REPORT FROM BRAZIL—The BRIC nation of Brazil is getting ready to host the 2014 FIFA World Cup, with global hotel companies betting domestic and regional tourism growth will sustain their rampant construction, even in secondary cities.
It is this hope, not the games themselves, that is boosting secondary and tertiary markets.
With the first game of the FIFA World Cup being played in a few months—Brazil versus Croatia on 12 June—the smaller Brazilian cities of Cuiabá, Curitiba, Manaus and Natal are not being used beyond the initial qualification round. Cities Porto Alegre and Recife will not stage matches beyond the round after that, the so-called Round of 16.
One host destination, Curitiba, was even warned on 22 January that FIFA might cancel its participation if its soccer stadium’s renovation is not deemed sufficiently prepared.
The remaining games up to the final on 13 July will nearly all take place in the established destinations of Brasilia, Rio de Janeiro, Salvador and São Paulo, as well as in Fortaleza and Belo Horizonte.
Final whistle
“Investors willing to develop hotels in secondary and tertiary cities should make a thorough study of the demand for the service. A hotel development cannot be justified solely by an event of such short duration,” said Guillermo Reddig, senior associate at HVS South America, who added this pipeline has taken into consideration how the market will be after these mega-events, which also includes the 2016 Summer Olympics to be held in Rio de Janeiro.
Brazil has the strongest inventory growth in South America, with nearly 180 hotels in the active pipeline, comprising 30,297 rooms, according to Hotel News Now’s sister company STR Global. Much of this growth is in secondary and tertiary cities and catering to the midscale and upper-midscale segments.
Reddig referred to three other considerations that make it tough for hotels entering Brazil:
- Brazilian bureaucracy necessitates having local partners.
- In Brazil, return on investment expected by local investors is higher than in most other parts of the world.
- Global brands often are scared off by Brazil’s condo-hotel business model, where some hotels have as many owners as they have rooms.
Rates and development
Global flags are active in South America’s largest country and economy. Among them are:
- Best Western, with 16 hotels in Brazil, is working with developer Incortel to add 30 more within five years. All new-construction, 50% of these will be Best Western Plus properties, the first to open in Belo Horizonte in March.
- Wyndham Hotel Group plans to have 200 Super 8 hotels in Brazil before 2022.
- Meliá Hotels International’s brand Innside plans 10 hotels in Brazil in the next five years.
- In 2012, Accor started its plan of reaching 250 hotels in Brazil before 2016, with 2013 openings including 13 Ibis properties, one Ibis Styles, one Ibis Budget and one Novotel.
- Four Seasons Hotels is planning five hotels, according to Bloomberg News, in Brasilia, Pernambuco, Rio de Janeiro and São Paulo.
Rates are hard at work, too. HVS’ Reddig predicts a room in Rio de Janeiro will “cost on average $460 during the World Cup, double that seen in Johannesburg and 50% higher than seen in Berlin, the headquarter cities of the last two World Cups.”
“(Average daily rate) in Salvador was about $75 per night in June 2013 (but) will rise to $509 in July 2014, an increase of 581.3%. In other host cities, increases reported are between 200% and 350%,” Reddig added.
According to STR Global, ADR for Salvador in June 2013 was higher, at $104.97.
“There definitely is a lot of pressure to make secondary cities acceptable when it comes to cost, both for accommodations and airfare. From what I understand, the Brazilian government is monitoring the overall cost landscape to make hotel groups ensure there is availability,” Luke Bujarski, director of research at PhoCusWright, said.
Fragmented market
Wyndham Hotel Group is another global player seeing significant demand and potential in Brazil, especially in secondary and tertiary markets such as Pouso Alegre, Suzano and Caxias do Sul that it believes lacks supply, according to Anthony Emanuelo, the company’s VP of operations for Latin America.
“The majority of growth will be in these markets, but we’re also seeing potential in larger markets like Brasilia and Belo Horizonte. Many existing independent hotels in those areas will have to look for brand support to compete effectively, which opens the doors for conversion prospects,” Emanuelo said.
Emanuelo expects 2014 to be a substantial growth year, with 45% of Wyndham’s openings in Latin America taking place in Brazil, notably in its brands Howard Johnson, Days Inn, Ramada and Tryp by Wyndham.
Bujarski said in Brazil chain hotels are in the minority, between 8% and 10%, and with business travelers traditionally the target.
“Distribution will be key. Domestic online travel agencies are not as developed as those in the U.S. and Europe, and thus hotels in Brazil are keeping a closer hold on their stock,” he said.
As for demand post-World Cup, Bujarski said it mostly will be domestic, with the domestic tourism industry growing between 2% and 3% annually, mostly from the country’s burgeoning middle class, even though the macroeconomic outlook for Brazil in 2014 is not stellar.
Infrastructure boost
“The FIFA World Cup will give the country additional exposure. The competition had a big impact in South Africa, and I see there being a big increase in Brazilian travel also from within Latin America. The stadiums will not be full of Nigerians and Bosnia-Herzegovinians but locals who want to see a World Cup game and need a place to stay,” said Bujarski.
“We are looking at the business potential from a long-term perspective, not because of (the FIFA World Cup) but to capitalize on the fact that it’ll be taking place and helping strengthen Brazil’s infrastructure and international reputation,” Wyndham’s Emanuelo said.