For the past few years, most talk of hotel growth has focused on Asia and the Middle East. But a perfect storm of sorts south of the border is fueling a quieter boom that has developers scouring new sites from Mexico to Panama City to Bogota, Buenos Aires and points in between.
"It's an interesting moment for the hotel industry in general in Latin America," said Ricardo J. Suarez, vice president of acquisitions for Starwood Hotels and Resorts' Latin America division. "We are seeing a historic boom that we haven't seen in a number of years."
The factors driving the Latin American boom are similar to those driving the phenomenal growth in countries like China and India: booming or stabilizing economies, a growing middle class, increased regional business travel and more political stability.
"Really, the overall macro story of what is happening is fascinating," Suarez said. "A lot of the economies are much more structurally sound. The general economic stability mixed with political stability and an increase in tourism from the United States and Europe has ... really driven demand for hotel growth."
Indeed, the numbers speak for themselves. Last year, Latin America led the world in room rate and room revenue growth, with revenue per available room, or RevPAR, up 24%, to $75, and average room rate increases of 19.7%, according to the Hotel Benchmark Survey by Deloitte.
Adding to tourism in the region is the weak value of the U.S. dollar against the euro. Most South American currencies are more closely linked to the dollar, so the strong euro "put up sort of a shield over the Atlantic, created sort of a [tourism] jet stream south," said Carlton Ervin, Marriott's head developer for the Caribbean and Latin America.
WORD-OF-MOUTH MARKETING
It was the devaluation of the peso in Argentina in the early 2000s that first sparked the tourism boom in that country, which many consider to be the leader in hotel development in the region.
When the value of the Argentinian peso fell, the country became a travel bargain. And more travelers began exploring the region. They were followed by the friends, colleagues and family who had heard about their trips.
"South America is really a new world," said Arturo Garcia Rosa, the senior partner at HVS Global Hospitality Services, who heads its Buenos Aires office. "Each country has its own characteristics, its own mix of flavors. ... And the experience exceeds tourists' expectations."
Garcia Rosa said tourism and hotel development have been booming for the past three to four years, and he expects the trend to continue over the next decade.
"In the last six months, all the big brands have been putting development guys in the region because they understand it is time to be here," Garcia Rosa said.
• Starwood has more than a dozen properties under development in the region.
• Marriott expects to increase its regional portfolio 17% by 2010.
• Hilton has tripled its Central America portfolio in just three years and is developing resorts in Argentina's popular ecotourism destinations of Iguazu Falls and Ushuaia.
• Wyndham, whose most prominent brand in the region is Howard Johnson, is aggressively looking to both expand that brand's presence and to develop Ramada and Wyndham properties.
• InterContinental Hotels Group is gearing up to introduce its lifestyle brand, Indigo, across the region while also increasing the presence of its traditional brands.
Driving the development interest is the feeling that the Latin America region, long seen as a cauldron of political and economic turmoil, is finally poised for long-term stability.
"I think we're so used to seeing boom and bust down there, and for the last five years for the most part there has been general stability," said Gregg Rockett, Hilton's vice president of development for Central and South America. "There was, in the late '90s, excessive construction. Markets like Buenos Aires, Bogota [Colombia], Sao Paulo [Brazil] were overbuilt. The combination of the excessive supply and a bit of a downturn in the late '90s and early 2000s in some of these marketplaces kept a lid on supply, and now demand is back, and supply hasn't followed."
A key target is Argentina, which has been experiencing 7% to 10% growth per year in tourism, according to Garcia Rosa.
With occupancies above 80% and luxury hotel room rates topping $400 in Buenos Aires, several new luxury hotels have been announced, including a St. Regis from Starwood, a Park Hyatt and a new luxury hotel from Dubai-based Jumeirah.
IHG and Ritz-Carlton also are actively looking for opportunities in Buenos Aires, according to executives with the two companies.
But there are also a lot of opportunities for full-service and limited-service hotels across Argentina and most of South America.
"I think there is a huge opportunity for developing projects like Four Points by Sheraton or Courtyards [by Marriott], because more and more people are coming from abroad, and not all go for luxury and upper scale," Garcia Rosa said. "And they find international brands that they know."
Regional travel also is fueling demand for development of midscale brands across Latin America.
"Certainly economic stability has been one of the key reasons we have seen more influx of business travel in a lot of these regions," said Alvaro Diago, president for IHG in Latin America. "We have also seen that a lot of these countries are in some instances less dependent on international travel. ... They have created a lot of good synergy within their region."
Regional business travel is fueling development in such places as Colombia, perhaps best known to Americans for its guerillas, cocaine and drug cartels.
"Basically, with its recuperating economy and image within Latin America and the world, Colombia has really stepped out for a lot of foreign investment," said Diago; his company, IHG, has four hotels in Colombia. "In markets like Bogota, you can't get a room Monday through Thursday."
Hilton is returning to Bogota next year after a 17-year absence. It also has a hotel in Cartagena, Colombia. Marriott has a Marriott and a JW Marriott under development in Bogota and recently signed a deal to develop five Courtyards in secondary cities.
"We really view Colombia as the most up and coming in the region," Ervin said.
"There are really cool independent hotels. You could scratch your head and say, 'Why hasn't the world discovered this place?' as the government has gotten the rebels under control there and business tourism has exploded."
SLOWER GROWTH IN BRAZIL, CHILE
One country that has seen less activity in recent years is Brazil, in part because of a capacity glut created a few years back when investors, leery of shaky financial markets, bought into condo hotels, particularly in Sao Paulo.
"Sao Paulo is the exception in South America," Garcia Rosa said. "But as time goes by, it is recovering."
Although Starwood is building its first W in Santiago, Chile, that country also is seeing less activity right now.
"We have a Ritz-Carlton and a Marriott there in Santiago, but people just don't travel that much outside of Santiago," Ervin said. "There's just not this breadth of opportunities like there are in Argentina."
In Central America, hotel executives said Costa Rica remains the hottest market.
"For the last two years, literally I'd say probably 40% of our calls are people wanting to do deals in Costa Rica," Ervin said.
Rockett of Hilton said he knows of at least 50 resort projects currently under way in Costa Rica.
"If the phone calls that we get are any indication, the place is on fire," he said.
Ervin, however, speculates that the Costa Rica boom could be waning.
"We do very well in Costa Rica. Almost all of our international brands are represented there or under construction with the exception of Renaissance. Development interest there is enormous," he said. "But if I were looking into a crystal ball, I might say a lot of the projects that have been announced in Costa Rica probably won't come to pass. A lot have been announced without the capital to build them."
A HOT CANAL ZONE
Another hot area is Panama, a country that some predict could be the next Costa Rica.
Panama City, a bustling international financial and trade center, is also experiencing growth from the Panama Canal expansion and a real estate boom that has brought a lot of retirees, Americans and others, to the country.
"It looks like Miami three or four years ago," Ervin said of the cranes dotting the city skyline.
Rockett used the same analogy to describe the growth.
"Everything is coming together all at the same time," he said. "Up until about 18 to 24 months ago, you could look at the leading hotels in that city and RevPAR hadn't really changed meaningfully over the previous four years. ... But it's just taken off. I'd say you'd see double-digit RevPAR increases, and really dramatic ones, just in the last 18 months."
Developers are also eyeing Panama beaches. Nikki Beach is building a luxury resort on Playa Blanca in the town of Farallon, and Planet Hollywood recently announced a resort in Panama.
"People who are really in the know about Panama feel it will eventually exceed Costa Rica in terms of the luxury traveler because you have better beaches," said Ervin.
Hotel companies' high interest in Panama and Costa Rica is also likely to generate interest in neighboring countries.
"I think there is probably going to be spillover into some of the other countries like Nicaragua, Guatemala and Honduras when hotel companies go to Costa Rica and Panama and see how expensive the land is right now," Rockett said.
"I have made visits to El Salvador, Honduras and Nicaragua just the in the last few months to look at projects. They are quite a bit behind Costa Rica and Panama, but the interest is there."
VIVA MEXICO
While hotel executives all agree that opportunities abound throughout the region, Ervin said Mexico remained the most exciting for the Marriott company in Latin America.
The country is "growing across all of the tiers of products," Rockett said.
"We are doing well with luxury products there. We just signed a Ritz-Carlton in Mexico City. We signed a development deal for 20 Courtyards all over Mexico in the next couple of years, basically in secondary cities. ... We signed a deal to do 10 Marriotts in mostly secondary cities.
"What is happening is that the Mexican middle class is starting to rise up and assume real value. So there is a mix in travel, an increase in local Mexican travel."
Whatever Latin American country they focus on, hoteliers are either describing boom times or anticipating them.
What's more, from Mexico to Tierra del Fuego, they are anticipating sustained growth for all their brands.
"Our main priority is the penetration of the InterContinental brand within the capital cities where we are not there yet," said Diago.
"We are really pushing penetration of Crowne Plaza in primary and secondary cities. We are also trying to take advantage of the relationship we have with owners of InterContinental to be able to expand with the Crowne Plaza ... Holiday Inn and Holiday Inn Express brands. And the big thing, of course, this year is the launch of Indigo."
To contact reporter Jeri Clausing, send e-mail to [email protected].