MEXICO CITY—Hoteliers participating in last month’s Mexico Hotel & Tourism Investment Conference brushed off a tepid forecast from economist Sergio Kurczyn and shared a bright outlook for the nation’s hotel industry in 2014 and beyond.
“We have seen great appetite coming back in all sectors,” said Blanca Rodriguez, managing partner of Real Capital Investment Management, through an interpreter while participating on the “Drilling down on demand: Business travel” panel.
Speaking on the same panel, Mónica Artigas, director of franchise development in Mexico for La Quinta Inns & Suites, said the Mexican economy is seen from the outside as robust, and the country needs to grow its external hotel guest base.
“Secondary and tertiary markets provide opportunities,” Artigas said.
“There is very good potential,” added Octavio Navarro, development director, Mexico, for InterContinental Hotels Group. “We know where and when we can place our hotels for the next couple of years.”
Financing is becoming more prevalent in the country as well.
“Debt is now becoming available,” said Francis Muûls, managing director of BK Partners, on the “Drilling down on demand: Resort destinations” panel. “There’s liquidity coming into the market.”
Data presented during the conference by STR, Hotel News Now’s parent company, revealed an improving performance for the country’s hotels during 2013:
- Room supply increased 0.9%;
- room demand increased 4.2%;
- occupancy rose 3.3% to 59.5%;
- average daily rate rose 14.2% to 1,587.30 pesos ($120.77); and
- revenue per available room jumped 18% to 949.26 pesos ($72.22).
An economist’s view
Kurczyn, director at Banamex, said during his opening address via an interpreter that Mexico’s success is greatly influenced by the United States economy. While the underlying factors there are much better than they were three or four years ago, growth has not been as good as would be expected.
Because Mexico is among a select group of emerging markets, there is opportunity and some reason for optimism, Kurczyn said. Emerging markets will experience more than twice the growth of developed countries even with the economic and political risks they face.
But concerns linger. Emerging Latin American markets face a leveling off of commodities prices and the eventual increase in U.S. interest rates, he said. U.S. interest rates will begin increasing in the summer of 2015, and European rates will follow in 2016.
“When the swimming pool water goes out, we will see who has the best swimsuit,” Kurczyn said.
He said it’s important for Mexico to continue building its tourism industry. Worldwide tourism grew 5% in 2013 and is forecast to increase 4.5% in 2014, and he said 24 million international tourists visited Mexico in 2013.
Growth opportunities
Hoteliers said throughout the conference that expansion opportunities are plentiful in Mexico.
“We have a lot of independent hotels that are looking to get together with a group that has resources they don’t have,” said Jean-Philippe Claret, director general of Accor Mexico. “That is an interesting opportunity.”
However, speakers said that while conversions are definitely desirable, many independent hotels do not have the safety standards in place to meet most brands’ criteria.
Artigas said business travelers are becoming more aware of such standards, which they expect to be in place when they pay business-class rates.
But owners aren’t always receptive to the costs associated with converting to a branded hotel.
“It’s very complicated to convert a hotel,” Artigas said. “It can be done, but the investors need to be able to invest money.”
“The topic of conversion is interesting,” Claret said. “It can be very expensive to invest money in a conversion.”
Resorts
The resort sector is a huge demand driver in Mexico, which boasts several, world-renowned coastal destinations.
“Hotels can achieve amazing ADRs, and at the same time you have very low costs operationally,” Muûls said.
Niki Leondakis, CEO of Commune Hotels & Resorts, said Mexico is a desirable location for many resorts companies—including hers, which is entering the country for the first time by developing two of its Thompson -branded hotels.
“There’s a lot of room in Mexico, particularly in markets that already have a lot of demand, particularly in modern luxury,” she said.
Leondakis said modern luxury guests tend to be a little younger than traditional luxury guests, but they are affluent and looking for experiences above and beyond brick and mortar.
“The increasing trend in boutique and lifestyle is evidence of that,” she said. “Who they affiliate with at the hotel, who else is at the hotel, the (food-and-beverage) program … that all can drive ADR.”
Gustavo Ripol, managing director for Leisure Partners, said most resort development will be a component of a larger mixed-use project.
Building the business
Speakers were optimistic about the opportunities for expansion in Mexico.
George Massa, VP and managing director of development in Mexico for Hilton Worldwide Holdings, said development in Mexico in general costs about 20% less than developing in the U.S. That could help spur more development.
Alejandro Acevedo, VP of international hotel development, Caribbean and Latin America for Marriott International, said the three key components to developing in Mexico include: land, the right brand and having someone who understands the licenses and permits needed.
Mexico City continues to be a sought-after market in which to own hotels, but like in most major urban areas, it’s easier said than done, speakers said.
Camilo Bolaños, VP of real estate and development in Latin America for Hyatt Hotels Corporation, said there must be a mix of components to make a project work in an iconic site in the city.
Massa said that because of the high costs of development in the market, most hotel construction needs to have a housing component.
An opportunity for an increasing transactions market also exists—in large part because of the emergence of Fideicomisos de Infraestructura y Bienes Raices, the Mexican version of real estate investment trusts.
“Fibras … that topic is one of the things that has changed the landscape,” said Michel Montant, director of corporate development for Grupo Posadas. “Now there’s a secondary market for hotels. There are people who are looking to buy hotels. Now there’s a market for an exit strategy for hotels.”
“Fibras changed the perspective of our vision on Mexico and the way we will be able to grow in Mexico,” Acevedo said.