This market report profiles the relative size, positioning, and strategic growth initiatives of Latin America’s leading hotel groups, to understand how these players have managed to expand in the region, despite the economic, political, and even biological setbacks of recent years. The general perception is that Latin America has gone from promise to peril in the wake of a changing global landscape. A steep and sustained drop in oil prices beginning in the spring of 2014 has indeed stymied economic growth, destabilized currencies, and shrank government budgets leading to political scandal and an overall bleak investment outlook.
Tourism and hotel receipts also took a hit as a result of sluggish demand and the Zika epidemic now spreading into North America and the Southern United States. While the headwinds have shaken investor confidence, not all markets in the region have behaved the same way; when it comes to travel and demand for lodging, each market has a unique footprint. One way to look at the investment potential of Latin America’s lodging industry is in the context of “pockets of opportunity,” spread out across a sizable yet fragmented market landscape with economic, political, and cultural divisions. Knowing where those pockets are, while adapting strategy according to market dynamics and operating realities on the ground has helped some of the world’s leading hotel chains expand, despite the challenges.
Political upheaval and economic challenges in Brazil have impacted general perceptions and investor confidence in Latin America more generally. The dire situation in Venezuela also casts a shadow for the region. Mexico, on the other hand, is a bright star for resort and leisure hotel investors, as well as those looking to explore the country’s interior. Certain industrial hubs in Mexico have grown their hotel room inventory by as much as 20 percent since 2014, as economic activity in sectors such as automotive manufacturing and knowledge services outsourcing continue to gain momentum.
Colombia’s lodging sector went through a growth phase between 2010-2014 as hotel investors were offered favorable tax incentives to grow the country’s room supply. Development has slowed, but many of those interviewed for this report now point to Colombia’s secondary cities, stating interest and activity in markets like Medellin, Barranquilla, and Cali. The political situation and regulatory climate in Argentina has shown signs of improvement as a new president and administration settles in. Peru has remained more stable economically relative to other markets in Latin America; hotel investors are racing to meet demand in Lima and other destinations.
The region also has commonalities, despite its immense diversity. While income per capita is low in many countries relative to the U.S. or Europe, Latin America’s travel consumer base comes from a rising middle class with more purchasing power than other developing markets – in Asia, for instance. A shared language – i.e. Spanish tends to attract the big Ibero-based hotel groups and backers looking to position themselves in the region as a whole. While Latin America has its fair share of domestic issues involving gang violence and personal safety, the region has been virtually untouched by the type of Islam-based terrorist activity that has eroded confidence in more mainstream travel markets.
There are other silver linings that have investors interested. Latin America overall is an attractive destination for younger generations and international adventure seekers curious about the natural and cultural beauty that the region offers. Domestically, the Latin American population is much younger compared to other parts of the world. As these demographic cohorts mature and enter into the workforce, this evolution will bear fruit for those hotel groups that have invested early on.
Many executives interviewed for this report have stated that Latin America “is a mid-to-long term opportunity” pointing to possible developments such as turnaround in Brazil, a pick-up in investments from China, reform in Argentina, and a pick-up in global oil prices, could all have positive impacts on the region as a whole.
The impact of the Zika virus on inbound tourism to certain Latin American and Caribbean markets has been significant, particularly for those markets that depend on international visitors. Brazil’s tourism sector, for instance, depends heavily on domestic travel and in-region visitors from countries that have also been impacted by Zika. Now, as the epidemic spreads to North America and indeed through the rest of the world, the impact on LATAM tourism could take a different turn. The worst case scenario for travel would be a global slowdown of travel and international traffic as a result of Zika.
Brand affiliated hotels now operating in Latin America also have certain advantages relative to independent properties. Local hotel investors, particularly during less certain economic times, are more likely to consider standard branded products; Latin American consumers prefer branded properties over independents; economies of scale and overall sophistication in digital distribution strategy also put branded properties in an advantageous position.