Hotels & Hospitality | 2017 Hotel Destinations Report - Mexico€¦ · Hotels & Hospitality | 2017 JLL Research Hotel Destinations Report - Mexico Mexico

Hotels & Hospitality | 2017

JLL Research

Hotel Destinations Report - Mexico

Mexico

Hotel Destinations | Mexico | 20172

Welcome to the March 2017 edition of our Hotel Destinations Mexico publication, an annual overview providing a snapshot of key hotel markets across Mexico. As you browse through this guide, you will find a selection of notable hotel trends, recent transactions, upcoming new projects and a summary of key market statistics for each destination. We trust you will find this publication relevant, concise and insightful. We hope you enjoy the read.

Mexico City 4

Cancun / Riviera Maya 6

Los Cabos 8

Puerto Vallarta / Riviera Nayarit 10

Quick facts 12

Lodging performance 13

Contents

2

Hotel Destinations | Mexico | 2017 3

According to Oxford Economics, Mexico’s real GDP is projected to grow an average 2.4% per year over the next decade, instead of the 3.0% previously projected. The revised projection is influenced by austerity measures implemented in the country given low oil revenues, the peso’s depreciation, a global economic slowdown and as aforementioned, the uncertainty surrounding trade policies with the U.S. While safety and security have become less of a concern in the last few years, security issues continue to challenge the country’s perception and place a damper on the economy. In JLL’s most recent Latin America Hotel Investor Sentiment Survey, investors expressed that security issues remain a source of concern for investment.

Despite that, the tourism industry continues to play a vital role in Mexico’s overall economy. The favorable exchange rate, as well as improved connectivity and infrastructure have been key in increasing overall visitation to Mexico. 2016 was the fourth consecutive record-breaking year in terms of international visitation, with a total of 34.9 million tourist arrivals, compared to 32.1 million during 2015 when for the first time, Mexico ranked 9th among the 10 most visited countries in the world, according to the UNWTO Barometer.

Mexico has the most developed hospitality sector in Latin America. After years of malaise due to a series of setbacks, including rising violence, H1N1 virus and the global economic recession, Mexico’s tourism industry has weathered the storm and is now among the most important destinations for both business and leisure travel in Latin America and the world.

The emergence of domestic investment vehicles (e.g., FIBRAs and CKDs) targeting the hotel sector is increasing liquidity in the market, thereby driving investment in the hotel sector. Furthermore, the effect of the recent devaluation of the peso, combined with a moderate inflation rate, has translated into very attractive operating margins in some of the main hotel markets with dollarized rates such as, Cancun, Los Cabos and Mexico City, attracting the attention of both local and international investors.

outlookCountry summary

Mexico represents the second largest economy in Latin America, benefitting from a strategic location adjacent to the United States, its largest trading partner. This has helped the nation weather the economic downturn better than its Latin American counterparts. The nation´s economic outlook for the following years, despite being more conservative than last year, is still promising, even with slower projected growth as a result of the potentially negative consequences of the Trump Administration’s trade policies with the country.


Mexico City

Tourism Demand

Supply Outlook

Boasting a population of over 20 million in the greater metropolitan area, Mexico City is among the ten largest cities in the world and the most populous metropolitan area in Latin America. During 2016, and for the first time in history, Mexico City´s International Airport received more than 20 million foreign and domestic arrivals. The capital is one of the largest urban economies in the world. Mexico City’s main industries include services and manufacturing, although a gradual shift is emerging as the city becomes the epicenter of Mexico’s tech boom. Mexico City is home to major offices and headquarters of prominent regional and global businesses, as well as government institutions and the Mexican stock exchange. Investors are increasingly drawn to investment opportunities as they arise in Mexico City given its status as an established gateway market. Business districts such as Reforma, Polanco and Santa Fe are seeing a surge in high-rise construction such as office buildings, hotels and mixed-use developments. Mexico City is transforming into a vibrant cultural destination (it is one of the cities with the most museums in the world), with neighborhoods such as the historic city center, trendy and art-filled Roma, Condesa and Coyoacan, and upscale Polanco generating leisure demand during the weekend, which should bode well for the city-wide hotel occupancy. During the last couple of years, the city has made big efforts to promote tourism, including hosting major music festivals, as well as global sporting events such as Formula 1, NFL, PGA and NBA games.

Improved accessibility, the reduced cost of air travel and a better perception of security have enhanced Mexico City’s status as an established gateway destination. The new airport, currently under development and slated to open in 2021, is expected to be the largest in Latin America and will serve as a regional hub while increasing accessibility and tourism to the city

Demand is primarily corporate and government-related, as evidenced by the fluctuation in occupancy observed throughout the week. During the weekday the city’s occupancy peaks, reaching the 85.0% to 95.0% range, while on the weekend occupancy drops down to the 40.0% to 50.0% range. Nonetheless, the historic essence of the city center and upscale shopping and entertainment options offered in the Polanco district help stimulate leisure-oriented demand. Operators in the city adopt a discounted rate strategy to encourage corporate travelers to extend their say through the weekend, in hope that occupancy levels will be pushed higher.

With a total market stock of 30,334 quality hotel rooms and a total pipeline of 1,520 additional rooms anticipated to be delivered between 2017 and 2019, the city’s room supply is relatively small. The supply pipeline is somewhat constrained due to the high barriers to entry, such as increasing land costs in prominent submarkets such as Polanco and Reforma. As a result, developers are increasingly turning to mixed-use real estate projects in an effort to allocate the land costs across different uses. In submarkets such as Santa Fe, supply continues to gradually increase, thereby hindering any significant rate growth.

Overall ADR (Average Daily Rate) will remain relatively stable in dollar terms as a result of the depreciation of the Mexican Peso, and the price sensitivity of some submarkets (especially for local accounts and groups). Occupancy and revenue-per-available room (RevPAR) continue to be strong given healthy demand levels, higher barriers to entry, increased capital expenditures by upper-tier branded hotels and a more limited short-term supply outlook. Operators continue to achieve efficiencies and stronger flow through given dollar-denominated rates and costs in local currency.


Quick facts

New Hotels

AC Hotels by MarriottSanta Fe

(2017)

Hyatt House Santa Fe

(2017)

Courtyard Mexico City Toreo

(2017)

Sofitel Mexico City Reforma

(2018)

Ritz-Carlton Mexico City

(2018)

Sheraton Maria Isabel Hotel

& Towers 755 rooms | 2016

Hilton Mexico City Santa Fe

260 rooms | 2014 Price: $54M

Hilton Mexico City Reforma

458 rooms | 2014 Price: $91M

67.5%

7.1

160 119 298 153130

655$186 $125 | 3.4%

Source: STR, JLL Source: JLL

Sources: SECTUR, STRNote: Data is based on select branded upper-tier hotels that report to STR; number of new hotel rooms expected are based on hotels currently under construction and reported to STR.

Recent transactions

2016

30,33410.5%

rooms

Increase in international visitor arrivals (YoY)

rooms rooms rooms roomsrooms

Source: STR, SECTUR

Average occupancy for 2016

Million international visitor arrivals (2016)

New hotel rooms expected (+2017F)

Average rate for 2016 (USD) 2016 RevPAR + % change v. 2015 (USD)


Tourism Demand

Supply Outlook

Cancun/Riviera Maya is the most visited tourist destination in Mexico and the region. Located on the northern coast of Quintana Roo in eastern Mexico and bordering the Caribbean Sea, Cancun/Riviera Maya offers convenient accessibility from destinations in the U.S. and Central America. Cancun/Riviera Maya welcomes more international arrivals than Mexico City and remains the country’s second busiest airport. The destination’s tourism product currently competes strongly against prominent resort destinations such as Puerto Vallarta/Nayarit (Mexico), Jamaica, Dominican Republic and the Bahamas. The scarcity of developable land in Cancun led to the emergence of Riviera Maya, located between Cancun and Tulum to the south. The Cancun/Riviera Maya corridor boasts the highest number of hotel rooms of resort markets globally, complemented by extensive shopping, entertainment and dining experiences.

A record number of approximately 7.2 million international travelers visited Cancun in 2016, an increase of 7.6% and 22% over 2015 and 2014, respectively. Increasing international interest in the market is evidenced by the 7.1% CAGR observed in international travelers from 2006 to 2016. The surge in passengers can be attributed to the emergence of low cost carriers in Mexico such as Volaris and Interjet, increased connectivity to feeder markets in the U.S. and the renovation and expansion of existing airport terminals. Further, over the past year, visitation from the U.S. increased due to the lift in flight restrictions established by the U.S. and the Mexican government in August 2016. Airport capacity is expected to increase to a maximum of 25 million passengers upon the completion of the Cancun International Airport’s additional terminal, which is scheduled to be fully developed in 2018.

Travelers from North America and Europe represent the top source markets for Cancun/Riviera Maya. The U.S. dollar’s strong buying power coupled with a strong economic forecast, and favorable exchange rates, is helping stimulate international travel into the region. Additionally, the devaluation of the peso is making Cancun/Riviera Maya a more attractive vacation destination for domestic travelers as traveling abroad has become more costly. 2017 should observe robust visitation levels which is supported by the fact that during Q4 2016, average ticket prices for travel during the 2017 spring break period to Mexico were down 5% year over year, as reported by Expedia.

With the recent addition of over 1,000 high-quality rooms in 2016, coupled with expected hotel openings planned for 2017 and 2018, increasing supply is anticipated to place downward pressure on occupancy levels. However, of the supply in the active pipeline – hotels under construction, planning and in the final planning phases – over 80% of the rooms are upper upscale or luxury brands, which will continue elevating the destinations profile, push ADR levels up and potentially attract institutional investors including REITs to the market.

The combined effect of the depreciation of the Mexican peso, as well as the improved connectivity and completion of the new airport terminal, should result in an increase of visitation levels from both national and international travelers. The shift towards the all-inclusive operating model will continue and it is anticipated that all-inclusive lodging supply growth will continue to outpace European Plan (traditional) lodging supply growth.

Cancun/Riviera Maya


Quick facts

New Hotels

Renaissance Cancun Puerto

Cancun (2019)

Nickelodeon Hotel & Resort

Riviera Maya (2017)

St Regis Kanai Riviera

Maya Resort(2018)

Hampton Inn Cancun Cumbres

(2017)

Hard Rock Hotel & Resort

Riviera Maya(2018)

Viceroy Riviera Maya

41 rooms | 2016

Andaz Mayakoba 214 rooms | 2016

Banyan Tree Mayakoba

118 rooms | 2016

72.2%

7.2

180 228 134 1,800124

810$246 $178 | 1.6%


Sources: SECTUR, STR, JLLNote: Data is based on select branded upper-tier hotels that report to STR; number of new hotel rooms expected are based on hotels currently under construction and reported to STR.

Recent transactions

2016

30,06448,4017.6%

roomsCancun

Riviera Mayarooms



Cancun/Riviera Maya





Source: STR, SECTUR


Tourism Demand

Supply Outlook

Located on the southernmost tip of the Baja Peninsula, south of California, Los Cabos encompasses the towns of Cabo San Lucas and San Jose del Cabo, as well as the resort corridor that connects both areas. Cabo San Lucas is known for its varied entertainment, shopping and dining options, while quieter San Jose del Cabo has retained its colonial architecture and features a historic town center, art galleries and boutiques. Numerous resorts and golf courses are located on the 20-mile stretch of shoreline known as the Corridor, which lies between the two towns. After significant damage caused by Hurricane Odile in late September 2014, the destination has regained strength and vibrancy with the reopening of most resorts, new golf courses and additional direct routes from key destinations in the U.S.

International arrivals rose 12.7% in 2016 compared to 2015 and 23% compared to 2014, the year Hurricane Odile hit Los Cabos. In 2012, the destination inaugurated newly paved roads and a new international airport terminal, which improved accessibility to the destination. While the market has yet to fully recover and reach 2013 occupancy levels, 2016 ADR displayed tremendous improvement, making Los Cabos Mexico´s strongest market in terms of RevPAR.

Los Cabos is a popular destination for U.S. travelers, particularly from the West Coast. The favorable exchange rate as well as its proximity to the U.S. is a draw for travelers in addition to the high-quality hotel product, golf courses and broad range of leisure activities.

The hotel sector in Los Cabos is experiencing a boom in renovations and new hotel openings. Many resorts closed operations and underwent extensive renovations in the aftermath of Hurricane Odile, thus improving the quality of lodging facilities. Los Cabos has regained its position as the premier Mexican resort destination as a result of the aforementioned renovations and new construction. Currently, Los Cabos has 1,069 rooms under construction with another 498 rooms in the final planning stage of the development process.

Los Cabos is poised to continue its comeback with a new hotel development cycle underway. The debut of luxury resorts with global brands is anticipated to lead to improvements in infrastructure, enhanced connectivity and additional international investment. New rooms, combined with improvements to existing stock, are expected to result in strong ADR gains—boosting market performance in the medium to long term.

Los Cabos


Quick facts

New Hotels

Ritz-Carlton Reserve Los Cabos

(2017)

Hard Rock Hotel Los Cabos

(2017)

Solaz A Luxury Collection Resort

Los Cabos(2017)

Montage Los Cabos

(2017)

Four Seasons Los Cabos at Costa Palmas

(2018)

Westin Resort Los Cabos

243 rooms | 2016

Fairfield Inn Los Cabos

128 rooms | 2014 Price: $8.6M

Hilton Los Cabos Beach & Golf Resort

339 rooms | 2013 Price: $113M

52.9%

1.5

120 600 122 143152

994$452 $239


Sources: SECTUR, STR, JLLNote: Data is based on select branded upper-tier hotels that report to STR; number of new hotel rooms expected are based on hotels currently under construction and reported to STR.

Recent transactions

2016

14,31912.7%

rooms



Los Cabos




Average rate for 2016 (USD) 2016 RevPAR (USD)

Source: STR, SECTUR


Tourism Demand

Supply Outlook

Puerto Vallarta is a beach resort city, located on the Pacific Ocean’s Banderas Bay and is the fifth largest city in the state of Jalisco. It is Mexico’s third largest resort destination and its tourism activity has increased steadily over the years, representing almost 50% of the city’s total economic activity. Though technically not part of Riviera Nayarit, and Nuevo Vallarta, Puerto Vallarta is the gateway of the region. In the early 20th century, the town of Puerto Vallarta was considered a gateway to a number of important mines, but given its unique tourism product offering, the town quickly emerged as a resort destination that attracted North American and Mexican artists alike. Today, the resort destination is known for its cruise port, marina, hotel zone and mile-long Malecon. Additionally, its thriving retirement and secondary home real estate market is popular among U.S. and Canadian travelers. Rapid growth in tourism has spilled over from the city limits to Nuevo Vallarta, a planned residential and resort community. Adjacent to Nuevo Vallarta there is a 20-mile stretch of beaches, known as Riviera Nayarit, which includes the high-end mix-use developments of Punta Mita, and Mandarina (currently under development).

During 2016, Puerto Vallarta achieved a new all-time visitation record. International visitor arrivals to Puerto Vallarta increased 12.1% in 2016, primarily attributable to improved airlift. Both U.S. and Canadian Airlines added routes to the region, with Southwest adding flights from prominent U.S. cities such as, Seattle, Denver, Houston and Oakland. Further, more than 140 cruise ship arrivals were recorded in 2016, an increase of 6% over the previous year. Cruise ship arrivals are anticipated to continue increasing as the development of the new international port is finalized and becomes fully operational in the next three years. Additionally, infrastructure improvements by the federal government such as, a toll road that connects Guadalajara with Puerto Vallarta, making travel time less than two hours between the two cities, will enhance the destinations connectivity to other regional cities.

The three main source markets for Puerto Vallarta are U.S., Canada and Mexico. Local visitors represent approximately one third of total air arrivals and this figure is set to increase due to Puerto Vallarta’s improving connectivity through new direct regional flights. Business demand in the area will be supported by growth of the automotive industry in the Bajio region cities Aguascalientes, Guanajuato, San Luis Potosi and Queretaro. Visitors from Mexico City and Guadalajara are also drawn to the coastal city not only for its proximity, but also due to the affordability of travel in Puerto Vallarta relative to other more expensive Mexican resort destinations such as Los Cabos. These dynamics supported the market’s impressive 2016 performance posting its highest occupancy and ADR level in the last seven years and marking year-over-year RevPAR growth of 25.5% (in local currency).

The city’s push to capture other market segments such as meetings and medical tourism has led to improved lodging infrastructure across different operating models such as all-inclusive hotels and vacation clubs. Luxury hotels entered the market in 2015, including the 443-room Grand Fiesta Americana, which boasts the largest conference center in the city, the 335-room Hyatt Ziva, an all-inclusive hotel operation, and the brand new 119-room W Hotel Punta Mita. No hotels were noted to have entered the market in 2016 and new supply is anticipated to remain constrained over the medium-term. In 2018 and 2019, the addition of the One & Only Mandarina, the Fairmont Costa Canuva and the Rosewood Mandarina are expected to enhance Riviera Nayarit’s offerings in the luxury hotel segment and induce additional high-end tourism given the strength of the brands coupled with the quality of the products.

The Puerto Vallarta tourism board announced that in January 2017 domestic arrivals increased 6.1% while international arrivals increased 9.9% relative to the year prior. The strong start to the year coupled with the market’s formidable lodging performance in 2016 suggest that the market will continue making strides in tourism growth. Further, the devaluation of the Mexican peso will enhance its competitiveness compared to other destinations as it is a market denominated by the local currency. Additionally, new luxury hotels are expected to help lift the rate ceiling, while the limited new supply underscores the opportunity for future demand growth and ADR gains.

Puerto Vallarta/ Riviera Nayarit


Quick facts

New Hotels

One & Only Mandarina

Fairmont Costa Canuva (2019)

Holiday Inn Express Nuevo

Vallarta(2018)

Grand Fiesta Americana Puerto

Vallarta 482 rooms | 2016

Price: $79M

Four Seasons Punta Mita

173 rooms | 2014 Price: $170M





67.7%

1.4

130 250 100

0$113 $76 | 6.6%


Sources: SECTUR, STR, JLLNote: Data does not include Punta Mita hotels; data is based on select branded upper-tier hotels that report to STR; number of new hotel rooms expected are based on hotels currently under construction and reported to STR. ADR and RevPAR in local currency converted with the average annual exchange rate provided by Oxford Economics.

Recent transactions

2016

20,06112.1%

rooms


rooms rooms rooms

Puerto Vallarta/ Riviera Nayarit

Source: STR, SECTURNote: Number of Hotel Rooms includes Punta Mita and Riviera Nayarit


Quick facts

Los Cabos Puerto Vallarta Mexico City Cancun / Riviera Maya

1.5994 0 665 810

M

+ + +

M M M1.4 7. 1 7.2International visitor arrivals

(2016)

New hotel rooms expected

(2017+)


(2017+)


(2017+)


(2017+)

International visitor arrivals

(2016)


(2016)


(2016)

Lodging performance by city profiles

13Hotel Destinations | Mexico | 2017

Los Cabos Puerto VallartaMexico CityCancun / Riviera Maya

+14%

+7%

+6%

+2%

+3%

+7%

RevPAR

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

As observed in the individual city overviews, RevPAR levels across all cities profiled in this report have shown stable growth since 2013. Although the US dollar continues to strengthen against the Mexican Peso, hotel operating fundamentals in USD terms remain strong. From 2015 to 2016 Cancun and Puerto Vallarta averaged 2% and 7% annual RevPAR growth, respectively, while Mexico City averaged 3% annual growth during that period. It should be noted that since no year-end 2014/15 data reported for Los Cabos market given hurricane damage, RevPAR growth is not available. Nonetheless, the market achieved a RevPAR of $239 (USD) in 2016.

$300 -

$250 -

$200 -

$150 -

$100 -

$50 -

$ -

Note: No year-end 2014/15 data reported for Los Cabos market given hurricane damage--2014 data pertains to YTD Sep 2014; data is based on select branded upper-tier hotels that report to STR


Contributors

Clay B. DickinsonManaging DirectorLatin [email protected]

Alfonso de GortariSenior Vice [email protected]

Nicolas [email protected]

Fernando Garcia-ChaconExecutive Vice PresidentMexico, Caribbean & Central [email protected]

Geraldine GuichardoVice PresidentAmericas [email protected]

Ana [email protected]

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

About JLL’s Hotels & Hospitality Group

JLL’s Hotels & Hospitality Group has completed more transactions than any other hotels and hospitality real estate advisor over the last five years, totaling more than $77.5 billion worldwide. Between negotiating the world’s most extraordinary, enticing, and profitable property deals, the group’s 350-strong global team in over 20 countries also closed more than 5,300 advisory, valuation and asset management assignments. Investors worldwide turn to JLL to shape their strategies, tailor their portfolios and maximize the value of their assets. We are recognized as the global leader in real estate services across hospitality properties of all shapes and sizes. Our expert advice is backed by industry-leading research. We apply our broad spectrum of hotel valuation, brokerage, asset management and consultancy services through every phase of the hotel lifecycle. We have helped more hotel investors, owners and operators achieve high returns on their assets than any other real estate advisor in the world. Whether you are looking for a hotel or you’re ready to sell, we’ll use our capital markets expertise, hospitality industry knowledge and global relationships to put the right parties together and execute a bespoke deal that exceeds your objectives.

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Hotels & Hospitality | 2017 Hotel Destinations Report - Mexico€¦ · Hotels & Hospitality | 2017 JLL Research Hotel Destinations Report - Mexico Mexico