More than 800 new hotel rooms came online in Los Cabos last year, during which the destination also persevered through a tropical storm, cartel violence and a U.S. State Department travel warning. But Mexico’s Pacific Coast resort town is resilient and ready to welcome another 4,000 keys through 2021.
REPORT FROM THE U.S.—When Caesars Entertainment Corp. announced a $200-million non-gaming, beachfront resort for Puerto Los Cabos in late April, it signaled a major vote of confidence for the Mexican resort enclave on the eve of this month’s CHRIS and HOLA conference in Miami.
Yet, it was only late last year that the Pacific Mexico destination was staring down the barrel of a potential tourism crisis. Cartel violence, devastation from Tropical Storm Lidia and a U.S. State Department travel warning for Mexico—specifically noting an increase in homicide rates in Baja California Sur and Quintana Roo, the Mexican states where Los Cabos and Cancun are respectively located—combined to create a perception that Los Cabos was unsafe to visit.
But little has stopped developers from building in this Pacific Coast resort enclave. Five new resorts opened in 2017, and 15 more are expected to open by the end of year, including a Nobu Hotel, a Four Seasons and a Ritz-Carlton. An additional five new properties are expected to open between 2019 and 2021.
“This area saw a major hurricane [Odile] in 2014, and it caused many resorts to close for renovations after,” said Fatima Thompson, who focuses on Mexico as STR’s associate director of business development. “The next two years, when the properties reopened, were more recovery years for the destination. So 2017 was the best year as far as (average daily rate) and (revenue per available room).” (STR is the parent company of Hotel News Now.)
According to the Baja California and Sonora tract of STR’s latest Mexico market report, the two states combined saw increases in ADR and RevPAR of 11.5% and 11.1% respectively for full-year 2017. For the same period, Mexico as a whole recorded a 2.5% increase in ADR and 2.8% RevPAR growth, according to the data from STR.
The trend has continued through the first quarter of this year, with Baja and Sonora collectively seeing gains of 6.9% in ADR and 11.9% in RevPAR, while Mexico as a whole recorded 1.4% ADR growth and a 2% increase in RevPAR, according to STR data.
Thompson attributed the ADR and RevPAR gains in part to favorable exchange rates with the U.S. dollar.
Challenges and opportunities
The dollar’s 2017 gains over the Mexican peso benefited all-inclusive resorts Dreams Los Cabos Suites Gold Resort & Spa and Secrets Puerto Los Cabos Golf & Spa Resort, said Antonio Fungairiño, asset manager at Mullen Real Estate, a minority owner in the two properties.
Fungairiño explained that “selling” in U.S. dollars while operating in Mexican pesos has been a boon for the properties, and is expected to be even more so when the dollar strengthens.
Still, security concerns in the region persist, which spurred Los Cabos officials to invest $47 million and partner with the private sector to increase security personnel, equipment and infrastructure, including new surveillance cameras and new security training protocols.
“The tourism industry is living in a new reality where security is top of mind for every traveler, and we understand that this is critical to our success as a destination where the economy is driven almost entirely by tourism,” said Rene Virgilio, GM of the all-inclusive Le Blanc Spa Resort Los Cabos, which opened last fall.
Travel warnings caused some groups to cancel reservations at The Cape, A Thompson Hotel, GM Eduardo Segura said.
However, he said, the impact was minimal as occupancy has consistently increased 20% year-over-year since the property opened in 2015 and RevPAR has held at 15% for the past two years.
He credits a loyal clientele for sustaining the business. In its three years of operation, the hotel has amassed more than 630 repeat guests, Segura said.
“We have a guest who’s stayed with us 14 times and another who’s stayed nine times,” he said.
Segura also expects new room supply to be quickly absorbed as the new properties continue to propel the destination’s reputation for exclusivity.
As new properties open in Los Cabos, they fill various niches within the luxury segment, he said.
“Los Cabos didn’t need a new hotel when The Cape opened,” he said. “It needed a different hotel in the lifestyle niche that’s directed at the youthful spirit who wants (a) hotel with a more active profile than classic luxury.”
When Mullen Real Estate opened the Dreams resort in 2014, the company aimed to fill what it perceived as a void in the all-inclusive luxury segment in Los Cabos, Fungairiño said. The company doubled down in 2013 by opening the Secrets property.
Fungairiño credits the success of both properties not simply to the product, but also to the distribution strategy driving bookings.
The development firm “chose to align with Apple Leisure Group, a resort management company with in-depth knowledge of the region and distribution channels that provide access to passengers, ensuring the resorts perform better over the long term by positioning them in front of a large number of potential guests,” he said.
Le Blanc also is an all-inclusive luxury hotel, but takes the segment a step further by focusing on wellness, Virgilio said, which is in line with the destination.
“The brand is focused on wellness with over-the-top spas, fitness centers and sports like TRX and yoga and juice bars,” he said. “Many extravagant sports that take place in the destination—golfing, Ironman competitions, and yachting and sailing—fit perfectly with our clientele.”