Despite the significant hurdles the region faces following Hurricane Irma and Hurricane Maria, there are plenty of reasons for optimism in the Caribbean.
This past September, the Caribbean braced for impact – and then recovery – with two Category 5 hurricanes: Irma and Maria. Infrastructure and property damage, as well as scarce resources, led to several resort closures, especially in the eight islands most impacted by the storms: Anguilla, Barbuda, British Virgin Islands, Dominica, Puerto Rico, St. Barthelemy, St. Maarten and the U.S. Virgin Islands.
But just months earlier, significant capital had been deployed to existing resorts and new developments in the Caribbean region, and 2017 lodging performance had been trending in the right direction for the year.
Among the almost 30 different nations of the region, situations today vary greatly. Some Caribbean islands, like Aruba, Cayman Islands, Curacao and Jamaica, and even other regional beach destinations in Mexico, Central America and Colombia, are benefitting from displaced demand captures and strong fundamentals leading into the peak winter travel season. And others continue to rebuild.
Regardless of the varied impacts of Hurricanes Irma and Maria on the region, there is no looking back, and there is no question: Caribbean momentum forges ahead. Here’s why in four key themes.
1. All-inclusive resorts proliferate and continue to raise the bar
The all-inclusive model in the Caribbean is thriving, benefiting from development trends of higher-end products and unique designs that incorporate local artisans, cuisines and community elements.
The most active player in the region in 2017 was the fast-growing Blue Diamond Hotels & Resorts, a subsidiary of Canada’s Sunwing Travel Group, which added over 2,000 rooms through acquisitions, changes in management and new development. Sunwing is Canada’s largest vertically integrated travel company and often uses its subsidiary Sunwing Airlines to add new flights to key destinations where it has properties.
Several new market entrants from Mexico (e.g., Posadas and Original) and from Spain (e.g., Senator and PortBlue) made strategic expansions and investments in the Dominican Republic last year. And, other Mexican all-inclusive players like Karisma and RCD continue to invest in and develop large projects in established locations in the Dominican Republic and Jamaica.
Prominent Caribbean resort operators like Sandals and AMResorts also remain very active and are now growing and developing in smaller English-speaking destinations like St. Lucia and Tobago. In fact, Sandals was exploring its strategic alternatives, including a potential sale in mid-2017, but the outcome is still pending.
2. Deals abound across different segments
Luxury: In 2017, the luxury segment saw several trades of trophy assets like Belmond’s purchase of Cap Juluca in Anguilla and Dart Real Estate’s acquisition of the Ritz-Carlton in Grand Cayman.
Multiple rebranding and operational changes also took place, like Mandarin Oriental Hotel Group’s foray into St. Vincent and the Grenadines, and Four Seasons Hotels and Resorts assuming management of the former One&Only Ocean Club in the Bahamas and the former Viceroy in Anguilla.
Four Seasons also made progress on two previously-announced development projects in Puerto Rico and the Dominican Republic, while other notable new announcements include a Waldorf Astoria in Antigua and a Ritz-Carlton in St. Lucia.
Importantly, several of these luxury projects, particularly in the British West Indies, are being financed through citizenship by investment programs, which offer citizenship and visa-free travel opportunities based on different levels of foreign investment similar to EB-5 financing in the U.S.
And in Cuba, with its own unique investment policies, government-backed hotel groups are hiring renowned luxury operators like Kempinski, Sofitel and Banyan Tree, among others, to reposition and manage key assets, thereby offering the first true luxury hotels the country has seen within the last several decades.
The common theme among all of these proposed luxury developments in the Caribbean is strong government support through incentives and tax credits, smaller density resort and residential projects, and sustainable-focused designs.
Upper-Upscale: New upper-upscale developments announced this past year included projects under leading hard and soft brands like Hilton and Curio in St. Lucia and the Autograph Collection in Dominica. Other niche lifestyle operators like Kimpton, which successfully entered the Cayman Islands in late 2016, is expanding into Grenada and the Bahamas, and the Dream Hotel Group plans to enter the Dominican Republic in 2019.
2017 also saw three sizeable branded resort and casino deals from cross-border investors like Chinese XLD Group’s purchase of the Marriott Resort and Stellaris Casino in Puerto Rico, and the U.S.-based Wind Creek Hospitality’s acquisition of the Renaissance Resort and Casino in Aruba and Curacao.
Third-party management continues to grow as well with U.S.-based groups like Trust Hospitality, which will operate the proposed Autograph Collection in Dominica and the Best Western Premier in Antigua, and Destination Hotels, which entered the region with its first Caribbean property, the Royal Isabela, a golf resort in Puerto Rico.
Focused-Service: Outside of luxury and upper-upscale developments, newer value-oriented hotel concepts continue to appeal to a mix of leisure and business travelers in the region, especially when they comprise mixed-use projects with office, retail, dining and entertainment components.
For example, Marriott International recently branded two converted assets–AC San Juan and Courtyard Aruba—following extensive renovations and upgrades while also announcing new developments—AC in Kingston and a Courtyard in Curacao.
Hyatt Hotels Corporation also announced large new builds earlier this year including the Hyatt Place Aruba and the Hyatt Centric Barbados, which encompasses an urban lifestyle project with cultural and historical elements infused in the design.
3. Post-hurricane redevelopment efforts will yield benefits for distinct stakeholders
Although many important properties in the Caribbean experienced significant damage as a result of recent Hurricanes Irma and Maria, insurance proceeds and strong government support will provide hotel owners with resources to fund capital improvements, modernize their products, and elevate standards.
These improved assets should yield strong ROIs for owners through improved operations, better experiences and service levels for travelers, and improved visibility and perceptions for the island destinations.
Notably, developers in the region are reassessing construction techniques and local governments are implementing stricter building codes, which should bode well for the sustainability and livelihood of these new investments.
4. New customers are being attracted to the region, signaling resilience and recovery for 2018
As tourism is the most important economic driver and the main foreign exchange earner for the region, the Caribbean is very resilient and will bounce back.
In fact, new customers are being attracted to the region now with a diversification of booking methods. The evolution of established low-cost airlines from the U.S. (JetBlue, Southwest, Spirit, etc.) and Canada (Air Canada Rouge, WestJet, etc.), the arrival of budget carriers from Europe (Eurowings, Level and Norwegian) and Latin America (InterJet and Wingo), as well as the proliferation of OTAs, are diversifying distribution methods from those of traditional tour operators and attracting new travelers to the Caribbean. As these travel service providers sell direct to consumers through open-ended packages, they provide greater flexibility, customization and pricing transparency.
Additionally, incremental airlift and positive arrivals growth from the U.S., which generates about half of Caribbean visitation, should also boost demand in this resilient region. A cohesive communications strategy to change traveler misconceptions about the current conditions in the Caribbean, however, is needed and would only help bolster visitation to the region.
Concerns do remain regarding new supply additions in certain markets, and it is likely that many proposed projects will be stalled or move forward albeit at a slower pace.
Nevertheless, and in the words of the ancient Greek philosopher Heraclitus, “the sun is new each day.” So too, with Hurricanes Irma and Maria abaft, awakes the Caribbean momentum.
Jonathan Kracer is Managing Principal of SION CAPITAL LLC, a hospitality and real estate consulting and investment firm focused on the North American, Latin American, and Caribbean regions. He is a recognized expert on the hospitality sectors of South Florida, Latin America, the Caribbean, and Mexico. He has been a columnist with HNN since 2012 and can be reached via email at firstname.lastname@example.org. More information about SION CAPITAL LLC can be found at www.sioncapitalco.com.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.