Lodging Real Estate Trends – Executive Summary
The Construction Pipeline in Latin America Reaches a New Peak.
The Latin America Construction Pipeline reached a new peak at 735 Projects/ 121,163 Rooms at the end of the third quarter. It’s a year-over-year (YOY) increase of 10% by projects and 11% by rooms. The Total Pipeline has been growing consistently since the recessionary bottom in early 2010 and now exceeds the peaks established in 2008.
New Project Announcements into the Pipeline (NPA’s) have been at near peak for six quarters driving upward total projects and rooms Under Construction, now at 345 Projects/ 56,961 Rooms and close to pre-recessionary levels.
Somewhat troubling is that there are new signs of an economic slowdown throughout the region. With the exception of Brazil and some recent improvements in Mexico, economic growth during the recovery years has only been modest and incremental if at all. A lack of cross border investors, high interest rates and the availability of financing have been the restraints. Looming large for the future is the specter of potential cutbacks in bond buying by the U.S. Federal Reserve Bank. Effects of a tapering in stimulus, which could happen as early as 1H14, will ripple through the region, further dampening economic growth, hotel operating statistics and new hotel development.
Brazil and Mexico are the Pipeline leaders in the region. Brazil is the world’s 7th largest economy and is the driver of Pipeline growth in the region. The country has a record high 401 Projects/ 67,787 Rooms in the Pipeline. Brazil has 56% of Total Pipeline rooms in the Latin America region and a whopping 78% of all South America. The unusual juxtaposition of two world class events, the World Cup and the Summer Olympics, has propelled development forward to accommodate a record flow of incoming tourists. The country’s Under Construction count has reached a new high in anticipation of these events. At 175 Projects/ 29,797 Rooms, the Under Construction stage is 50% higher than its pre-recessionary peak.
The Pipeline in other South America countries stands at a total of 111 Projects/ 15,019 Rooms, a YOY decline of 13% and 11% respectively. Under Construction totals at 71 Projects/ 9,832 Rooms are still in a bottoming formation. In South America, Argentina has the next largest Pipeline with 37 Projects/ 3,952 Rooms, followed closely by Colombia with 30 Projects/ 5,336 Rooms. Both are far distant from Brazil’s Pipeline totals.
Mexico’s Total Pipeline is 106 Projects/ 16,059 Rooms, still far from its pre-recession peaks. Supported by an eight quarter uptick in NPA’s, Total Pipeline rooms have increased 50% in the last three quarters. An unusually high 83% of all projects are in the upscale and midscale chain scales. Hotels Under Construction have also bounced back and currently stand at 40 Projects/ 6,105 Rooms.
The Caribbean Pipeline bottomed out in Q1 2011 and now totals 75 Projects/ 14,593 Rooms, a 4% decline YOY. Since the bottoming, project counts in the Pipeline have varied from a low of 65 to a high of 82, far distant from the peaks set last decade. NPA’s have been flat for a long period of time as have projects Under Construction. As North American and European economies have recovered, so too has tourism in the Caribbean. Hotel operating statistics could exceed pre-recessionary peaks in 2014-2015 and spark renewed developer interest thereafter.
In Central America there was an early surge in development in the region precipitated by the expansion of the Panama Canal and the development of a number of new resort projects early last decade. Since then the region has been focused on absorption of that new supply, which is proving to be difficult. The post-recession recovery of hotel operating statistics is stalled as the region has experienced YOY declines in both 2012 and 2013. The Central America Pipeline stands at 42 Projects/ 7,705 Rooms with Panama accounting for 62% of the project count. NPA’s have been weak for seven quarters. Hotels Under Construction are at near lows standing at 21 Projects/ 4,249 Rooms.
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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. Two years of Prior Hotel Openings and current supply counts for Open and Operating Hotels (Census) are also included.
These macro-overviews are essential for assessing future supply growth for executive strategic planning and decision-making.
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