This article explains trends in hotel development models and patterns throughout Central America, as well as identifies the countries within the region offering the greatest potential for hotel development.
Tourism has become an integral industry for growth in the economies of the Central American region consisting of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
This significant growth of the tourism industry is the direct result of changes in international consumer behaviors as well as economic prosperity and political stability within the region. Historically, the supply of lodging facilities within the region has proved to be both inadequate in terms of product quality as well as insufficient in quantity for meeting the increasing levels of demand. These elements of supply and demand have created a favorable investment climate for development within the region, resulting in a real estate boom in both tourism and residential development. The growth in residential real estate development has been primarily driven by foreign demand for vacation and retirement homes in both urban and resort destinations within the region. Investment and development has been further supported by the variety of financial incentives for investment in tourism projects offered by national governments as well as the availability of local capital for the financing of large projects. We note that to date, most of this development activity is taking place in Costa Rica, Panama, Honduras and Belize.
As Central America opened up to new source markets; it became apparent that an elevated level of hotel product and service quality was needed to cater to a more sophisticated clientele. In addition, the market for vacation and retirement homes demanded the same level of product and service quality. The resulting outcome of this shift in consumer preferences was an increased presence of hospitality driven mixed-use developments i.e. developments containing three or more significant revenue producing uses, one of which includes a hotel component, as well as some form of for-sale real estate product. Often, one of the real estate products is affiliated or branded with the hotel component. This hospitality driven mixed-use development model has proved successful, as the large upfront development costs of many hotel projects require some form of for-sale real estate product to make the overall project viable. Concurrently, the for-sale real estate products benefit from the additional amenities contributed by the presence of the hotel, as well as the marketing strength provided by certain hotel brands. The hotel brand image and strength, plus the appeal of hotel services and amenities available to second home residences, often results in pricing premiums for the real estate and improved market acceptance of the for-sale real estate product.
Over the past five years, specifically in the past three year period, the Central American region has realized tremendous growth in both urban and resort hospitality driven mixed-used developments.
During the past 18 months, HVS Miami has provided consulting and/or valuation services on 25 hospitality driven mixed use projects in Central America; specifically the projects were located in Costa Rica, Panama, Honduras and Belize...
Based on this work and our current research, this region currently has 33 active hospitality driven mixed use projects, representing a cumulative total of 5,854 new hotel rooms, which are either under construction or in the planning and approval process. This number of projects is down slightly from a previous confirmed total of 39 projects (6,715 rooms) in September of 2008, due to six projects being cancelled or placed on hold due to the weakened global economy.
The following tables present the regional data collected for total hospitality driven mixed-use development projects by country, as well as total hotel rooms within these projects by country.
Country | Rooms | % Total |
---|---|---|
Total | 5,854 | 100% |
Belize | 354 | 6% |
Costa Rica | 2,083 | 36% |
Honduras | 484 | 8% |
Panama | 2,933 | 50% |
Resort Hospitality Driven Mixed-Use Development Projects by Country | ||||
---|---|---|---|---|
Country | Projects | Hotels | % Total | Average Hotel Size (Rooms) |
Total | 33 | 37 | 100% | 158 |
Belize | 2 | 2 | 6% | 177 |
Costa Rica | 15 | 15 | 45% | 139 |
Honduras | 4 | 5 | 12% | 97 |
Panama | 12 | 15 | 36% | 196 |
A review of projects currently in planning or under construction provides some interesting insights regarding characteristics and trends related to the future potential increases in hotel supply associated with this business model.
A recap of our observations follows:
Resort Hospitality Driven Mixed-Use Development Projects by Country | ||||||
---|---|---|---|---|---|---|
Country | Projects | Hotels | Rooms | Average Hotel Size (Rooms) | Total Rooms | % of Total Rooms |
Total | 24 | 26 | 3718 | 143 | 5854 | 100% |
Belize | 2 | 2 | 354 | 177 | 354 | 100% |
Costa Rica | 14 | 14 | 1933 | 138 | 2083 | 93% |
Honduras | 4 | 5 | 484 | 97 | 484 | 100% |
Panama | 4 | 5 | 947 | 189 | 2933 | 32% |
Urban Hospitality Driven Mixed-Use Development Projects by Country | ||||||
---|---|---|---|---|---|---|
Country | Projects | Hotels | Rooms | Average Hotel Size (Rooms) | Total Rooms | % of Total Rooms |
Total | 9 | 11 | 2136 | 194 | 5854 | 100% |
Costa Rica | 1 | 1 | 150 | 150 | 2083 | 7% |
Panama | 8 | 10 | 1986 | 199 | 2933 | 68% |
Total Projects by Country | ||||
---|---|---|---|---|
Country | Projects | Hotels | Rooms | Average Hotel Size (Rooms) |
Total | 33 | 37 | 5854 | 158 |
Belize | 2 | 2 | 354 | 177 |
Costa Rica | 15 | 15 | 2083 | 139 |
Honduras | 4 | 5 | 484 | 97 |
Panama | 12 | 15 | 2933 | 196 |
A hotel brand analysis of established existing hospitality driven mixed use developments in the region, combined with the projects under construction and in the planning process, reveals the following observations and conclusions:
Of the projects analyzed, 73% have a hotel brand. The predominant hotel brands affiliated with these projects include:
Despite the global economic downturn, the development of hospitality driven mixed-use projects will continue in Central America; although we do recognize that the pace of these developments has slowed significantly. Until mid 2008, most of the hospitality driven mixed-use development activity had taken place in Costa Rica. Recent trends indicate that the development pace in Costa Rica is slowing, as this market, particularly in resort destinations, is moving into the stabilized stage of its development life cycle. In 2008, hospitality driven mixed-use development activity in Panama increased significantly. Most of this activity has taken place in Panama City and the surrounding areas which serve as the economic center of the country and generate significant room night demand. However, currently the Panamanian government is investing in significant infrastructure improvements throughout the country, which in turn will facilitate development in its various resort areas. The trend is clear that the initial growth phase for resort hospitality driven mixed-use developments has begun. Honduras and Belize are both emerging as markets with significant potential for the development of these mixed-use projects, although there are limitations to development resulting from less developed infrastructure and support services.
With the exception of Panama, most of the hospitality mixed-use development activity is occurring in resort destinations throughout the region. Panama City enjoys a unique position as an important international destination for both business and leisure travel, much of which is driven by the economic activity stimulated by the Panama Canal and the Colon free trade zone.
As noted in this article, most of the new supply of hotel facilities within these mixed-use developments are affiliated with a recognized hotel brand. This trend indicates that recognized hotel brands will play an important role in the growing hotel industry of the region.
By Marianne Canero - www.hvs.com
With over 20 years of combined experience in the hospitality and shared ownership industries, HVS Miami offers our clients a wide array of expertise relative to hospitality driven mixed use developments including product positioning studies, market and financial feasibility analysis ,and branded management contract searches. We offer our clients the flexibility of working with them through various stages of planning and development process, and are familiar with the complicated nature of these projects that frequently results in extended planning and development timelines.
Information requests in English or Spanish regarding on our work and services in Mexico and Central and South America can be sent to Marianne Canero at or Andrew Cohan
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