Where is the upside in Mexico?

CORAL GABLES, Florida – Despite negative headlines surrounding drug cartels, immigration and tariffs, Mexico was the most talked about market at the recent ALIS CALA conference in Coral Gables, Florida.

Investors and developers see a lot of upside in both the leisure and business segments as infrastructure spending is expected to make more markets accessible.

When asked if Mexico’s hotel business is more resilient, reinventing itself or facing linger risk, Grupo Posadas COO Enrique Calderon Fernandez said it is a combination of all of the above with resort destinations since 2022 completely recovered from the pandemic and city centers reaching better levels at the end of 2023 and into 2024.

“I would say that 2025 is looking like it will have some challenges, but nothing that we already experienced in the past,” he said, suggesting Mexican markets continue to have plenty of resilience.

Calderon also pointed to a return by travelers to more colonial cities like San Miguel de Allende and Oaxaca, and even more so to uber-hot Mexico City.

We’re changing, and you can see it every day, like the tacos are not as hot as they were before. But I think globalization is here, and as humans, we’d like to go where we’re welcome, and that will continue to drive business.

Luis-Rene Sanchez

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Luis-Rene Sanchez, director of development in Mexico for Wyndham Hotels & Resorts, agrees markets like Puerto Vallarta, Riviera Maya and Mexico City remain strong and have enduring success despite macro challenges. Like Calderon, he expects them to continue to thrive.

Sanchez cited the great service guests receive as well as the culture across the country as a big reason behind the market’s resilience. He also pointed to the robustness of “digital nomads,” who often stay six to 12 months at a time, and to the continued growth of international business into the market.

“We’re changing, and you can see it every day, like the tacos are not as hot as they were before,” Sanchez joked. “But I think globalization is here, and as humans, we’d like to go where we’re welcome, and that will continue to drive business.”

He added that while the governments are not moving as fast as they’d like, it’s moving in the right direction with infrastructure, and that will continue to drive the travelers to our country.

Running out of space?

However, panel moderator John McCarthy of Leisure Partners in Mexico City posited that the country is running out of space and most major brands are already present in the big markets like Los Cabos and Cancun. He followed by asking the panel about new destination and flag options.

Nicolas Rodriguez Alvarez, director of development for Hilton in Mexico and Central America, referenced Riviera Maya with Hyatt expected to take over Playa Hotels & Resorts assets, thus creating opportunities for others to penetrate the higher end of the market there.

“It can be a very good opportunity for investors to take our brands and develop new hotels there,” Rodriguez said. “But as a general point, we have a decent presence and a consolidated position in many markets. So, we’re seeing different kinds of projects such as branded residences with hotels that are very interesting in the luxury space, especially in markets like Los Cabos, Riviera Nayarit or Riviera Maya.”

Rodriguez added that there is also a need for focused-service supply for people without a luxury budgets and traveling for either work or pleasure.

“We are seeing deeper supply in those markets and there’s a lot of space to continue growing, especially with all the consolidation and all that is happening in those markets,” Rodriguez said. “I don’t feel that it’s saturated at this point.”

We are waiting for the day when the big global funds finally understand enough or desire enough to invest in Mexico. The way we look at it is either the Mexican investors – family offices or REITs – are overpaying, or the U.S. global investors are not understanding the value proposition of what it takes to own a hotel in Mexico.

Ricardo Zuniga

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Outside the typical destinations, Calderon pointed to markets such as Guanajuato, virtually untouched by luxury travel but with potential as a destination with a lot of historical buildings that can be converted to hotels. He also mentioned Puebla, which has not been promoted as well, but offers a lot of new attractions and cheaper construction options.

Calderon even mentioned Acapulco, which he said has been packed as of late. “Because there are not a lot of hotels open right now, we have been very successful,” he said. “Even the hotel restaurants have been successful with people coming from outside the hotel.”

Alvarez added that North American travelers who have been hesitant to travel to non-beach destinations in Mexico now have the appetite to do so. However, he said country is most often seen as a single-destination location and believes it creates an opportunity for the government to bring more jobs and growth opportunities to secondary markets.

M&A scenarios

The investor on the panel, Ricardo Zuniga Massieu with Vertex Real Estate in the Mexico City area, said they are net sellers today – not because they wouldn’t like to invest more but because they are at a moment in their investment cycle when it is time to sell. When they do bid to buy, Zuniga added, they are often outbid by local players.

“We are waiting for the day when the big global funds finally understand enough or desire enough to invest in Mexico,” Zuniga added. “The way we look at it is either the Mexican investors – family offices or REITs – are overpaying, or the U.S. global investors are not understanding the value proposition of what it takes to own a hotel in Mexico.”

Zuniga said one of the variables keeping the big money at bay is scale. “Mexico hasn’t become a country where there’s enough scale to attract the Blackstones of the world… There are not enough big portfolios to attract them. That, we hope, is about to change. There are funds that have been assembling big enough portfolios to attract the interest of the cheaper capital. We hope those transactions start happening, and once they do, those big funds will also start acquiring one-off transactions at a lower cost of capital and taking out people like us.”