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The Case for Colombia

Once off limits, the South American country is the next hot spot for hotel development.

Monday, October 11, 2010
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Hilton Worldwide has been in on the Colombia “secret” for more than 30 years.

That’s how long it has operated the Cartagena de Indias, which sits on the water in one of the country’s biggest resort cities. It also has a Hilton under construction in the capitol city of Bogota, said Tom Potter, Area Vice President of South America for Hilton Worldwide.

“It’s a natural market to go into,” Potter said of Colombia, which is the fourth-largest country by land in South America and has the continent’s second largest population after Brazil.

“People are a lot more comfortable today traveling to South America than they were 15 to 20 years ago,” Potter said.

Now other major hotel companies are catching on, with several projects under way or being planned. Hotel chains, developers and investors discussed the merits of Colombia and other countries at the South American Hotel and Tourism Investment Conference, which met recently at the Hilton Cartagena.

Tourism is the most dynamic sector of growth in Colombia, according to Juan Carlos Gonzalez, vice president for foreign investment at Proexport, the government agency that promotes tourism, investment and exports.

Last year, nearly 1.4 million international tourists visited Colombia, compared to only 600,000 in 2000. More than half of all tourists visit Bogota, followed by the beachfront town of Cartagena and Medellin, the fashion capitol of Colombia.

Travelers are also discovering the area as a meetings destination. The International Congress and Convention Association ranked Bogota 79th out of 288 cities for the number of meetings it hosted, up from 229th in 2002.

But Colombia still faces challenges to its tourism growth. The biggest one is the perception that it is an unsafe country.

“Colombia is a relatively safe country in reality, but there is a perception it’s more risky than it is,” said Pierre Charalambides, co-founder and partner at the private equity firm Dolphin Capital Partners, which invests in luxury resort development.

Tourism officials are well aware of the security perception and take pains to point out the drop in homicides and kidnappings. They also launched a cheeky marketing campaign with the tag line, “Colombia: The risk is wanting to stay.”

Proexport also is monitoring attitudes toward the country, particularly through a survey that measures business attitudes every two months. Ten years ago, the main issue business executives brought up was security. Now Gonzalez said the hottest topic is the exchange rate.

“The biggest challenge was to get people to come here for the first time,” he said. “The country surpasses the expectations that people have. They expect to see less-developed cities. We see that when people come, they get a very good perception of the country.”

To encourage hotel development, the government is offering a 30-year income tax exemption for any renovation or new construction projects done by 2018.

Cesar Augusto Muñoz Meza, an economist with GPS Proyectos Turisticos, said more than 360 lodging projects are now taking advantage of the tax breaks. Colombia’s “privileged location” beyond the hurricane line as well as its climate and biodiversity make it a good place to invest.

After years of bad reputation because of security concerns, the country has seen steady growth in tourism since 2000, according to Arturo Garcia Rosa, a senior partner with HVS Global and president of the conference. New product is coming from international brands such as Marriott, which opened a J.W. Marriott in a trendy district in Bogota this summer following a full-service Marriott near the airport a year ago.

Occupancy is increasing faster in other Latin American cities, Rosa said, but the government programs promoting tourism and offering tax incentives should help.

Juan Carlos Galindo, GM of OXO Hotel, which operates the Holiday Inn Express in Bogota, averaged 75 percent occupancy and attracted primarily business travelers in its first year.

“Now is a very good time to build hotels in Colombia,” he said. “Our country is changing a lot in terms of security and economy. National investors and international investors are starting to see Colombia differently. For many years, there was no hotel construction in Colombia, just local brands.”

Francisco Andragnes, principal and head of transactions for Latin America at PERI Prudential, agreed.

“We are focused on the middle-income sector,” he said. “It has the least amount of product because for many years the focus was on higher-income sector.”

Proexport is encouraging growth beyond the obvious cities, said Adrianna Suarez, investment promotion manager at Proexport. One example is Santa Marta, an oceanfront city three hours from Cartagena that has no international brands.

Colombia’s Caribbean coast seems to be under the radar with investors.

“Colombia needs to do more here,” Andragnes said. “When I saw how beautiful Cartagena is, I was surprised more people hadn’t heard of it.”

Rogerio Basso, practice leader Latin America for Ernst & Young, also said Colombia needs to invest more in infrastructure.

“Cartagena in the short-term should have a focus on the domestic market,” Basso said. “When hotel infrastructure grows, and airports and restaurants, then they can shift to an international emphasis.”

Oscar Rueda Garcia, vice minister of Tourism Colombia, said the country is working to make these things happen.

“Our main task was to recover trust and belief in the country” from both investors and tourists, he said.

To boost air travel, the country has moved away from a protectionist policy. It has brought in low-cost carriers and is seeking to open 10 key cities to U.S. airlines. It also wants Colombian carriers to be able to fly to U.S. cities. Colombia also removed visa requirements for 73 countries last year.

Officials also want to educate potential tourists on geography by showing how close the destination it is from New York, Miami, or Mexico City.

“It is the will of the national government to be a partner,” Garcia said. “We are willing to help you.”

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