06 Sep 2013
September 6, 2013

2Q13 Latin America Executive Summary

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MID-YEAR
2013
Latin America
Lodging Real Estate Trends – Executive Summary

Hotel Openings in Latin America Are Set to Accelerate.


Lodging Econometrics (LE) recently released its new supply forecast of 172 hotels/ 29,202 rooms for Latin America in 2015. LE also revised upward its forecast for 2014 to 188 hotels/ 29,623 rooms.

Brazil is the driving force for supply growth in Latin America. In 2014, Brazil will account for 55% of all new hotel openings and 57% of the rooms, while in 2015 it is expected to be near equally as dominant too. In 2011, Brazil accounted for just 24% of new hotels and rooms that came on line.

It is the world’s seventh largest economy and has been one of the fastest growing economies in the last ten years. The recent hotel development surge has been in preparation for hosting two upcoming world class events: the World Cup Soccer Tournament in 2014 and the International Summer Olympic Games in 2016.

Over the next few years, most other countries in Latin America are expected to experience slow incremental supply growth off the cyclical bottom set in 2011.

Construction Pipeline by Region
The Total Latin America Pipeline at Q2 2013 stands at 706 projects/ 114,523 rooms. It’s up 116 projects/ 19,301 rooms year-over-year (YoY). All of the improvement comes from Brazil, which is up 121 projects/ 20,592 rooms.The remaining countries in the region are uptrending modestly YoY, remaining even or are in slight decline.

Brazil, with 380 projects/ 64,419 rooms in the Pipeline, accounts for 54% and 56% respectively of all development in Latin America. In particular, Brazil overwhelms the rest of South America. It has more than four times the room count in its Pipeline as the rest of the hemisphere combined. With the exception of Argentina and Columbia, no other South American country has significant development activity underway.

In Central America, Pipelines peaked in early 2012 spurred by economic growth in Panama and new resort construction in Costa Rica. Development has been softening over the last four quarters. In the Caribbean, the Pipeline bottomed in early 2011 and has grown only at a modest pace since. Today it stands at 78 projects/ 15,462 rooms showing only slight YoY gains.

Mexico has interesting development potential. Its economy has recovered on pace from the global recession but lodging development has been a bit hampered by: security issues, an unfortunate image for drug activity and violence, and for its complex approval processes. It recently launched new REIT like investment structures, some concentrating on hotels, that would provide a much easier exit strategy for developer/investors. The hope is they will attract more cross border investment dollars particularly for their major economic centers and coastal resort regions.

Could Another Development Slowdown be Ahead?
A recent advisory by the U.S. Federal Reserve Board signaling intention to slow the purchase of government bonds and to eliminate the program entirely by 2014 may hasten another development slowdown throughout Latin America.

The Fed’s program change will increase bond yields and inflation rates in the U.S., providing investors with higher returns that were heretofore unavailable. The Fed’s strategy could also cause a decline in the currencies of a number of economies in the region. Particularly vulnerable is a country like Brazil whose economy and currency has been a bit overheated and has appeared “bubble” like.

The net result will be a drop in cross border investing in search of higher returns.

Development slow downs will first be experienced by a decline in New Project Announcements into the Pipeline and in new Conversion and Renovation programs. Projects already in the Pipeline will experience delays in moving forward. Many will be cancelled.

The hope is that if a slowdown occurs it will be just a brief pause in what has been a modestly uptrending economic recovery throughout the hemisphere.

Order construction pipeline trend reports for these fast growing regions & countries they are invaluable for strategic planning & development decision-making

LE’s Construction Pipeline Trend Report encapsulates all US lodging development activity, with hotel project and room counts for the Pipeline by stage (Under Construction, Starts in the Next 12 Months, Early Planning), as well as for LE’s proprietary Three-Year Forecast for New Hotel Openings with projected supply growth rates. Two years of Prior Hotel Openings and current supply counts for Open and Operating Hotels (Census) are also included.

This macro-overview is essential for assessing future supply growth for strategic planning and decision-making.

To order an annual subscription to LE’s Quarterly Construction Pipeline Trend Report for any region or country in Latin America,  please call us at +1 603-431-8740, ext. 25 or email info@lodgingeconometrics.com for more information.