SAO PAULO—As business travelers flock by the millions to Sao Paulo—the largest city in Brazil—hotel brands are scrambling to develop in the market, and hoteliers already in the area are reaping the benefits.
In Sao Paulo’s luxury hotel market in particular, international brands are charging upwards of $700 midweek and still are running occupancies in the high 70s and low 80s.
“There’s a limited amount of hotels for the demand right now, especially in the luxury market,” said Gil Zanchi, Marriott International’s country manager in Brazil and also GM of the Renaissance Sao Paulo. “We would love to put more hotels there.”
The last international luxury hotel to be built in Sao Paulo opened nearly 10 years ago; meanwhile demand has increased at a 10% clip during the past three years, said Guilherme Cesari, VP of development for Marriott International in Brazil. Cesari said Sao Paulo has 40,000 hotel rooms, which is not nearly enough.
“Demand is growing at 10% (year over year), and (gross domestic product) is growing at 3% to 4%,” he said. “We should be adding 4,000 rooms a year to attend to this huge demand that is growing.”
However, Cesari said there are no hotels under construction in Sao Paulo. Financing a hotel, especially a large luxury project, is nearly impossible, he said.
“There is a lack of financing in Brazil,” Cesari said. “We don’t find the typical project financing as in Europe and the U.S., where there are 20-year loans and low interest rates and you need very little collateral. Here in Brazil there’s only one type of financing—through (the Brazilian Development Bank)—and that’s the only way you can leverage your investment. It’s the only debt provider in the country.”
For now, hotels in Sao Paulo are doing everything they can to capitalize on the supply-demand imbalance.
On the operating front
“Sao Paulo is the business hub of not only Brazil but also of Latin America. People come here first before anywhere else looking for business opportunities,” said Salo Smaletz, regional VP of development for InterContinental Hotels Group in Latin America. “You can charge rates that are unheard of. If you develop and you want to see returns, right now those returns are achievable. People are paying prices that are so high.”
In March, the overall hotel market in Sao Paulo reported occupancy at 70.8%, average daily rate at 274.38 realis ($150.31) and revenue per available room at 194.14 realis ($106.35), according to data from STR Global, sister company of HotelNewsNow.com. Year over year, ADR was up 18.9% and 17.8% year to date.
The InterContinental Sao Paulo, in the heart of the city’s business district, is 16 years old but just underwent a near-complete renovation. Three years ago the hotel would have been described as “classic,” but today it is described as “contemporary,” said David Pressler, director of sales and marketing at the InterContinental Sao Paulo.
“There are seven hotels of luxury class in Sao Paulo, and they are all maybe between 10 and 20 years old. None of them are renovated,” Pressler said.
“The demand in Sao Paulo has been going crazy for the past two years. Our ADR just grew 62% from two years ago,” Pressler said. “Some days we have a rate of $600, $700 during the week. But we are not the only ones charging that.”
The headquarters for many global companies are located in Sao Paulo, and the InterContinental serves as meeting grounds for many of their regular meetings. Ninety-nine percent of demand at the hotel is corporate business, Pressler said. In 2011, the hotel ran 46% occupancy on the meeting space alone, said Pressler, and he expects that number to be between 55% and 60% this year.
The Renaissance is in a similar position, GM Zanchi said. Oil was discovered recently in the area, and many foreign companies are in town attempting to capitalize on that. From Sunday to Friday morning, the hotel is filled with international business travelers.
History lesson
Zanchi said the Sao Paulo market wasn’t always in high demand like this. There was a construction boom in Sao Paulo in the late 1980s, which led to plenty of over-building, particularly in the condo-hotel market. There was too much supply, and the currency was not as stable. Investors bought condominium units thinking it was a great investment.
It wasn’t until about three years ago that the domestic middle class began traveling within Brazil, and a steady economy and currency led to international interest from venture capitalists.
“Three, four, five years ago the demand wasn’t there,” Zanchi said. “But now, in 2014, we have the World Cup and in 2016 we have the Olympics. There is a lot of positive momentum in the future.”
Outside of the luxury market, even lower-tiered hotels in Sao Paulo are performing extremely well, IHG’s Smaletz said. IHG has a Staybridge Suites hotel located in a corporate area outside downtown, and occupancy and ADR are “skyrocketing,” he said.
“There is a huge number of people coming from the U.S., but also internally people are traveling much more. Brazil has 115 million-plus inhabitants and a growing middle class,” Smaletz said.
The leisure business in Sao Paulo is small but budding, Smaletz said. Three years ago at the InterContinental the demand mix might have been 90% corporate and 10% leisure. Today it is 80% corporate and 20% leisure, he said.