Robust outlook for Brazilian hotels despite economic challenges

At the end of 2014, Jones Lang LaSalle (JLL) released its latest Lodging Industry in Numbers Brazil 2014 annual publication, which surveys 450 Brazilian hotels, providing the audience with an excellent insight into the Brazilian hospitality market changes during 2013.

Ponta-Negra-Skyscrapers-and-Coast-Line-Natal-BrazilDespite a fair share of challenges that the Brazilian economy is facing, the hospitality market in Brazil has reported some highly positive results. Year-on-year data reveals that for the ninth year in a row, Brazil’s urban and condo hotels posted positive RevPAR (Revenue per Available Room) increase, amounting to 6.7% for 2013. As a result, 6.7% growth in RevPAR has outperformed the country’s inflation rate for that year, which stood at 5%.

The occupancy rate has also grown by 0.4%, despite the slower growth in the Brazilian economy and even though occupancy rates have fallen 3.6% over the past two years, hotel owners have seen an increase in the average daily room rate of 23% during that same period.

In 2013, Brazil witnessed the number of hotels grow by 2.4%, while the number of international and national chain-affiliated hotels increased by nearly 12%. This has led to a more structured and competitive hotel market in Brazil.

According to the Brazilian Forum of Hotel Operators (FOHB) data, released by the Ministry of Tourism in March 2015, the hotel pipeline is very robust with future plans including the opening of 630 new hotels by 2020. This means that the Brazilian hotel industry is planning to invest R$ 12.8 billion (US$ 3.9 billion) in the next six years (FOHB co-operates with JLL on production of the Lodging Industry in Numbers Brazil publication).

JLL also found that whilst certain operating expenses increased in 2013, hotels focused on reducing costs through investments in technology and this ability to manage expenses led to increases in Gross Operating Profit (GOP), which grew 6.2% in 2013 compared to 2012. Average profit margins in 2013 increased to 36.6% of Total Revenue, outperforming 35.6% of Total Revenue in 2012.

It is worth mentioning that overall reviews of hotel performance review in 2014 remains relatively indeterminate for analysts and hotel professionals in Brazil, primarily due to the news of slower economic growth however the positive impact of the FIFA World Cup in the 12 host cities should yield some positive results despite the economic headwinds. Most importantly, the promotional impact of the FIFA World Cup, along with the decline in the value of the Brazilian currency, boosted international tourism to Brazil. One million foreign tourists visited Brazil during the event, significantly exceeding the previously estimated 600,000 football fans.

Ricardo Mader, Executive Vice President of JLL’s Hotels & Hospitality Group in South America stated,

“The promotional effects of the World Cup, coupled with the devaluation of the Brazilian real against the U.S. dollar, create a positive outlook for the hotel sector in Brazil. There are major prospects for growth in foreign tourism, and the country is enjoying the enhanced image as a major tourist destination within the global market.”

Travel is becoming significantly cheaper as Brazilian real is currently trading at 33 cents to the U.S. dollar, 30 cents to the Euro, and 44 cents to the Singaporean dollar, making Brazil a very favourable destination for foreign tourists.

According to the FOHB, future investment will expand the number of budget hotels and the availability of rooms in cities with less than one million people. 630 new hotels in the pipeline will bring the number of hotel rooms in Brazil up from a current 94,000 to 164,000 by 2020.

Brazil will also soon get another chance to shine on the world stage when Rio hosts the 2016 Summer Olympic Games, which will boost not only the hotel supply in Rio de Janeiro and across the country but also bring a positive knock-on effect on the Brazilian economy. There is business for the construction industry and generation of jobs in the tourist industry with the FOHB survey estimating that some 100,000 tourism related jobs will be created by 2020, up from the current 64,000 jobs.

It is also worth noting that in addition to international tourism, Brazil is home to some 200 million people who comprised 83.7% of hotel guests in Brazilian cities in 2013 according to JLL Hence, Brazil has a highly developed domestic tourism market.

In January 2015, Jones Lang LaSalle released Hotel Investment Outlook 2015, which covers hotel markets across the globe. The report’s findings stipulated an important point about Brazil – the slowing economic growth in Brazil may have some investors concerned but the power of the middle class remains strong. There is still a huge imbalance between the demand versus the supply of good quality hotels, especially a lack of quality branded hotels in secondary and tertiary locations with the number of quality hotel rooms per 1,000 residents in Brazil being just one-tenth of that in the U.S.

It is for all these reasons and more that Ritz-G5 has identified a number of hotel investment opportunities in Natal. Mercure Natal and Piramide Hotel Natal are two significant hotel investments currently under construction by Ritz-G5.

Mercure Natal is a contemporary 252-suite, 4-star hotel located in the upmarket district of Ponta Negra. This development occupies the last available plot on the prestigious Via Costeira and offers stunning views over Atlantic Ocean/Ponta Negra beach and excellent amenities including a business centre, private swimming pool and 24-hour concierge. Mercure Natal is managed by Accor, one of the biggest hotel groups in the world with 3,500 hotels and 450,000 rooms spanning 92 countries. Works are underway on this project and completion is set for Q1 2017.

Piramide Hotel Natal is a 315 bedroom beachfront hotel with conferencing facilities situated in Natal’s exclusive hotel area known as ‘VIA COSTEIRA’, 4km from Natal’s city centre. The hotel comprises five swimming pools, rooftop terrace and fitness centre, swim-up bar, steam room, spa tub and children’s club facilities. The hotel is currently under refurbishment and set for opening in September 2015. Once finished, it will be handed over to Accor over the next 20 years, under their ‘GRAND MERCURE’ brand.

For more information on Ritz-G5 or investing in Mercure Natal and Piramide Hotel Natal, contact the team on +44 207 183 7565 or visit www.ritz-G5.com.

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