Introduction

This whitepaper examines the confluence of trends behind this redirection of travel demand and capital flows. Drawing on recent industry data and insights from hospitality leaders, we analyze how the Caribbean is capitalizing on diverted travel demand. We assess the implications for hotel investment and consider the challenges that fund managers and developers face in raising capital for Caribbean ventures. The findings underscore a central narrative: the Caribbean’s long-term viability as a tourism market remains strong, even as global economic uncertainty persists.

U.S. Economic Headwinds and The “Travel Diversion” Effect

International tourism to the United States has been challenged in recent years by a combination of economic headwinds and policy-induced friction. Trade disputes, stricter immigration and visa policies, and geopolitical frictions have dampened the U.S.’s allure for global travelers. The United States is now running an annual $50 billion travel trade deficit, a stark reversal from the $3.5 billion surplus recorded as recently as 2022.

A sentiment shift is also at play. Analysts note a perception among some global travelers that the U.S. has become a less welcoming or more uncertain destination. Negative sentiment and travel barriers have led to a redirection of international tourism away from the U.S., setting the stage for alternatives.

Diversion To “Stable And Accessible” Alternatives

Many of these alternatives lie in the sunny Caribbean. The region’s proximity to major source markets, widespread use of English, and tourism-friendly policies make it a convenient and attractive substitute. Caribbean tourism has rebounded robustly, capturing a larger slice of global travel demand. In 2024, the region welcomed over 34 million international visitors, surpassing pre-pandemic volumes. Spending has also increased, with visitor expenditures expected to rise by approximately 9% year-over-year.

Hospitality executives confirm the boon, with travel to the Caribbean and Latin America rising between 5% and 10% in 2024. Major hotel companies are actively expanding, driven by optimism in the region’s stability and growth potential.

Caribbean Tourism Fundamentals: Growth and Resilience

The Caribbean’s ability to capture redirected demand is bolstered by excellent tourism fundamentals:

• Hotel Occupancy and RevPAR at Record Highs: STR data reveals that Caribbean hotels have exceeded pre-pandemic performance metrics. In January 2025, the region recorded 72.9% occupancy and an ADR of $404, translating to a robust $294 RevPAR.
• Tourist Arrivals Climbing and Diversifying: The Caribbean has seen broad-based growth in arrivals. Countries like the Dominican Republic, Curacao, and Turks & Caicos have logged record-breaking tourism growth.
• Resilient Demand Through Challenges: Despite events such as hurricanes or travel advisories, leisure demand in the Caribbean has remained resilient. Travelers prioritize experiences, and all-inclusive resorts continue to attract guests willing to spend.
• Positive Outlook from Industry Leaders: Sentiment from executives at the 2025 ALIS CALA conference was upbeat. Major hotel brands continue to grow their Caribbean footprints, reflecting sustained confidence.

Investment Trends: From U.S. Dry Powder to Caribbean Deals

Investment capital is increasingly flowing toward Caribbean hospitality, given U.S. market challenges and the Caribbean’s performance:

• Dry Powder Searching for Yield: With U.S. hotel deal volume down, investors are looking to deploy capital in higher-growth markets like the Caribbean. Cross-border hotel investment rose significantly last year.
• Compelling Resort Value: Caribbean resorts offer strong yields, especially where luxury properties are priced below comparable U.S. markets. The environment is described as “frothy,” with demand outpacing available assets.
• Big Moves by Brands and Funds: The acquisition of Playa Hotels & Resorts by Hyatt for $2.6 billion exemplifies growing strategic interest. Private equity firms are also exploring partnerships and acquisitions in the region.
• Branded Residences and Mixed-Use Resorts: These models are rising in popularity, helping developers raise capital and investors diversify revenue streams. Projects like Marriott’s developments with branded villas are drawing premium pricing.
• Investment Challenges: Financing remains complex. Bid-ask spreads, hurricane risks, and regulatory hurdles make execution challenging. Still, long-term players see opportunity.

Capital Raising Hurdles: Layered Financing and High Barriers

• Capital raising remains a key barrier to Caribbean hospitality development:
• Conservative Lending Practices: Hotel loans in the region typically max out at 55% loan-to-cost and carry high interest rates, necessitating large equity contributions.
• Multi-Layered Capital Stacks: Developers often rely on creative structures, including presales of branded residences, joint ventures, and alternative funding.
• Barriers for New Entrants: Execution complexity, low liquidity, and lack of conventional financing options favor seasoned players.
• Climate Risks and Insurance Costs: Insurance premiums are rising due to climate-related risks, increasing the cost of operations and capital.

Despite these barriers, well-capitalized and experienced investors can succeed with innovation and patience. Portfolio diversification and careful structuring are key.

The All-Inclusive Advantage

Drawing on Horwath HTL’s insights, the all-inclusive model remains a powerful driver in the Caribbean. Historically concentrated in the Dominican Republic, Jamaica, and Mexico, the model has evolved to attract luxury travelers through enhanced experiences, off-site excursions, and higher service standards.

• Definition and Guest Benefits: All-inclusive properties offer bundled rates covering room, F&B, and entertainment. This promotes longer stays, high guest satisfaction, and stronger loyalty.
• Financial Performance: Properly managed, all-inclusive resorts can achieve strong contribution margins. The inclusion of all-inclusive metrics in the latest USALI edition reflects their growing global importance.
• Regional Success Factors: Markets benefit from efficient cost structures, airlift, and consumer preference for simplicity. Luxury brands have entered the space, narrowing the quality gap with European Plan hotels.
• Emerging Opportunities: Destinations like Miches, Pedernales, and parts of Costa Rica and Belize show promise for future all-inclusive developments. Adults-only all-inclusives are gaining traction due to higher ADRs and curated experiences.
• Brand Expansion: Major global brands are actively growing in the all-inclusive space, helping drive loyalty, diversify portfolios, and capture higher total property revenues.

Outlook: Sustained Caribbean Strength Amid Global Uncertainty

The Caribbean is well-positioned to retain its momentum amid global uncertainty. Diverted demand, solid fundamentals, and investor interest support its long-term appeal. As interest rates gradually ease, capital is likely to become more available for projects with strong fundamentals.

Caution remains necessary due to execution hurdles and capital constraints. Still, experienced players with strategic partnerships can unlock significant value. Horwath HTL’s analysis underscores that the Caribbean offers an attractive blend of high growth and resilience, making it a smart bet for hospitality investment.

Bibliography

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