Puerto Rico�s tourism industry plays a critical role in the country�s economic transition from agribusiness to the industrial, information, and service sectors. The tourism industry�s growth potential and Puerto Rico Tourism Company�s (PRTC) determination to make the island a world-class destination are incentivizing investors to make tourism a primary economic venue for Puerto Rico.

With the highest airlift capacity in the Caribbean, Puerto Rico�s vibrant culture, healthy economy, and pro-tourism government policies are the key drivers of growth in tourism.  The PRTC has ambitious strategic goals for fiscal years 2001 through 2004, which include the addition of 5,000 hotel rooms and construction of the new Puerto Rico Convention Center. Moreover, the PRTC is coordinating the development of the Americas World Trade District, establishing sustainable development plans on a regional level, and promoting public policy for measuring tourism industry performance.

After September 11, the Puerto Rican tourism market experienced an immediate decline, and is not anticipated to recover until late 2002. The economic downturn in the U.S., anticipated to last through the latter half of 2002, and Puerto Rico�s dependenct on air and cruise arrivals could continue to supress investor and consumer confidence, directly affecting the performance of the island�s hotels.

Major Demand Changes

Aiming to increase Puerto Rico�s share of the global tourism industry, PRTC has intensified its marketing efforts. It recently announced a $52 million joint marketing campaign for 2002 with the Puerto Rico Convention Bureau to begin marketing the island to the larger group and convention markets in addition to the mainstay leisure market.

The Puerto Rico Convention Center, slated for completion in October 2004, is anticipated to be a significant driver of commercial lodging demand in the future, as it will become the largest convention facility in the Caribbean at 580,000 square feet. The center is expected to comprise an integral part of the $1.2 billion Golden Triangle project, an integrated tourism development plan created by PRTC to maximize San Juan�s tourism potential.

Major Supply Changes

Puerto Rico is currently undergoing a strategic development plan that is expected to enable the island to increase its room supply by more than 5,000 rooms during the 2001 through 2004 period, representing an increase of approximately 40 percent over the island�s current room inventory of 12,754 rooms. An additional 1,300 rooms are currently under construction or have been announced, most of which are included in expansion plans of existing properties. Significant anticipated hotel groundbreakings for the 2002 to 2003 period include:

• 325-room Courtyard Marriott in Isla Verde, opening February 2002;
• 314-room Cayo Largo Inter-Continental Resort in Fajardo, opening March 2002;
• 350-room Four Seasons Resort in Luquillo, opening June 2002;
• 450-room JW Marriott Resort in Fajardo, opening July 2002;
• 980-room Paradisus Sol Meliá Resort, the island�s first all-inclusive resort, opening December 2002;
• 918-room Wyndham El Conquistador Resort & Country Club is anticipated to undergo a five-year, $20 million renovation, beginning in 2002;
• 400-room Fairmont Coco Beach Resort & Spa, opening November 2003; and
• 850-room convention center hotel (flag still to be determined), adjacent to the Puerto Rico Convention Center, opening 2004.

Political/Economic/Legal Changes

In March 2001, The Puerto Rico Development Bank (GDB) redefined the Tourism Development Fund, established by the 1993 Puerto Rico Tourism Act. Under the new financing structure, the GDB will finance 10 percent of hotel real estate projects as opposed to the previous 60 percent limit.  Although the new financing structure was utilized in several of the aforementioned projects, the development pipeline is sufficiently active. The new 10 percent limit places further constraints on available financing options for future lodging developments to help curb the potential for oversupply.
In 2003, the US government has scheduled a halt to the use of Vieques as a Navy exercise firing range. With the US Navy withdrawal and associated political and social turmoil, it is anticipated that tourism visitation will increase substantially from the current volume of 4,000 tourists that the island receives annually.

In response to the sharp economic turndown following September 11, Puerto Rico�s government created an economic package to revitalize the tourism industry on the island. The package includes initiatives such as a 50 percent reduction in jet fuel tax paid by airlines and a 20 percent discount in electricity bills for certified hotels, for a limited period of time.

Mark Lunt, Miami 

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