Analyst: Caribbean is Far From Recovery

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The Caribbean hotel market is increasingly attracting interest from developers and vacationers, but it is far from the recovery seen in other regions, PKF Consulting senior vice president Scott Smith told WPC News. 

"What you are finding is the Caribbean is still lagging the U.S. recovery with respects to resorts, in that it still hasn't come back to pre-recession levels in occupancy, average daily rate or RevPar [revenue per available room]," Mr. Smith said. "We're still on an upward trend but we still have aways to go."

The leisure segment suffered during the financial recession, but "that's starting to change now as travelers have more expendable, discretionary income to spend on leisure activities," Mr. Smith said.  

The average net operating income (NOI) for the Caribbean increased 10.9 percent in 2012 from the previous year, according to the latest Caribbean Trends in Hotel Industry report from U.S.-based PKF. It is the second year of double-digit increases in NOI and the highest annual growth in profits for Caribbean hotels since 2008, the consultancy reports. 

"The leisure segment started to return back in 2011 and 2012 and they were the ones generating the increased demand in both occupancy and [average daily] rate for the Caribbean segment," Mr. Smith said. 

The industry performance has continued to improve this year. The firm's most recent data shows RevPar increased about 10.5 percent this spring from a year earlier, rising from $146.12 to $161.95.  

However, there are factors that could dampen or decelerate the region's hotel market's full recovery. American Eagle made its final flight from Tortola to San Juan in April. JetBlue and other airlines have picked up some routes, but there is concern about a drop-off of flights to the region.

The Caribbean is highly susceptible to airlift and "if you don't have airlift, you can't get your guests," Mr. Smith said.  

Hoteliers are also concerned about the European Union's proposed carbon tax on international flights in and out of European airports, which would create higher travel costs. 

There are five countries in the region with more than 200 hotel rooms under construction in June, according to STR Global's pipeline report. The Baha Mar project in the Bahamas alone is expected to deliver about 2,200 rooms, causing market watchers to speculate about the impact of the extra supply.

"Certain destinations will be OK, like Aruba, Jamaica, Puerto Rico and Dominican Republic," Mr. Smith told WPC News. "It's a lot of rooms [for the region] and in a market where it hasn't rebounded yet, it's a big question mark."

The luxury hotel segment has driven increases in net operating income this year and the firm expects the region will maintain a 10 percent increase in RevPar through the end of the year, compared to 2012.

Looking forward, new construction isn't the best option for investors, Mr. Smith said. Existing properties provide better value than attempting to build a new property, he said.

"There's a lot of opportunity [in the Caribbean]," he said. "The key is for the investor to buy at a discount or develop at a discount, if they can do that at all."