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The Caribbean Comeback?

So what’s happening in The Caribbean? Well it depends if you’re an operator or developer. Here’s the scoop from CHRIS.

Monday, April 11, 2011
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The Caribbean hotel market is making a comeback, but to what degree is up to individual owners and operators. (Sounds to us a lot like what is going on here in the United States.) In many cases the bottom line of properties will be determined by exactly how much hoteliers can get those rates up. And as we’re been preaching here at Hotel Interactive®, a negative psychological mindset that has led to rampant discounting is still a pervading problem in places such as the Caribbean.

We’re at the Caribbean Hotel & Resort Investment Summit where this issue seems to be front and center, and hoteliers that don’t push their rates could be holding back the entire region from higher profitability. It’s a problem that can only get magnified as Latin America continues to chip away at demand since many countries have built great resorts that are luring American travelers.

“The question is: Are you discounting to get new people to come to the region or would those be people coming anyway? In that case you are leaving money on the table. That is up to you to decide,” said Jan D. Freitag, VP with STR.

According to STR supply in the region crept up 0.9 percent during the first two months of 2011 but room demand is up 5.1 percent. Occupancy too is climbing high to 70.4 percent, a 4.2 percent increase so far this year.

But what’s troubling is that ADR is on the decline, dropping 1.8 percent to $186. RevPAR has moved up 2.3 percent, however, to $131. What makes this issues more concerning is that ADR actually rose 3.8 percent in 2010. It’s a problem that may take three years to get ADR back to the $200 a night mark, last seen in mind 2008.

But when split out from the other segments, luxury seems to be the true darling, a segment that has been leading this recovery for the last year. According to STR the 262 luxury hotels in the Caribbean through February 2011 have seen room demand soar a massive 7.2 percent while occupancy rose 4.4 percent to 57 percent as supply grew 2.6 percent. ADR moved up 4 percent to $338 while RevPAR hit $193, an 8.6 percent increase. When taken together these numbers ass up to a 11.4 percent increase in revenue to $2.2 billion.

“The recovery is on but not taking us back to where the recession began,” said Warren Jestin, Senior Vice President & Chief Economist with Scotiabank. “New growth from emerging markets will have an effect on our businesses during the next 10 years.”

That effect may already be present as many projects that were in the pipeline halted during the recession continue to languish. And the longer they sit idle, the less chance they have of starting. Now that’s a real good thing for hotel operators that are not interested in adding new properties as a lack of new projects will help lift occupancy in existing hotels and theoretically convince operators to raise rates. But of course the wild card is still hoteliers pulling the trigger on increasing their room rates. And that is yet to be seen.

“New projects announcements have dropped significantly and many projects are stalled,” said Simon Townend, Partner with KPMG Corporate Finance. “What we are hearing and seeing on the ground in the Caribbean is that like many other places, this region has been through a financial catastrophe category 5 hurricane. There was a frantic increase in development activity followed by a financial storm.”

Townend is seeing a moderate uptick in new projects, however, they are very select projects that have the right fundamentals and would be well positioned for this just starting upturn.

One notable project moving forward is Baha Mar, which broke ground in February (read about it here: )

The 1,000-acre, $3.4 billion resort, gaming and entertainment complex got fully funded after several false starts. The project is set to open in late 2014, in time for the winter season and will include 2,250 hotel rooms, including a 700-room Grand Hyatt with 200,000 square feet of convention space; a 300-room luxury hotel by Rosewood Hotels & Resorts; a 200-room lifestyle hotel by Morgans Hotel Group; and a 1,000-room casino hotel. The casino partner has not yet been selected. In addition, Hyatt, Morgans and Rosewood each will offer 100 luxury residences. Also featured is a Jack Nicklaus signature golf course, 24 restaurants, three spas including a 30,000-square-foot destination spa, and a 20-acre Eco Water Park and pool experience. A nearby 16-acre private island will provide a premium retreat from the resort, offering private beaches and cabanas and other recreational opportunities. Guests will have charging rights throughout the property.

One big trend to look to in the Caribbean and beyond is the expansion of all-inclusive resorts, said David F. Larone, Director with PKF Consulting. That includes converting tradition hotels to this pricing strategy. “We have clients looking to covert to all-inclusive and we are seeing major chains thinking about this too,” said Larone.
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