It’s been a strong year overall for Caribbean hotel and resort performance, but oversupply threats loom.
MONTEGO BAY, Jamaica—With broadly favorable performance metrics, good inbound tourism and demonstrated resiliency, the Caribbean region overall is in a good place in 2019, though growing supply and other disruptors in some areas pose threats moving into 2020.
Hoteliers, economists and consultants at the Caribbean Hotel Investment Conference & Operations Summit attributed the region’s general health to performance and investment.
“There’s been a lot of capital invested in the region in the last year and a half for two reasons,” said Parris Jordan, VP with HVS New York and managing director of HVS Bahamas. “One is the strong market performance—(the Caribbean) is up 8% year to date in average daily rate and 6% in revenue per available room. Two is that opportunistic buyers are here … and we’re late in the cycle so you have investors chasing yields. Post-hurricanes, we have a lot of new product and renovated product, and that helps overall quality.”
Still, trouble spots exist. Three areas facing challenges currently are Mexico and the Dominican Republic, following safety concerns over the past year; and the Bahamas, which is dealing with the aftermath of Hurricane Dorian and resulting loss of tourism. Hotel executives speaking at the conference agreed many of those challenges are exacerbated by negative media coverage around security, illness and weather.
Despite those concerns, ADR is a bright spot region-wide, said Carter Wilson, SVP of consulting and analytics at STR. STR is the parent company of HNN.
“What’s most remarkable about the Caribbean right now is ADR,” he said, referencing STR data of 8% year-to-date ADR growth. “It’s not just one island accounting for it. There’s strong rate growth pretty much across the board.”
All-inclusive resorts a highlight
Wilson attributed a lot of the region’s strong ADR growth to upper-upscale and luxury development in the region, especially in all-inclusive resorts, which he said are “robust in terms of pricing.”
Executives from some of the region’s most prominent brands agreed on the health of the all-inclusive model overall in the Caribbean.
“There’s a tremendous opportunity in the region,” said Fernando Mulet, EVP and chief development officer of Playa Hotels & Resorts, which owns and operates all-inclusive hotels and has partnerships with Hyatt and Hilton to manage all-inclusives for them in the Caribbean. “There’s a real need to differentiate product.”
Marriott International’s Laurent de Kousemaeker, chief development officer of Marriott International’s Caribbean & Latin American region, talked more about the company’s entry into the all-inclusive segment earlier this year.
“With the Starwood (Hotels & Resorts Worldwide) acquisition, we inherited two all-inclusive hotels, so we looked at it to see if it made sense,” he said. “At that point, we were larger, we had a larger distribution of loyalty members, so we reached out and our customers wanted it.”
Other speakers on the opening general session panel talked about their successes with all-inclusives, but reminded the audience that it’s all dependent on location.
“Jamaica’s done very well and Curacao has done well, but we’ve certainly seen a big impact in the Dominican Republic,” Alex Zozaya, executive chairman of Apple Leisure Group, said. “A lot of group business is gone, and we’ll see a decline in the first half of 2020. … I see a decline in ADR in Mexico in the first half of 2020 and a decline in the (Dominican Republic), so the first half of 2020 will be difficult, but I see a much better second half.”
Supply was speakers’ top concern, having grown 1.9% year to date in the Caribbean, according to STR. The pipeline in the region shows 30% year-over-year growth in all phases. More than 40% of rooms under construction in the Caribbean are in the Dominican Republic, and most are in luxury, upper upscale and upscale classes, according to STR.
Jordan said 2007 was the last time the region saw supply growth in the 2% neighborhood, and it’s causing some banks to be hesitant with lending.
Brand executives were confident that as long as demand is strong, oversupply isn’t a concern. When that shifts, though, airlift often can’t keep up.
Zozaya said supply and demand follows cycles just like the economy.
“During the U.S. downturn, more people came to the Caribbean; we had some oversupply in the short term,” he said. “Now we have new rooms coming in that will put some pressure on rate. Rate may go down, but demand will go up, and it’ll go in cycles. It’s not a straight line.”
Mulet again stressed differentiation, not only with product but with client base.
“As owners, we’ve been repositioning our hotels, creating new concepts, because we think there’s a critical need to differentiate through investment and branding to enhance the quality of the resorts,” he said. “But in addition to being conscious of supply, you have to reach new customers. We’re bringing new customers to all-inclusives and now they can see the model. They trust the brand and the operation. We may need to adjust rate, but we’re able to sell globally and drive traffic and occupancy.”
José Carlos Azcárraga, CEO of Grupo Posadas, agreed that differentiated experiences can make or break long-term health in the Caribbean.
“Look at this new generation of experience-based travelers—they are a huge opportunity for tourism worldwide and specifically for this area,” he said. “The possibilities of gaining market share are a huge opportunity for us.”