Brazilian urban hotels and condo hotels in 2014 enjoyed their 10th consecutive year of growth in RevPAR, according to a new JLL study in partnership with the Brazil Hotel Operators Forum (FOHB).
Based on information about 2014 operating performance supplied by more than 460 hotels, resorts and condo hotels, the study found that RevPAR expansion was more modest in 2014 compared to previous years. The weak rate of economic growth proved to be a challenge across the country; fortunately it was largely offset by the positive impact of the FIFA World Cup soccer competition in the country’s principal hotel markets.
Another factor contributing to the sector’s slower growth was the increase in hotel supply, which has led to lower occupancy rates. Looking specifically at domestic and international hotel chains, the number of rooms increased by 7.9% in 2014 compared to 2013. JLL estimates that Brazil currently has a total of 10,050 hotels with 500,212 rooms.
Occupation fell by one percentage point compared to 2013, ending 2014 at 64.9%, while the average daily room rate rose by 2.9% over 2013 to reach R$267 at the end of 2014. Inflation in the same period was 5.9%. This represents more moderate growth compared to the last five years when the daily rate outstripped inflation.
On the other hand, devaluation of Brazil’s real currency against the U.S. dollar means the country has become a more attractive tourist destination. This directly benefited resorts in 2014, boosting their performance. Total resort revenue grew 33.4% over 2013 with gross operating return up by 2.8 percentage points.
Weakness of the real against the dollar also helped timeshares, a segment that has increasingly attracted Brazilians. Several resorts have successfully introduced this business model.
Large transactions set to continue
Last year saw the largest transactions in the history of Brazil’s hospitality industry, with the three biggest deals involving private equity funds. Quantum bought Atlantica Hotels, one of the largest hotel management companies in the country, while GTIS acquired roughly 70% of the shares of the Brazil Hospitality Group (BHG), including its hotel assets, taking the company private. Meanwhile, the HSI fund is developing 20 hotels under the Zii brand in several Brazilian cities using a platform called 2.0 Hotéis. The company also acquired Rede Arco Hotéis, a chain of 12 hotels in São Paulo state.
To the extent that the market for hotel real estate development continues to experience slow economic growth, JLL expects 2015 to see additional high-profile deals, with increased participation from investment funds and other types of institutional investors.
Hotel performance should pick up in 2016
While the devaluation of the real against the dollar has created a window of opportunity for new investments in Brazil, the poor performance of the economy in the first half of this year is expected to have a negative impact on hotels’ operating performance. This raises the possibility of RevPAR falling in 2015 for the first time in 10 years.
Inflationary pressure and rising energy costs are also likely to impact hotels this year, requiring properties to continue with cost reduction strategies introduced last year.
On the other hand, Ricardo Mader, managing director of JLL’s Hotels & Hospitality Group, pointed out, the expected economic recovery and the fact that the Olympic Games will be held in in Rio offer the prospect of better hotels performance in 2016.
FOHB President Manuel Gama said that “In fact, ever since May we have seen indicators that are worse than in the same period last year. However, we have also noted that the chains continue to be optimistic about the medium and long term outlook, and we maintain our forecast of having more than 400 new developments through 2020, implying an additional of 75,000 rooms in hotel chains in Brazil.”