Geopolitical and economic issues present challenges for the Mexican hotel industry in the near term, but experts speaking at the 2019 Mexico Hotel & Tourism Investment Conference said there are plenty of reasons to feel good about investing in the country over the long run.
MEXICO CITY—Politics are weighing down the economic growth prospects for Mexico in the near future, according to Delia Paredes, executive director of economic analysis for Grupo Financiero Banorte.
But while giving the opening address at the 2019 Mexico Hotel & Tourism Investment Conference, Paredes said short-term volatility isn’t enough to overlook the long-term potential of investing in the country.
“In Mexico, we need to adapt to governmental changes,” she said*. 2019 will be “a year of slow growth, and we expect 1.5% (gross domestic product) growth, then we should go back to the 2% levels we’d originally forecast.”
Several global geopolitical issues are playing into the near-term pessimism facing Mexico, including the fact that a new trade agreement with the U.S. and Canada has yet to be ratified by U.S. law makers, along with the wave of global economic protectionism that’s lead to international trade disputes and the United Kingdom’s planned exit from the European Union, Paredes said. She said a lack of a trade agreement will continue to weigh on investor sentiment.
“In general, this should be neutral for Mexico because as long as there is no deal, (the North American Free Trade Agreement) remains in operation, but there will also be the temptation for someone to use (complete pulling from NAFTA before a new agreement is ratified) as a weapon or threat,” she said. “This could create volatility in Mexican markets.”
She said the concerns over potential volatility are showing up the country’s ability to borrow, where Mexico is being regarded roughly on the same level as Russia and Columbia, two countries with significantly worse credit ratings.
But international visitation to the country continues to grow, with Mexico now growing to be the sixth most visited country in the world, said Lorea Arnoldi, senior project manager for HVS - Mexico City. The country had 39.3 million visitors in 2017, which was enough to outpace the U.K.
She also noted Mexico continues to be a target of international brands and operators, with international brands increasingly interested in “resorts and urban centers.”
“Lately, we’ve had many brands with differentiators that will help the country’s development,” she said.
Within Mexico’s borders, the biggest issue remains the transition to a new government lead by new President Andrés Manuel López Obrador, and Paredes said this is fairly typical of a governmental transition in the country.
The administration’s “early efforts have created some discomfort, and there have been both positive and negative reactions,” she said. “One negative has been the cancellation of the Mexico City airport project.”
Paredes noted businesses and the general public seem to be reacting very different to the new administration, with high levels of general confidence and low levels of business confidence.
The market continues to cope with security issues and broad concerns from international travelers that destinations in Mexico are unsafe.
“Issues with security and corruption can diminish tourism,” Arnoldi said.
Emile Gourieux, business development executive for STR, noted revenue per available room was down 3.2% year over year in Mexico for 2018 when viewed in U.S. dollars, although Arnoldi said it was roughly flat when measured in pesos—highlighting the continued influence of a strong dollar. (STR is Hotel News Now’s parent company.)
Gourieux noted outlook for the market is generally positive in terms of investment.
“Mexico is still one of the top tourism destinations in the world,” he said. “And investment is going to increase in years to come, so don’t expect supply growth to stop any time soon.”
Pockets of growth
Even with soft nationwide metrics, Gourieux said there are several key markets with strong growth in key performance indicators.
Mexico City saw a 1.8% increase in RevPAR for 2018, buoyed by strong weekday demand. Another business driven market—Monterrey—saw a marginal increase in RevPAR from $49 to $50.
While the country’s key resort markets—Cancun-Riviera Maya and Los Cabos—saw slight contractions in RevPAR, they continued to lead the way in absolute RevPAR at $137 and $146 respectively.
*Editor’s note: Paredes’ and Arnoldi’s quotes in this story were derived from presentations at the Mexico Hotel & Tourism Investment Conference that were conducted in Spanish and translated by event staffers in real time.