Cautious optimism for South American markets

While the economies of South America continue to grow, political headwinds and the potential for oversupply bring hoteliers back to reality.

HotelNewsNow – 24/09/2013 – By Jason Q. Freed, News Editor

Arturo Garcia Rosa, HVS Argentina, discusses the opportunities and challenges to developing hotels in South America

BOGOTA, Colombia—Opportunities remain in South America, although navigating the region’s hotel market is getting more difficult, according to hoteliers at the South American Hotel & Tourism Investment Conference, or SAHIC.

International tourism into many countries in South America is down, which is one of several factors leading to a widespread dip in occupancy rates.

“South America is still full of opportunities, but we just need to be a bit more careful,” said Arturo Garcia Rosa, president of HVS Argentina and president of SAHIC, during the opening session of the conference, which attracted approximately 400 people. “The hotel business has started to grow in the region. As a community we see this business is starting to mature right now.”

Challenges that have cropped up recently in a handful of South American markets include potential oversupply and political red tape. Colombia as a country poses a risk because of the former while Montevideo, the capital of Uruguay, is risky because of the latter, Garcia Rosa said.

“Of course we need to be careful about some things, but the sentiment, the feeling—there is a feeling toward positive business,” he said.

While the numbers remain higher than world averages, South American inbound visitation fell from 7% growth to 4% growth between 2012 and 2013, according to HVS Argentina figures.

Brazil remains the top spot for inbound traffic; Peru, Uruguay and Colombia are a few of the countries that are growing rather than declining.

In Peru, the tourism is “very consolidated,” said Adolfo Scheel Mayenberger, corporate operations manager for GHL Group Hotels. “Lima receives a lot of tourists who go there before Machu Picchu. Lima is one of the most sustainable market cities.”

Fernando Fernandez, VP of development at Meliá Hotels International, said he sees opportunities all around Latin America.

“Latin America is leading the boom and has been in the shadows for years. It has never been regarded as the pretty girl throughout the world,” he said. “Colombia, Peru, Chile—of course those are important countries. The Latin American middle classes are growing exponentially. There’s an opportunity to create a select-service product with a certain amount of design and style that will attract the domestic customer.”

Facts and figures
Garcia Rosa highlighted hotel performance in specific South American markets.

In Bogota, where occupancy is decreasing slightly, there is “some concern over market conditions and government policies.” While Colombia overall is seeing a heightened development interest because of a long-term tax incentive program, there is not as much demand as expected, Garcia Rosa said.

“In any case, we think the economy is doing well, and we don’t expect this crisis to continue,” he said.

In Buenos Aires, Argentina, and Lima, Peru, occupancy continues to rise, and hoteliers have been able to sustain rate increases.

Montevideo, experiencing significant occupancy declines, is one of the markets that investors are cautioned to stay away from, Garcia Rosa said.

Rio de Janero is “a marvelous market,” he said. The market’s “slight decline” in occupancy is of no concern because there is enough long-term demand.

Brazil remains the top country with the most opportunity in South America, panelists at SAHIC agreed. “There are hundreds of hotels being built in Brazil—about 40,000 rooms—50% are being built by Accor,” Garcia Rosa said. “Accor has about 20,000 rooms in its Brazil pipeline.”

Outside of Brazil, the countries with the largest development pipelines are Colombia, with 3,705 rooms, and Paraguay, with 796 rooms, according to HVS Argentina figures.

“There has been some slowdown in the pipeline, and some markets may have greater supply than demand,” Garcia Rosa said. “However, when looking at expectations, remember that today we have almost 25 million incoming tourists. We expect that figure to almost double. Add to this the product, the growing economies, and the scenario you see is quite positive.”

Tips for investment
Garcia Rosa offered a handful of tips for investors looking at the various regions.

In Argentina, his advice was to be patient.

“When you talk with international investors, they say it’s not Argentina’s time right now,” he said. “The price of foreign currency is quite problematic. But there will be congress elections in October, and the primaries showed a clear sign that change will come.

“Argentina has been through many worse situations,” he continued. “Anything you start in Argentina needs two to three years, maybe then it will be their time.”

In Bogota, he suggested potential investors understand the fear of possible oversupply.

In Montevideo, “forget about it,” Garcia Rosa said. “It is not Montevideo’s time right now.”

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