News for the Hospitality Executive
Lodging Econometrics Q3 2010 Americas Real Estate Trends
Brazil's Pipeline Up 87% Year-Over-Year
A NEW LODGING DEVELOPMENT CYCLE HAS BEGUN IN LATIN AMERICA
Many Latin American economies showed great resilience and, with the exception of the Caribbean, rebounded quickly from the global recession. Governmental and political reforms enacted after earlier financial collapses created improved economic and financial management systems, stronger and better-regulated banks, and together with booming export-based economies, served to minimize the impact of the global economic crisis. Combined with positive gains in lodging demand and operating results and the growing availability of credit over the past year, major improvements in developer and investor confidence have occurred. These are the important prerequisites that have sparked the new lodging real estate cycle currently underway in much of Latin America.
The key metric confirming the onset of the new cycle is New Project Announcements into the Pipeline (NPAs). Notable gains have been made in most regions. NPAs for Q1-Q3 2010 were up everywhere compared to the same period in 2009, except for the Caribbean. With the fifth largest Pipeline in the world, Brazil is up an astounding 87% year-over-year (YOY), while the remainder of South America is up 28%. As a region, South America has the highest NPAs since Q1 2008. Mexico, which has the seventh largest Pipeline worldwide, is ahead by an impressive 39%.
For those projects already in the Pipeline that migrated forward, Construction Starts increased YOY by 24% in Brazil and 44% in the other South American countries. In the months ahead, Construction Starts are certain to trend upward strongly as the recent increases in NPAs migrate forward towards construction. Already, the number of projects Scheduled to Start Construction in the Next 12 Months has advanced to levels not seen since late 2008.
These are the nascent beginnings of a new real estate cycle. Increases in Total Pipeline counts will take a few more quarters for the flow through to become visible, as New Hotel Opening counts leaving the Pipeline are near pre-recession highs and will exceed NPAs into the Pipeline for a while longer. However, the beginning of a new real estate cycle, one of the first outside of the Asia Pacific region, is definitely confirmed.
A RENAISSANCE IN LATIN AMERICAN ECONOMIC ACTIVITY IS UNDERWAY
Spurred by governmental reforms, growing credit availability and surging demand for the region’s minerals and agricultural products, particularly from China and India, Latin America has tremendous economic potential and is attracting increased global investment. The Economist magazine reports that the region has 15% of the world’s oil reserves, some of the largest stocks of minerals, 25% of the world’s arable land, much of it untilled, and 30% of its fresh water. With budding democracies and a recognized need for further reforms, much of Latin America is well into a new economic and development revival.
Many economies have aggressively embraced globalization, led by Brazil and Mexico, which together account for 65% of the region’s GDP. These two countries, along with Argentina, Colombia, Peru, and Chile, make up 77% of the region’s population. All six were amongst the fastest growing economies in the world leading up to the recession, and except for Mexico, all have bounced back nicely.
The first signs of a rebound in lodging development are apparent in New Project Announcements into the Pipeline, with notable YOY increases between 28-87% being made in Mexico, Brazil and the remaining South American countries. The number of Construction Starts YOY, those projects that migrated forward and actually got into the ground, is showing improvement throughout South America as that region’s recessionary fall-off was modest and was the first to rebound.
Since New Hotel Openings leaving the Pipeline as new supply from the last cycle are high, it will be a few more quarters before Total Pipeline counts reflect the increases in new project activity. The evidence for a growing Pipeline in the months ahead is convincing despite the record levels of New Openings. South America’s Pipeline is already at its highest levels since Q2 2009, while Central America has been trending upward for three quarters. Mexico’s Pipeline now appears to be in a bottoming formation and is poised to expand.
While Latin America’s development growth is not as impressive as in other emerging countries like China or India, nor are Pipeline totals as large as they are in North America or in the fully developed countries of Europe, their shallow recession and impressive bounce-back lead many to think that this could be the “Decade of Latin America.”
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Econometrics Revises its 3rd Quarter Forecast for New Hotel Openings
Downward to 562 Hotels for 2011 & 515 Hotels for 2012 /
Starts for U.S. Hotels Reach a Record Low of 80 Projects with 8,566
Rooms in the 2nd Qtr 2010 / LE Forecast / July 2010
|U.S. Hotel Construction Pipeline Decelerating Rapidly; LE First Quarter 2009 Results / April 2009|