Hotel Developers Returning to Mexico and Caribbean

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As investor interest returns to the Caribbean and Mexico, the region's total active hotel pipeline has more than doubled in the last six months, according to STR Global.

The research firm's active pipeline for June includes 131 hotels totaling 21,957 rooms, compared to only 50 hotels with 9,495 rooms in the region's active pipeline last December.

Only five hotels with 354 rooms opened in the region in 2012, STR reports.

"Banks are slowly coming back to feeling comfortable to lending on hotels," Jan Freitag, senior vice president, strategic development for STR, told WPC News. "There are a lot of people trying to create projects but what they are needing is the money." 

The region's total active pipeline includes projects in the construction, final planning and planning stages. More than 10,000 hotel rooms are currently under construction, led by 4,025 rooms under construction in Mexico, STR reports.  

Five other countries reported more than 200 rooms under construction: Dominican Republic (2,475 rooms), Bahamas (2,271 rooms), Puerto Rico (709 rooms), Aruba (320 rooms), and Jamaica (238 rooms).

"Bankers and owners are again interested in this area and they [developers] feel the current existing properties aren't serving the needs well and they can make money by providing a better property," Mr. Freitag told WPC. "There's always a local developer who says 'hey I can make this work.'"

Out of all rooms under construction for the Caribbean and Mexico, 4,000 rooms are in the luxury segment. Including all phases, the region's pipeline includes over 7,000 rooms in the luxury market. 

"We expect in the future, 2014 and beyond there will be an uptick in construction because there will be more interest and more financing for new properties," Mr. Freitag said.  

New construction will mostly affect specific markets or submarkets, "when you suddenly have two or three more properties, that can certainly impact the local competition," he said. 

The Caribbean is in an increasingly competitive global market. A recent Caribbean report by TravelSat showed Caribbean destinations need to analyze their competitiveness compared to other global destinations.