Latin America offers challenging but rewarding markets

By Andrew Cohan on January 4, 2017


Andrew Cohan, Managing Director at Horwath HTL in Miami, USA, was contacted by Stephanie Ricca, of Hotel News Now, to answer questions for her latest article: Latin America offers challenging but rewarding markets.

Extract of Latin America offers challenging but rewarding markets:

Latin America is a diverse mix of markets and geographies. What areas in particular were winners, hotel performance-wise, in 2016, and which presented the most challenges? Will that change in 2017?
“The most challenging of the larger markets was Brazil, due to economic, political and health concerns. Fortunately, the Summer Olympics were executed with no major infrastructure or hotel mishaps, and the growth in Rio’s hotel inventory leading up to the events should take some time to fully absorb. Argentina will be a market to watch in 2017 as the Macri government has worked to eliminate the obstacles to foreign investment that kept the country from enjoying growth in recent years as did its neighbors. Already, Viceroy and SLS Hotels (projects) have been announced, and many global brands and investors are now testing the waters and considering new deals.”

What regions will the industry see the most supply come online in 2017, and in which chain scales? What are the biggest concerns and opportunities surrounding this supply outlook?
“Colombia, especially Cartagena and Bogota, is witnessing the completion of many hotels that have been in the development pipeline for the past 30 months or so, especially at the upper-upscale and luxury tiers. We have seen increasing interest in mixed-use resort plans for the Caribbean coastline between Cartagena and Barranquilla. Our opinion is that this area may develop best by targeting the national tourism and second home market, as the Caribbean has many pristine beach areas with more convenient airlift.”

What major consumer and economic trends will have an impact on hotel performance and growth in Latin America in 2017?
“The state of hotel investment in the U.S. market should benefit investment in Latin American hotel assets. That is, with most U.S. markets at or just past their peak performance levels, it will be more difficult to reach desired yield levels by purchasing U.S. hotel assets. With cap rates expected to rise and little expectation of further improvements in revenue per available room, it will be increasingly difficult to ‘buy low and sell high.’ Therefore, as investors look for higher-yield alternatives they will look south to Latin America and especially Mexico—a nearby, relatively low-risk market where hotel density in both urban and resort markets has significant remaining growth potential.”

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Andrew Cohan