While some hurdles continue to make South America challenging for hotel development, many brands are looking to increase their footprint in the region to take advantage of growing optimism.
BUENOS AIRES, Argentina—Latin America, and specifically South America, remains an important location for hotel brands expanding in all segments, particularly as they try to take advantage of strong inbound tourism into the region and more stable governments.
But even though tourist arrivals into the region are growing at a good rate, international brand executives speaking at the South American Hotel Investment Conference emphasized that challenges remain in regard to performance, supply-and-demand dynamics and other issues.
What the numbers say
Hotel supply growth across South America (3% in July year to date) still outpaces demand (2.6% over the same period). But STR Area Director for Central and South America Patricia Boo said demand is finally rising in the region, partly due to domestic travel. (STR is the parent company of Hotel News Now.)
“Often we focus on international tourism, but it’s clear in the region there is domestic demand,” she said. “In 2017 so far, we can see demand is positive, and it has an impact on occupancy levels. There has been 64 months of decline in occupancy in South America, but we’ll see this go positive.”
As of July year to date, the region had 53.9% occupancy (down 0.4%), $97.20 average daily rate (in U.S. dollars, constant currency, down 3.2%) and revenue per available room of $52.40 (down 3.6%).
Certain key markets do see positive KPI growth: As of July, Bogota, Colombia, had 1% RevPAR growth; Brasilia, Brazil, had 3% growth, followed by Cusco, Peru, with 8% growth and Buenos Aires, Argentina, with 24% RevPAR growth.
“Brazil and Argentina are the main economies in the region, and they’re always on contrary points in the economic cycle,” Boo said.
SAHIC President Arturo Garcia Rosa underlined the importance growing tourism numbers will have on the region’s hotel performance in the future.
“There’s no doubt (Brazil and Argentina) are coming back; this will have a spillover effect on the region as a whole,” he said. “So South America in general will improve in getting more of the global pie.”
Brands move forward
Development executives from most of the major international hotel companies said they see continued growth opportunities for branded hotels in the region, across all chain scales and including soft brands.
“In the last three years in Latin America, we went from 100 hotels to 200,” said Luis Mirabelli, VP of development for Latin America and the Caribbean at Wyndham Hotel Group via a translator. “We have 14 different brands in 20 countries in Latin America now.”
In particular, Mirabelli called South America “a region full of potential, particularly from Brazil, Argentina and Chile,” citing the company’s December 2016 acquisition of Argentinean hotel management company Fën Hotels, which added 26 management contracts to Wyndham’s portfolio in South America.
“We’re not only franchising today, but we’re operating, and that helps us provide services to all sorts of owners,” he said.
Hilton has experienced strong growth in the region recently, according to Ted Middleton, SVP at Hilton, overseeing Latin America.
“In the past 12 months, we’ve opened 15 new hotels in Latin America,” he said. “About 40% of our development pipeline is in Mexico, about 15% in Colombia, and another 15% is in Central America.”
Middleton said much of Hilton’s concentration in Latin America is in its upper midscale and upscale brands like Hampton Inn and Hilton Garden Inn, which are appealing to hoteliers in nations seeing more domestic travel.
That was a sentiment echoed by many brand executives, including Hyatt’s SVP of Real Estate and Development David Tarr.
“Today, we have more than 30 hotels in Latin America and 10 under construction, and we’re continuing to focus on those countries that are stable and that have a growing middle class, like Peru, Colombia and Mexico,” Tarr said.
Salo Smaletz, VP of development for Latin America, IHG, agreed that it’s important to focus on stable countries and those on the brink of better economic and political stability.
“There are markets coming up, like Peru, where we see a lot of opportunity,” he said. “We do believe markets like Argentina will come back very soon. We have been experiencing growth in Paraguay, so that’s very encouraging for us, and Brazil eventually will come back.”
AccorHotels has one of the largest branded portfolios in South America, with 282 open hotels and 197 in the pipeline, according to Philippe Trapp, EVP operations luxury & upscale for South America, AccorHotels.
“Our target is to have 500 hotels here by 2020,” he said. “This is normal growth for us.”