Burba Hayes Hotel Trend Report

Hotel Trend Report

The results from BHN’s Hotel Investment Survey are in, and the hotel investment climate is looking good everywhere in the Americas.  In terms of the BIG market headlines for the Americas, the U.S. remains the poster child of optimism.  The outlook in Mexico improved measurably across the board, and while Brazil is still very optimistic, the outlook in the country is a bit tempered compared to a year ago.

Investment Confidence

The survey asked respondents ‘how confident’ they were that investment opportunities would be greater in 2014 than they were in 2013.  The question was asked for seven defined regions: the U.S., Canada, Mexico, Central America, the Caribbean, Brazil, and South America (excluding Brazil).  In every region, the overwhelming majority (80% or greater) were somewhat confident or very confident that there would be more investment opportunities in 2014.  The strongest level of optimism came from the U.S. and South America (excluding Brazil).

Brazil went from being the most confident market in the Americas last year, to one with more divergent opinions today.  The survey results show Brazil with the highest not confident score (20%) that investment opportunities will increase in 2014, while also showing it with the second highest very confident (42%) score that investment opportunities will increase in 2014.  Suffice it to say, there is a lot of attention focused on Brazil today and not just on the upcoming World Cup and the 2016 Summer Olympics.  In summing up the investment climate in Brazil, Ricardo Mader Rodrigues, EVP, Jones Lang LaSalle Hotels and Hospitality Group stated, “With the continuous growth of the RevPAR of the existing hotels in 2014 combined with the devaluation of the Real and the general consensus that the other asset class such Offices and Retail are oversupplied, local and international developers and investors are becoming more attracted to Hotel investments.”

Development Outlook

It appears to be a good time to be in the hotel construction business throughout the Americas, with the survey respondents expecting solid growth in the money provided for new construction in all seven regions.

Not surprisingly, the Caribbean outlook was the most conservative.  However, 64% of respondents still expected growth in money being supplied for new construction in 2014.  This region was perhaps the hardest hit in the recent ‘great’ recession, but it continues its slow, steady climb back to an active investment arena.

Once again, the U.S. was the clear leader in ‘enthusiasm’ that development was coming back, with 90% of respondents expecting more, not less, money becoming available this year.  In the prior two years, this number was 80% and 66% respectively – highlighting the rapidly increasing development investment outlook for the U.S. lodging market.

In terms of directions headed when compared to last year, the belief that more money would be made available for development in Mexico increased the most in the Americas, while Brazil slipped the most.   In both cases however, the expectations that the money supply for new development will grow remains high – with nearly 80% believing this to be case for both countries.  In explaining a possible reason for large increase in optimism about future development in Mexico, John McCarthy, Principal, Leisure Partners said “Mexican President Peña Nieto has passed multiple reforms that will no doubt thrust Mexico into the future while at the same time drastically shoring up the image of the country from a financial, political, educational and social perspective.  He has also managed to dramatically improve the perception and the reality of security, although certain regions still remain a challenge.  These actions are reflected in more tourists and better rates, especially in the Big Three destinations: Cancun/Riviera Maya, Puerto Vallarta/Nayarit and Los Cabos.”

REVPAR

What is driving the positive investment outlook in the Americas?  Of course, it helps when hotel performance is improving, and that is the case throughout the region, with the overwhelming majority of respondents expecting RevPAR increases in 2014.  The same question was asked last year, and all the regions also reported strong growth expectations.

Of note in this year’s survey is that three of the regions (U.S., Caribbean, and Mexico) showed a further improvement over the positive expectations reported last year.  The remaining four regions showed lower, yet still very positive, expectations in growth in RevPAR, a key industry measurement.

The outlook in the U.S is the most positive (93% expect positive growth in RevPAR), followed by Mexico (84%), Brazil, and Canada (80%).

Business Growth

The BHN survey is sent to members of the hotel investment community in the Americas, namely developers, investors, lenders, hotel chain and management company executives, and the professional advisory community (i.e. consultants, brokers, architects, lawyers, etc.).  What they see on the horizon for their respective businesses is usually a good indicator of the investment climate.

Supporting the positive outlook in the Americas was the fact that 91% of the survey respondents expect their companies to grow in 2014.  This is more optimistic than the answer to the same question a year ago, where the answer was 85%.  A full 25% of the survey respondents expected their business to grow by more than 10% in 2014, which by most measures is very healthy growth.

Hot Spots for Hotel Investment

We asked what cities were ‘hot spots’ in the U.S. for investment in 2014 and the top four cities were coastal major markets:

  • Miami
  • San Francisco
  • New York
  • Los Angeles

Outside the U.S., survey respondents say the top four ‘hot spots’ for investment in 2014 are:

  • Rio de Janiero
  • Mexico City
  • Bogota
  • Panama City

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