Luxury, beach resorts giving Mexico a boost
Luxury, beach resorts giving Mexico a boost
20 APRIL 2015 7:41 AM
Mexico's hotel industry has recorded steady, sustained growth during the past five years, driven in part by strength in a large share of 5-star and beach resorts.
REPORT FROM MEXICO—Mexico plays a significant role in the tourism and hotel industry globally. Mexico is the top tourism destination in Latin America and ranks 15th in the world, according to the World Tourism Organization. The country offers 32 UNESCO World Heritage and Natural Sites and a strong appeal for inbound tourism, mainly from the United States and Canada.
Mexico has much official recognition as one of the top world tourism destinations:
  • Mexico ranks second worldwide in medical tourism.
  • Mexico ranks fourth in cultural tourism.
  • It is one of the best places for retirement in the world.
  • It is the sixth country with more sites declared as "World Heritage" in the world.
  • Mexican cuisine is one of the three kitchens in the world declared Intangible Cultural Heritage by UNESCO.

Mexico’s gross domestic product reached about $1.3 trillion in 2014 (+2.1% versus 2013) and ranks as the 15th largest economy in the world and the second largest in Latin America (after Brazil). The Mexican economy is strongly linked to the economic activity of the United States and presents a high incidence of the tourism industry (about 8.5% of national GDP). 
During 2014, the economic activity in Mexico presented a more dynamic scenario than shown in 2013, but it’s still far from the post-2009 crisis rates. 

The economic expectations survey conducted by the Bank of Mexico, reported the following:
  • The headline inflation expectations for year-end 2015 and 2016 will be 3.47% and 3.49%, respectively.
  • The annual rate of average growth of GDP for 2015 and 2016 are 3.83% and 4.12% respectively, and is forecast to grow around 4% annually over the next 10 years.
  • The exchange rate of the peso against the dollar may close at 13.08 pesos in 2014 and 12.95 at the end of 2015.
Tourism: Slow but steady comeback
Tourism represents 8.4% of GDP, so it becomes the fourth source of income in the country, and it is forecast that the share of GDP will increase up to 9.4% by 2018. 
International tourist arrivals in the country are increasing sustainably after 2009 (Influenza and international financial crisis) reaching superior levels to the ones shown before 2009. The last few years were good for the tourism sector as it consolidated its recovery, and trends suggest that 2015 will be better. The role of vacation ownership is crucial in the development of Mexican tourism; by the end of 2014 it increased more than 8%.

Most of the international tourists who arrive to Mexico come from the United States and Canada. European tourists also are important for inbound tourism in the country, though the Latin American countries also have been increasing their participation during the last few years. 

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According to the 2013 Tourism and Travel Competitiveness Index produced by the World Economic Forum, which measures different factors regarding the attractiveness of the countries for developing new investments or businesses in the tourism and travel sector, Mexico ranked 44th in the world and second in Latin America (after Panamá).
Hotel room demand is concentrated, mostly in beach destinations such as the Riviera Maya, Cancun, Acapulco and Los Cabos. Among the main urban centers, Mexico City and Guadalajara are the most relevant, and as for the secondary cities located in the interior of the country, Puebla, Oaxaca and Mérida are also relevant markets. 

According to the 2013 International Congress and Convention Association Rank, Mexico is the fifth most relevant destination regarding meetings-incentives-conventions-and-exhibitions tourism, hosting 158 international events during 2013. 

Hotel supply
The hotel segment categorized as 5-star hotels has the largest share of the Mexican market regarding the total number of rooms, though it presents the smallest number of lodging establishments. As in most markets, 5-star hotels, and particularly beach resorts, have a strong incidence in Mexico’s hotel supply.

Quintana Roo, where some of the most important beach destinations such as Cancun, Playa del Carmen and Tulum are located, concentrates more than 15% of the total hotel supply in the country, according to DataTur. Jalisco (Guadalajara, Puerto Vallarta) and the Federal District (Mexico City) concentrate 11.5% and 8.9%, respectively. 

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The hotel rooms’ supply has increased more than 60% since 2000, reaching a 4% compound-annual-growth rate.

According to STR, parent company of Hotel News Now, during the past few years the Mexican market has presented an accumulated growth of 13% in terms of average occupancy rate, with occupancy rates between 55% and 62%. Moreover, average daily rate presented an accumulated growth of 17% in U.S. dollars between 2010 and 2014. This resulted in, according to occupancy levels, a significant accumulated growth of the revenue per available room of 33% in U.S. dollars between 2010 and 2014.

When comparing Mexico with other Latin American countries, it is the only country that showed a sustained growth level during the last few years. 

Hotel development: REITs and IPO time
  • Over the last few years the hotel industry in Mexico has experienced a remarkable change regarding its source for financing development. The FIBRAs (real estate investment trusts focused on real estate development and acquisition) have shown their interest in the hotel industry and become relevant players in the market.
  • Fibra Hotel and Fibra Inn are two of the main REITs that are developing hotel projects in Mexico.
  • Fibra Hotel holds a portfolio of 42 hotels, mostly focused in the budget and midscale segments (business hotels) and managed under national hotel flags such as One and Fiesta Inn (Grupo Posadas), Real Inn and Camino Real (Grupo Real Turismo).
  • FIbra Inn holds a portfolio of 31 hotels also focused in the budget and midscale segments (business hotels), but they are mostly managed under international flags such as Hampton Inn (Hilton Worldwide Holdings); Holiday Inn, Holiday Inn Express and Crowne Plaza (InterContinental Hotels Group); Aloft (Starwood Hotels & Resorts Worldwide); Microtel and Wyndham Garden (Wyndham Hotel Group); and Courtyard, Fairfield and Marriott (Marriott International).
  • Other relevant players in the market such as the largest national hotel chains (City Express, Grupo Posadas) seek for expansion through initial public offerings.  
  • The 3-, 4- and 5-star hotels are the main drivers of development in the country.
  • According to STR, as of March 2015, Mexico had 20,250 rooms in 125 hotels under contract. 
  • The government has taken various actions toward the consolidation and modernization of Integrally Planned Centers. The National Tourism Development Fund has invested more than $100 million distributed in Cancun, Ixtapa, Loreto, Los Cabos, Huatulco, Playa Espiritu and Riviera Nayarit from September 2013 to August 2014.
  • Some of the largest hotel brands (Posadas, Starwood, Hoteles City, Marriott, AM Resorts, IHG, Hyatt, Hilton, NH Hotels, Barceló, RIU Hotels ) have expansion plans in the country.
  • The slow, yet steady improvement of the U.S. economy is expected to impact positively in the Mexican tourism industry. 
  • Not only the international brands are expected to growth significantly over the next years, but also the Mexican hotel chains are starting to expand outside Mexico. City Express Hotels, for example, is opening the first hotels in Costa Rica and Colombia. 

Maria José Gutiérrez currently holds the position of International Director in Horwath HTL LatAm and Managing Director in Horwath HTL from Mexico and Colombia. She specializes in ski resorts, residential tourism, thermal tourism, hotels and resorts conceptualization, golf courses, marinas and tourism standards and quality. She has led and participated in conceptualization projects, feasibility assessment and market research, besides generating private investment for projects promoted by public administration and prospecting demand for destinations. She was member of the Intersectorial Committee of Certification of the ICTE -Instituto para la Calidad Turística Española- and member of the writing committee of tourism quality standards and their application in thermal and spa establishments for ICTE and ANET in Spain. Recently, María José Gutierrez created the Colombian Tourism Thermal Project for the country’s government; in addition, she conducted a research study of the potential hotel development in the eight most important cities in the country. Throughout her extensive career, she participated in the development of projects in Mexico, Colombia, Argentina, Brazil, Chile, Panama, Peru, Dominican Republic and Ecuador. She has also developed projects in European countries such as Bulgaria, Croatia, Czech Republic, Germany, Poland, Portugal, Romania, Russia, Senegal, Spain and Ukraine.
Sergio Giorgetti is currently a Fieldwork Director at Horwath HTL Latin America.  He has led the fieldwork done in several projects in Argentina, Brazil, Chile, Ecuador, Mexico and Colombia, and has also participated in the development of strategies to define competitive mixed-use projects attractive to the market in terms of product, finance and economic performance. His experience includes the strategic analysis and development of mixed-use projects including diverse business units such as: resorts, hotels, golf courses, sports centers, retail, offices, residences and other tourism facilities; taking into account the complexity and uniqueness of each scenario and evaluating the available funding options for the project.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that might be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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