5 things to know about Mexico’s hotel industry
 
5 things to know about Mexico’s hotel industry
29 MAY 2018 8:17 AM

Politics and security loom large as Mexico’s hotel industry looks to take advantage of increasing international interest.

MIAMI—While much of the headline-grabbing news related to Mexico—security issues and renegotiations of the North American Free Trade Agreement chief among them—might lead you to believe it’s a tough time for hotels and travel, experts on the country say it’s just the opposite.

Speaking during the “Opportunities in Mexico” session at the 2018 Hotel Opportunities Latin America conference, panelists said Mexico’s hotel industry is active and they see lots of avenues for growth in the country.

“The market is really hot right now,” said Francisco Lira, head of corporate and investment banking for Banco Sabadell Mexico. “There are more than 10 million international visitors. Everything is good. There’s a lot of activity both in construction and the consolidation of some portfolios. And most of the brands and international companies are building portfolios in Mexico.”

Here are some of the highlights of that session.

1. Plenty of reasons for optimism
As Lira noted, hoteliers in the region have a general sense of optimism, tied to both metrics and the underlying potential of future growth. He noted there is reason to believe both business and leisure travel will continue to grow.

“The infrastructure (the country) is building is really good both in terms of hotels and airports, which have been upgrading,” he said. “Soon Mexico City will have the largest airport in North America.”

Juan Garcia, chair of real estate in Latin America for Baker McKenzie, said the country is buoyed by a strong “macroeconomic and legal framework for investment to come into the country more easily,” although specific regulations vary by state.

“Some states have procedures that are quite fast, and some states have laws that get in the way,” he said.

2. Opportunities in multiple regions
There are several markets that have been positive lately for investors, panelists said.

Mexico City is chief among them, said Alonso Burgos, VP of development at Marriott International’s Mexico City office.

“You can build almost anywhere you can find land and be successful,” he said.

But he said there are other markets that are less obviously strong for investment, including many growing secondary cities.

Other markets panelists called out as positive include resort markets like Los Cabos and Monterrey, which Jorge Apaez, COO of Mexico, Latin America and the Caribbean for InterContinental Hotels Group, said has “construction all over the place.”

Apaez said he believes Los Cabos is poised for more lifestyle products and is a market IHG has targeted for the Kimpton Hotels & Restaurants brand.

3. Security matters
While Apaez is high on Mexico’s resort markets, he said they face a real threat in terms of security. Safety concerns have the potential to quickly wipe out travelers’ interest in destinations, he said.

“If things get out of hand in terms of criminality, it would kill a destination just like that,” he said. “We have to be very, very cautious what we as an industry demand in terms of security.”

He said other countries with similar destinations could be poised to benefit from Mexico’s inaction if the problems aren’t solved.

“It could immediately divert tourism flows to other destinations if they don’t take care of it in a pretty effective way,” he said.

Lira said he often hears from potential international investors, including a group out of Spain, that perceptions around security issues give them pause.

“They’re concerned,” he said.

4. Opportunities in different segments
Apaez noted markets along the southern portion of the Gulf of Mexico are enjoying an “industrial boom,” which is leading to an expansion in the types of products companies like IHG can consider offering in Mexico.

“There’s an appetite not only for limited service or full service but extended stay,” he said. “We’ve been successful with Staybridge Suites and Candlewood (Suites) with 10 open and another three or four in the pipeline,” he said. “The product is appealing to those Japanese, Korean or Indian executives and technicians who come in for longer periods of time and require something that typical hotel rooms don’t provide.”

5. An opening for soft brands
Burgos agreed with Apaez that various markets in Mexico are also ready for new kinds of products that might be more unique, and the country’s existing independent hotels might be interested in tying into the distribution systems of companies like Marriott.

“There are many independents in the market, and we have our soft brands for that—Tribute or Luxury Collection,” he said. “We have lifestyle brands (as well), and they’re shoring really good profit margins. I also think the luxury segment has room to grow.”

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