cuba Golf Company, a US$10 billion investment to include 27 golf courses, 11,000 homes, 30,000 apartments and six marinas during a two-phase development period involving three foreign investors. Construction is slated to begin in 2018.

The state, which maintains ground leases exclusively, is expected to finalize another eight tourism-related development projects by year-end, with an additional 2,200 rooms currently undergoing renovation and an additional 1,000 rooms in development while the contract to renovate the Jose Marti International Airport has been awarded to the Paris consortium Bouygues and Aéroports de Paris. “The opportunities here exist not only for the hotel industry, but also for other sectors that serve it like construction and vendor businesses,” said Diaz Sanchez.

Yet, Cuba’s hotel development is clearly an aberration when compared with the rest of the region. In an update to its 2013 white paper "Economic Transformation Drives Latin America’s Lodging Industry," JLL’s May 2016 white paper “Impact of Economic Transformation on Latin America’s Lodging Industry,” sponsored by Wyndham Hotel Group, Accor Hotels, Hilton Worldwide and Interstate Hotels & Resorts, projects the region’s lodging supply to increase at a 4.6-percent compound annual growth rate (CAGR) between 2015 and 2025 and an estimated 2025 supply of 1,244,900. The forecast is based on macro-level projections for Argentina, Brazil, Chile, Colombia, Mexico and Peru and Mexico comprises nearly 534,000 of the estimated 2025 supply. Moreover, CAGR is down from the 5.2 percent calculated for 2012 to 2022, which only took into account macro-level projections for Brazil, Colombia and Peru and estimated 2022 gross supply of 425,900 cited in the 2013 version, which only took into account macro-level projections for Brazil, Columbia, Mexico and Peru.

Brand power

Nonetheless, there remains demand for branded product throughout the region, as evidenced by this year’s opening of Hilton’s 100th property in Latin America, announced by Hilton Worldwide President and CEO Christopher Nassetta,who was the conference’s keynote speaker.

“As Hilton drives remarkable global growth with the largest rooms pipeline in the industry, Latin America plays an incredibly important role in our expansion efforts,” said Nassetta. “We continue to achieve sustained year-over-year growth in the region.”

Based on Hilton’s second quarter 2016 results and for the 12 months ended June 30, 2016, Hilton opened approximately 20 new hotels in Latin America and signed nearly 30 deals. Now the brand has more than 16,000 rooms in its portfolio of more than 90 properties in Latin America, including markets new to the brand such as Bolivia and Montevideo, Uruguay, and a pipeline of more than 50 projects throughout the region.

“Despite all of the headwinds and issues facing the region, this year will be a record-breaking year for us as far as deal approvals and that’s because there is an enormous number of people moving into the middle class, which bodes well for what we. Travel from Latin America to the U.S. is expanding and as the middle class is exposed to the different brands we offer in the U.S., they see the value and the opportunity that we can provide to their local markets,” Ted Middleton, Hilton’s SVP of development, Latin America and the Caribbean, told HOTEL MANAGEMENT during the conference.

IHG also announced a pipeline of 40 new hotels to open across Mexico, Latin America and the Caribbean, adding nearly 6,000 rooms to the region throughout the next several years, including two new-build Holiday Inn Express hotels in Peru and a Holiday Inn Express in Paraguay.

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