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Puerto Vallarta News NetworkTravel & Outdoors 

Investors Bet Big on the Mexico Hospitality Sector

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April 4, 2014

From under $100 million in hotel trades in 2009, to over $600 million last year, investors bet big on Mexico's hospitality sector. A positive trajectory is expected to continue for the next several years.

The Caribbean-like beaches, desert vistas and mountain ranges in Mexico have earned the country a top spot among the 15 most-visited destinations worldwide, drawing more than 23 million visitors a year. Strong tourist demand and budding economic and political environments are creating a positive outlook for the lodging sector, driving institutional investment into the region.

"We expect the Mexican lodging sector to continue its positive trajectory this year and throughout the next several years," said Clay Dickinson, Executive Vice President of JLL's Hotels and Hospitality Group a research firm and advisory practice in the Latin America region. "Hotel transaction volumes are projected to reach $700 million this year, the highest level in ten years. New construction is also on the rise with more than 191,600 new rooms expected to deliver before 2022."

From a low of less than $100 million in hotel trades in 2009, transactions in 2013 topped $600 million as investors bet big on the Mexico hospitality sector. Despite the new development activity, investors feel steady performance growth has resurged investment prospect. JLL expects deal flow to rise 15 percent in 2014 to the second-highest annual level on record of more than $700 million in hotel transactions.

Newly formed investment vehicles such as FIBRAs and CKDs, which operate similar to real estate investment trusts and accounted for 25 percent and 50 percent of hotel acquisition volume in 2012 and 2013 respectively, fueled local investment activity. These newcomers to the market quickly ratcheted up to half of the hotel transaction volumes in the country.

"Mexican authorities are increasingly promoting the country in other important source markets like Europe, Latin America, and Asia, including the largest potential market China," said Fernando Garcia-Chacon, Executive Vice President of JLL's Hotels and Hospitality Group and leader of the advisory group in Mexico. "The country's increasing middle-class population, with its expanding purchasing power will continue to drive room demand and investor activity forward."

Since 2010, Cancun has recorded $250 million in hotel transaction volumes, marking the city as Mexico's second most liquid hotel market. Sixty percent of rooms there are associated with either US or European brands, annual revenue per available room has increased 8.9% since 2009.

In addition to an uptick in investment activity, construction is also expected to increase throughout the next decade by a compound annual growth rate in room supply of 4.9 percent. This projected change would be more than three times the growth rate expected for the United States.

"Our bullish expectations for growth in hotel stock is based on two key factors the country's shift to a more service-oriented economy due to the emerging middle class, and its significant investments in infrastructure and large-scale projects, which is currently estimated at $134 billion," said Garcia-Chacon.

"With more than ten years of experience in the hotel investment industry, and as a Mexican, I am excited to see all of the change and progress coming to the hotel and hospitality industry in my country," added Alfonso de Gortari. Recently hired in Mexico City, de Gortari serves as a Senior Vice President with JLL's Hotels and Hospitality Group, and offers strategic advisory expertise and strong local market knowledge to expand the company's presence in the market.

Original Story