MEXICO CITY—Mexico’s hotel industry continues to evolve, but there’s still a learning curve when it comes to developing hotels in the country, according to speakers at the sixth annual Mexico Hotel & Tourism Investment Conference.
Mexico’s hotel inventory stands at 18,711 properties comprising 692,351 rooms, according to Richard Katzman, managing director of HVS-Mexico City. Meanwhile, the country’s active development pipeline includes 129 hotels comprising 19,751 rooms.
“Mexico still has a lot of room for hotel development,” said Germán Ongay, regional VP of franchise sales & development for InterContinental Hotels Group, through an interpreter during the “Drilling down on supply and demand—business travel” session.
Grupo Posadas, one of the country’s largest hotel companies, has 123 hotels comprising 23,000 rooms operating in Mexico, according to Michel Montant, the company’s director of corporate development. There are no plans to curb its growth, he said through an interpreter during the “Hotel opportunities—Mexico and beyond” session.
“The hotel business is a game of scale,” he said.
“What Mexico allows you to have is volume,” said Alonso Burgos, director of development in Mexico for Marriott International, during the “Drilling down” session. “In our industry, size counts.”
Global hotel companies are rapidly increasing their presence across Mexico, and speakers said there are many expansion possibilities:
- Hilton Worldwide Holdings has 42 hotels open and 22 in the pipeline, according to George Massa, VP and managing director of development in Mexico for Hilton Worldwide Holdings.
- Wyndham Hotel Group has 38 hotels open and 22 in the pipeline, according to Luis Mirabelli, VP of development in Latin America and The Caribbean.
- La Quinta Inns & Suites has eight hotels open and eight in the active pipeline, said Mónica Artigas, director of development. The company uses the LQ Hotel brand name in the country to avoid confusion with the many other offerings that include “Quinta” in their names, Artigas said.
- Marriott International has 7,000 rooms open and 4,500 more under construction, according to Burgos.
- AMResorts has 18 hotels in Cancún alone, with three more under construction and four others in various stages of the pipeline, said José Antonio Rivera, VP of development & new projects.
Hoteliers in the industry need to better understand which regions are becoming saturated so they can continue increasing average daily rates, Katzman said through an interpreter during the “Regional and global hotel market overview” session.
Carlos Adams, director of franchising for Hoteles City Express, agreed and said via interpreter during the “Drilling down” session that more attention needs to be paid to location during the development process. Markets need to be better validated in part by how they’ve performed in previous years.
Setting priorities for growth
A more defined expansion prioritization process is a general need for Mexico’s hotel development community, added Gerardo Valdés, director of development in Mexico for Carlson Rezidor Hotel Group, during the “Drilling down” session. In secondary cities, hotel companies must have a great location and a product tailored to that market.
While brownfield location development is the preferred growth vehicle because it has demand generators in place, expanding beyond urban areas is an important next step for Mexico’s hotel industry, Juan Carlos González Ojeda, VP of Latina Promohoteles, said via interpreter during the “Drilling down” session.
Finding land is the biggest challenge to building a hotel in Mexico City, Montant said.
Panelists, including González, Adams and Valdés, agreed that malls tend to be good locations to build hotels in Mexico because they appeal to the local population.
Mixed-use projects add value to a hotel as long as the type of hotel matches the commercial elements in the project, according to González.
“Add a product that will harmonize it with your hotel chain,” he said.
Mirabelli said mixed-use components are essential to hotel development in Mexico, from economy to upper-end projects.
Preparing for a hotel asset’s 30- to 50-year lifespan is an important part of the development process that hoteliers must address, said Oscar Chávez Pacheco, director of acquisitions and development of Grupo Hotelero Santa Fe, via interpreter during the “Business travel” panel.
“You need to be clear that the things you are assessing are for the long run,” he said.
Conversions remain an option
Conversion projects remain a challenge for most global brands, panelists said.
“The focused-service brands are not too suitable for conversion,” Massa said, adding that life-safety guidelines are often too difficult to overcome, and that three of the nine properties Hilton opened in Mexico in 2015 were conversion projects.
But companies will continue to search for the right conversion opportunities.
“We like conversions for all the obvious reasons—there’s a more immediate presence and you’re not adding supply to a market,” said Jim Erlacher, VP of development in the Americas for AccorHotels, during the “Mexico and beyond” session.
Mirabelli said most conversions are independent hotels becoming branded instead of properties switching flags.
“There’s a need for connections to the distribution channels—the loyalty programs—a brand offers,” he said.
“Distribution is king,” Massa said. “At the end of the day it’s about how many people you can bring in. It’s a rough jungle out there.”
Montant agreed. Independent hoteliers are seeking the distribution platforms brands offer but few are willing to comply with brand standards in terms of product and service, he said.
New brand for Posadas
Posadas developed a new brand—called Gamma Hotels & Resorts—to encourage more conversions. Montant said there are 10 Gamma hotels open, and the company’s goal is to open 30 or 40 more. He described it as a soft-brand collection.
“Independents are fairly old hotels, well-located, and the customer knows them,” Montant said. “We try to take advantage of that by keeping the name of the hotel that’s well known. We put our name together to keep the essence of them.
“It’s definitely a soft brand; that’s why we developed it,” he said, adding that Gamma is primarily a franchised product, but Posadas will manage it for an owner looking for that model.