Looking ahead at the region’s hotel and resort sector.
By Fleur Vagniez
Op-Ed Contributor
Hotels and Resorts across the Caribbean have experienced unprecedented growth over the last 6 years with ADR and occupancy rates outperforming those at the previous top of the cycle in 2007. However 2016 has shown signs of slowing down with STR reporting an occupancy decline of 2 percent to 67.1 % and ADR down 0.2 percent to US$198.62 from 2015-2016.
Is this a sign that we have reached the top of the market? Statistics tell us yes, however for those looking at long term growth there are many positives. And here are the reasons why.
First, the current cycle has different characteristics to the last cycle. The dynamics have changed, there is better financial security, improved access to capital and different and more sophisticated investors in the Caribbean market. Secondly the US hotel market is built out with supply growth exceeding demand. This means US investors are now looking further afield, and the Caribbean is on their doorstep.
The negatives:
The Caribbean hotel industry is and always has been sensitive to global economics and seasonality and in addition, events such as the Zika virus, US elections, Brexit and oil prices have all had a negative impact on hotel trading this year.
The positives:
Visitors arrivals are increasing, airlift is up, and island infrastructure is improving making travelling to the region more accessible and enjoyable than ever before. With revenue growth in the last few years, hotel owners have better access to capital and are using it to renovate existing hotels, further improving the quality of the product.
The differences:
The investor type has changed, and with more private wealth and family offices investing in the region we are seeing better access to capital. The new generation of millenials have created a demand for a different vacation experience and they are willing to pay the extra for quality, originality and service. This results in a strong luxury industry, a market in which the Caribbean is famous for.
Below is a brief statistical overview of the current Caribbean Hotel market: Construction –22 projects in construction and 51 under contract.
Sep 2016 Average occupancy 69.4% (up from 68% in 2008)
Sep 2016 Average ADR US$227 (up from US$221 in 2008)
Sep 2016 RevPAR US$157 (up from US$151 in 2008)
2015 US Arrivals – 7.65 Million (up from 5.74 Million in 2006)
From our experience, over the last 3 years we have seen a tremendous increase in confidence in the region.
And although some markets are still sensitive about the local unpredictability and risk, overall the Caribbean is seen as a good long term income for those willing to “wait out the storms.”
So we see this as a plateau at the top of the market, with consolidation of a stronger established platform, rather than having reached the crest to a downturn.
Fleur Vagniez is managing director at Blue Point Consultants, a firm of chartered surveyors who specialize in Hotels and Resorts across the Caribbean, along with everything from development appraisals and valuations to brokerage and consultancy.
Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.