Despite ongoing concerns about the ripple effect of the U.S. economy, hospitality leaders speaking at the 2023 CHRIS/HOLA conference remain optimistic about regional development, performance.
Mirroring the mood of hospitality leaders in the United States, industry CEOs providing their outlook for Latin America at the 2023 CHRIS/HOLA conference in Miami were cautiously bullish about what’s ahead for the region. But no one’s breaking out the Champagne in expectations of a banner year.
In a session moderated by Jeff Higley, president, The BHN Group, panelists Herman Bern, Jr., president, Bern Hotels & Resorts Panama; Javier Coll, president, global business development and innovation, Hyatt Inclusive Collection; Francisco Zinser, president, Grupo Hotelero Santa Fe; and Phil Zrihen, head of Americas, Ennismore were reporting good performance numbers flowing from 2022 into the first half of 2023 and, generally, robust pipelines.
Recession watch
As of 2023, Deloitte forecast that despite significant headwinds stemming from a potential recession in the United States and a strong dollar that ups the cost of dollar-denominated debt, drives inflation and makes borrowing more challenging, Latin America won’t slip into recession in 2023. Only Chile was forecast to weather a slight contraction in GDP, according to Deloitte’s January 2023 report.
Panelists weren’t panicking, but they’re not expecting to just sidestep a downturn.
“Recession is a big word,” Bern said. “I think there’ll be a slowdown over the next three to six months. After that, I think things will pick up again. I’m actually optimistic. So, recession is not the word I will be using. It’s just like a small slowdown. But then we’ll get going again.”
Coll made much the same call. “Recession is a number, right? Many times, we didn’t even realize we were in a recession until three months in,” he said. “I don’t think things will be that bad, but right now the exchange rate is really impacting us.”
While Zrihen said he was not feeling “dire,” he did point out that, “For me, the fundamentals are worse.” How that will play out is still an open question in his view.
“There’s a lot more pent-up demand than we’ve ever seen before in any type of situation like this. I’m curious to see how that potentially mitigates some of the concerns that we’ve talked about,” Zrihen added. “I think interest rates in the U.S. will start coming down, which will help. And in terms of the overall development outside of the economy, one of the things that I’m curious about is whether we can get past some of the supply chain issues that we’ve had over the past several years. If that happens, it could lessen the current concerns. There’s a lot of different moving parts, but the outlook is not quite as negative as some suggest.”
The reality is that even last year, we didn’t have a full year of recovery. So we’re just now seeing the light.
Herman Bern, Jr.
Is this still Mexico’s moment?
When it comes to the Mexican economy, Zinser was definitely not feeling immune to economic shocks from north of the border. “We have a saying in Mexico that when the United States gets a cold, we get pneumonia,” he said, hoping that any downturn is milder than what’s being predicted. CNBC reporting suggests that plenty of vitamin C (consumers) is keeping overarching recessionary fears at bay for now, and signals for the second half of 2023 are mixed, not bleak.
A combination of global geopolitics and governmental initiatives, however, may stand to transform the Mexican economy, Zinser said. “At the end of 2022, Mexico had a total $30 billion in nearshoring investment. Tesla alone committed to a total of $10 billion in the next three to four years [to build a gigafactory in Monterrey].” Brookings cited financial analysts as predicting a further $60 - $150 billion in nearshoring over the next decade.
“We are living in a golden moment,” Zinser added. “I think that we need to capture that moment correctly, because it’s it could be the turning point for the Mexican economy based on the situation with China and the United States.”
That said, both Zinser and Coll were quick to point out that there are some significant bumps in the road that owners and investors will have to navigate to maximize market potential while macroeconomic changes are being executed. The exchange rate is a major one in Coll's and Zinser's views.
“We were coming from 21.5 pesos to the dollar or maybe 22, and now we’re at 17," Zinser said. "So you can imagine what that does for as an industry that has one of its main customer markets in resort destinations paying in U.S. dollars. You have a shrinking dollar. You have higher inflation in business, and then you’re paying rates over 10% in local currency.”
Conversion not construction
As in North America and the Caribbean, the pipeline continues to flow in most of Latin America. Mexico has more than 100,000 rooms in the pipeline, and panelists said they have a "healthy" number of projects underway. The difference now is the shift from newbuilds to rebrands or reuse.
"We have been talking about the recovery. It’s very good in general, most of Latin America has recovered, not just my market [Panama], but most markets, especially city markets, have recovered really well," Bern said. "The reality is that even last year, we didn’t have a full year of recovery. So, we’re just now seeing the light.”
With the World Bank predicting 5.7% growth for the Panamanian economy in 2023 and 5.8% in 2024, that could be some intense illumination and inflation. Bern’s strategy is to “let hoteliers enjoy the moment” without aggressively developing new projects. “My quote here is that it’s better to focus on conversions,” he added.
Newbuilds will be scarce. "This business is very cyclical, it has the same patterns, maybe sometimes longer or sometimes a bit shorter," Zinser said. "In terms of development today, I would not consider newbuild development as much of an option. You have a very difficult mix of high interest rates. You have very high inflation costs. As an example we just opened the Hyatt Regency in Mexico City. It would be impossible to do it today under the same budget that we had when we did it."
However, Zinser does see opportunities as rates start to come down. "Deals are already on the table. We just bought a resort in Playa Del Carmen," he said. "It has 300 meters of beachfront and 72,000 square meters. And we bought it at a very good price. So we may be seeing some distress. There are some good assets to consider, but we're not going to be doing deals every week.”