A New Day in the Sun: CHICOS 2018
By Kristina M. D'Amico, Director at HVS Miami
While last year's CHICOS focused on the Caribbean region following the immediate aftermath of the two devastating back-to-back hurricanes, this year's CHICOS theme, "A New Day in the Sun," discussed the positive attributes that stemmed from these tragedies of one year prior. A few key takeaways from this year's conference are presented below.
Resiliency of the Region
With the 2017 record-breaking hurricane season behind us, the recovery effort has been impressive. The islands of Anguilla, British Virgin Islands, Puerto Rico, and St. Barts have demonstrated a relatively fast recovery, with most of their hotel and villa rental inventory available for this upcoming peak season. The islands of Dominica, St. Martin/Maarten, and the United States Virgin Islands continue their recovery efforts, albeit at a slower pace; limited inventory is still available on these islands as they continue to rebuild. Despite the challenges left from the 2017 hurricane season, the market continues to be resilient, as demonstrated by the hotel operating performance, occupancy, ADR, and RevPAR levels over the last few years, despite the challenges in the region that stemmed from the Zika Virus and 2017 hurricane season.
In addition, total revenue increased eight of the nine months reviewed during 2018, compared to the same period in 2017; occupancy increased slightly; ADR grew more than 5% for the last five months (May through September 2018); and RevPAR increased 3.8% over the same period last year. Aruba, Curacao, Cayman Islands, Dominican Republic, Jamaica, and Puerto Rico are among the top islands with the strongest year-to-date RevPAR growth, with the Cayman Islands leading the charge, up over 27% from the same period last year.
High Interest in Financing Projects
In 2017, the Caribbean region was struck with two catastrophic weather events, which followed the fears of the Zika Virus that affected the market in 2015/16. In some markets, after severe storms, hotel values tend to decline, creating opportunities for buyers to make more affordable purchases. However, this was not the case for the Caribbean lodging market in 2018, as evidenced in the equity and debt-financing panels. Currently, there is greater interest in financing projects, more so than in the past ten years, as well as a renewed interest in investment and a notable influx of capital to the region. The region has shown significant increases in lending activity from regional banks and other alternative lending sources, as banks and non-bank financiers have more confidence in the market today than during the past decade. Driven by the resiliency of the market and how fast the region is capable of rebounding from events (such as the Zika Virus and hurricanes, which seasoned investors understand are inherently part of the dynamics of the region), investors are seeking more attractive yields in the Caribbean, as attractive yields in the United States are becoming more difficult given the competition to acquire quality products at reasonable pricing. Debt financing is also more readily available than years past, although lenders continue to be selective on projects. Because of the risks with Caribbean hotel investment, lenders continue to advise investors that strong sponsorship, locational attributes, and airlift are key criteria when acquiring financing.
Dominican Republic & All-Inclusive Segment
The Dominican Republic continues to exhibit solid fundamentals and has shown ADR increases for the past consecutive twelve years. Strong occupancy performance, resulting in annual occupancy levels above 70% since 2012, is driven by strong visitor demand, largely from the U.S. and Canada, as well as additional demand from Europe. This demand mix in the Dominican Republic is one of the most diverse, and this demand is contributing to a robust pipeline with nearly 6,700 rooms under construction, per STR. Many of these rooms are in the all-inclusive segment, as this business model has gained popularity in recent years. The segment has recently trended to a far more upper-upscale and even luxury vacation experience, with prices remaining extremely reasonable for the luxury services and the value that guests receive. As increased competition continues in the all-inclusive segment, owners and operators alike understand the importance of developing a unique experience at each individual resort, as rooms and food and beverage are generally a commodity. A variety of new, all-inclusive brands are under construction in the region, including the 1,565-room Senator Puerto Plata, 1,020-room Lopesan Costa Bavaro Resort & Spa, and the 909-room H10 Hotel Punta Cana. In addition, many of the traditional hotel companies, such as Hilton, have entered this segment and will continue to expand their products in the near term.
The resiliency of the Caribbean hotel market continues to shine, as investors are active (more than ever) in the region, which is evident from a lending and transaction standpoint. Visitation continues to grow, surpassing 30 million for the region for the first time ever. Demand for the region has grown for the past seven straight years, which continues to drive investment. In addition, the pipeline is robust, particularly in the all-inclusive segment. The outlook for the region is cautiously optimistic as conditions normalize following the 2017 hurricane season, with many hotels coming back online in the near term while new hotels enter the marketplace.
Staged by HVS, the Caribbean Hotel Investment Conference & Operations Summit (CHICOS) is the premier industry conference for the region. CHICOS annually welcomes governmental representatives, opinion leaders, developers, bankers and other lenders, tourism officials, investment funds, hotel brand executives, individuals/companies seeking investors for their tourism projects, franchise and operations companies, public and private institutions, consultants, advisors, architects, and designers to discuss the region's markets and possibilities. CHICOS 2019 is scheduled for November 14-15, 2019, at the Secrets Resort in Montego Bay, Jamaica.