South America more attractive as other regions falter
South America more attractive as other regions falter
17 SEPTEMBER 2019 8:34 AM

With a focus on hotel development in South America, executives from Hilton, Hyatt, IHG and Accor said during the first day of SAHIC that it’s important to take a long view.

QUITO, Ecuador—Hotel markets in many South American countries are showing stability at the moment, which of course excites hotel developers. But, as development executives at major brand companies say, hotels aren’t built in a moment.

“This is a difficult region. Things change, the rules change, the economies change, the governments change,” Craig Mueller, VP of development for the Americas at InterContinental Hotels Group, said during a session titled “Hotel leaders’ hard talk” on Day One of SAHIC.

IHG’s job, from a corporate standpoint, is to help its owners in the region to cope with those changes, and get through the difficult times by understanding that they are temporary, he said.

David Tarr, SVP of development at Hyatt Hotels Corporation, cited Santiago, Chile, as an example.

“Santiago has had some supply growth recently, which at least in the moment creates challenges when we’re out looking for deals and trying to get them underwritten,” he said. “The good news is when you look at a market like Santiago, you can project forward and say historically this market has had better stability than a lot of other markets in the region, and can get beyond this blip in supply that for a period of time may impact occupancy.”

Being truly global helps, said Patrick Mendes, CEO, Latin America, at Accor.

“We are less dependent on one region. The last three years, we have been impacted by South American crisis, but France, the U.K. was very good. (Asia/Pacific) was very good. Now Asia-Pac is a big challenge, we have Brexit, and Italy is hitting us, but Latin America is coming back,” he said.

South America bouncing back
Hotel performance data from STR supports a resurgence, particularly in certain South American markets. (STR is the parent company of Hotel News Now.)

Ecuador hotel demand, led by the country’s capital Quito and Guayaquil, has grown steadily since taking a hit in the aftermath of an earthquake in 2016, according to Patricia Boo, area director for Central & South America at STR.

Brazil hotel performance is also on an upswing, coming off a four-year economic crisis, though it is “still not at the levels of its peak year, 2014,” Boo said.

“Most markets (in Brazil) haven’t reached their 2014 peaks, but all markets are showing growth, led by Rio (de Janeiro),” she said.

Argentina is facing greater uncertainty, but the forecast is still positive, as demand continues to outpace supply growth.

“Buenos Aires being positioned as one of the key destinations creates a high drive on demand,” Boo said.

“On the Pacific side, markets have struggled with new supply,” with Lima especially taking a hit over the past two to three years, she said. Revenue per available room in Lima is down 14% in the first half of 2019, as the market has seen a 21.9% increase in hotels in construction.

RevPAR through June this year has grown dramatically elsewhere in South America, with Buenos Aires (+86% year-to-date) and Rosario (+58%) leading Argentina, and Rio de Janeiro (+28%) and Sao Paolo (+16%) leading Brazil.

Performance growth is more validation than inspiration for hotel developers, speakers said.

“You’ve to take the long view,” Mueller said. “Brazil has been a very difficult market, but none of us has given up on growing in Brazil.”

Factors driving development
Fundamentals that drive development in a market, whether that’s growth or entry into a new market, include availability of financing and access, speakers said.

“Airlift is a huge issue, particularly for resorts,” said Hilton’s Middleton. He said his rule of thumb is that a resort should not be more than an hour drive from an airport.

“People don’t want to fly long distance and then have to drive three to four hours to their hotel,” he said.

Mueller agreed airlift is key, but said there are exceptions to the airport proximity rule.

“We just bought Six Senses (Hotels & Resorts); their motto is to be almost as far away from an airport as they can,” he said, noting that the brand’s guests seek seclusion and unique destinations.

Tarr said it’s important to look at not just airlift in the market today, but commitment to it going forward.

“What is the plan of local municipality to continue to support infrastructure and drive lift going into the future?” he said. “We’re always trying to have a look at volatility in a market and understanding that we’re talking about an asset that’s going to be there for 40, 50, 60 years. Are we talking about a market that’s truly committed to making sure that lift is going to be sustainable and growing into the future?”

He said markets that Hyatt focuses on “have a high level of international travel, both for business and leisure … markets like Lima, Santiago, Mexico City, areas where we can make sense having our brands.”

The goal is always “to put the right hotel in the right location with the right brand and the right owner,” Middleton said.

As an example of a project that fit all of that criteria for Hilton, he cited the announcement Monday of the signing of a 135-room Hampton by Hilton in Quito, near Carolina Park.

“This is a type of product owners can make a good return on,” he said. “I think we hit all the buttons in that project.”

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