At 735 projects and 121,163 rooms, the Latin America construction pipeline reached a new peak at the end of the third quarter. It’s a year-over-year (YOY) increase of 10 percent by projects and 11 percent by rooms. The total pipeline has been growing consistently since the recessionary bottom in early 2010 and now exceeds the pre-recessionary peaks established in 2008.
Projects and rooms under construction, now at 345 projects and 56,961 rooms, are close to pre-recessionary levels with new project announcements driving the pipeline numbers up. These numbers have been at near peak for six quarters. However, new signs point to a potential economic slowdown throughout the region. With the exception of Brazil and some recent improvements in Mexico, economic growth during the recovery years has only been modest and incremental if at all. The availability of financing, high interest rates, and a lack of cross-boarder investors have been the main restraints to Latin American hotel development. Potential cutbacks in bond buying by the U.S. Federal Reserve Bank are looming large for the future. Effects of a decline in stimulus could ripple through the region, further dampening economic growth and slowing both hotel operating statistics and new hotel development.
As the world’s seventh largest economy, Brazil is the primary driver of pipeline growth in the region. The country has 56 percent of the total pipeline of rooms in the Latin America region and 78 percent of all pipeline rooms in South America. It also has a record high 401 projects and 67,787 rooms in the pipeline. Two world-class events, the 2014 World Cup and the 2016 Summer Olympic Games, have propelled development forward to accommodate a record flow of incoming tourists. Under construction counts have reached a new high in preparation of these events. At 175 projects and 29,797 rooms, the under construction stage for Brazil is 50 percent higher than its pre-recessionary peak.
The pipeline in the remaining countries in South America stands at a total of 111 projects and 15,019 rooms, which is a YOY decline of 13 percent and 11 percent respectively. Under construction totals at 71 projects and 9,832 rooms are still in a bottoming formation. Far distant from Brazil’s totals, Argentina has the next largest pipeline in South America with 37 projects and 3,952 rooms, followed closely by Colombia with 30 projects and 5,336 rooms.
Total pipeline rooms in Mexico have rebounded 50 percent in the last three quarters, though they are far from pre-recessionary peaks. Supported by an eight-quarter uptick in new project announcements, the country’s total pipeline currently stands at 106 projects and 16,059 rooms. An unusually high 83 percent of all pipeline projects are in the upscale and midscale chain scales. The number of hotels under construction has also bounced back and currently stands at 40 projects and 6,105 rooms.
The Caribbean pipeline bottomed out in the first quarter of 2011 and now stands at 75 projects and 14,593 rooms, which is a 4 percent decline YOY. Since the bottoming, project counts in the pipeline have varied from a low of 65 to a high of 82. New product announcements have been flat for an extended period of time as have been projects under construction. As larger economies such as North America and Europe have recovered, so too has travel to the Caribbean. Hotel operating statistics in the Caribbean should exceed pre-recessionary peaks in 2014–2015 and begin to spark developer interest shortly thereafter.
In Central America, the recovery for hotel operating statistics is stalled as the region has experienced YOY declines in both 2012 and 2013. Early last decade there was a surge in development in the region precipitated by the expansion of the Panama Canal and the development of a number of new resort projects. Since then the region has been focused on the absorption of that new supply, which is proving to be difficult.
The Central America pipeline stands at 42 projects and 7,705 rooms with Panama accounting for 62 percent of the project count. New product announcements in the region have been weak for seven quarters. At 21 projects and 4,249 rooms, the number of hotels under construction remains near area lows.
Patrick “JP” Ford is an SVP of Lodging Econometrics; info@lodgingeconometrics.com.
