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Trends and Opportunities Brazil: 4th Quarter Preview of 2014

Against the expectations of the third quarter preview of Trends and Opportunities Brazil, in the fourth and last quarter of 2014 the overall performance of the subject hospitality markets analyzed decreased.
Pedro Cypriano

Against the expectations of the third quarter preview of Trends and Opportunities Brazil, in the fourth and last quarter of 2014 the overall performance of the subject hospitality markets analyzed decreased. Historically, periods of presidential elections may cause some trouble to the corporate hospitality demand. Especially this year, uncertainties about the election result and its reflex in the economy slowed down the corporate market in the period. These factors allied to the expressive supply growth in some cities, resulted in negatives variations of RevPAR in all cities but São Paulo.

The fourth quarter of 2014, if compared to the same period of 2013, presented growth in demand (5.5%), but the growth in supply was even bigger (13.4%), which made the occupancy decrease (7.0%). The average room rate also decreased (2.5%), which led to the biggest RevPAR drop since the beginning of the quarterly analysis (9.3%).

For the first quarter since the beginning of the analysis, all hospitality performance indicators of Rio de Janeiro declined. As seen in the analyzed sample, even with the growth in hospitality demand (10.3%) the supply1 increased stronger (18.5%), which led to a drop in occupancy (6.9%) and in room rates (2.2%). Therefore, the city’s RevPAR showed a retraction of 8.9%.

As seen in the third quarter, São Paulo’s hospitality demand grew (2.0%). The supply varied only 0.7%, which led to an increase in all performance indicators – the occupancy grew 1.3%, the room rate 0.3% and the RevPAR 1.6%. When compared to the other cities, São Paulo’s performance showed better results, mainly because of the supply stability and the recovery of the corporate market by the end of the World Cup.

Breaking the sequel of growth seen since the last quarter of 2013, the RevPAR of the analyzed sample of Salvador decreased 7.2%, because a decrease of 5.5% in occupancy and 1.8% in room rate. These results are due to the recession in demand (0.9%) and to the expressive growth in supply2 (4.9%).

Beside the positive results showed by the hospitality market of Curitiba in August and September, most performance indicators in the fourth quarter of 2014 decreased, as a result of the supply growth3 (6.8%) and of the demand decrease (6.9%). This scenario affected the occupancy, which fell 12.9%. The room rate showed a little increase (3.9%), resulting in the biggest RevPAR decrease since the beginning of the quarterly analysis (-9.5%).

The hospitality demand in Porto Alegre presented an expressive positive variation (13.1%), but the supply4 grew even more (23.4%), which led to a significant decrease in occupancy (8.3%). Due to this decrease in occupancy, hoteliers were not capable to increase the room rate, which decreased 2.0% and also led to a decrease in RevPAR (10.1%).

In Belo Horizonte, the openings of new hotels keep on damaging its hospitality performance. The analyzed supply5 grew 58.2% when compared to the same quarter of 2013. Therefore, even with a huge increase in demand (21.8%), the occupancy strongly decreased (23.0%), as did the room rate (16.7%). Due to the supply expansion, this sample’s RevPAR decreased 35.8%. Nevertheless, it’s important to highlight that this analyzed sample’s new supply comprises mainly of hotels of the economy market, which also led to the big decrease seen in room rate.

Beside the recovery seen in the third quarter of 2014, in the last months of the year all cities were affected by the economy and political uncertainty in the country. For the next quarter, due to the low demand pressure in the analyzed markets, it’s expected that the room rates will keep on falling. In the markets that have been showing an excessive increase in supply the scenario should be more damaging.

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1 Considering all qualified rooms in Rio de Janeiro, the new hotel supply represents an increase of 1.8% in the analyzed period.
2 Considering all qualified rooms in Salvador, the new hotel supply represents an increase of 1.0% in the analyzed period. Part of this new supply is not considered in the analyzed sample.
3 Considering all qualified rooms in Curitiba, the new hotel supply represents an increase of 1.3% in the analyzed period. Part of this new supply is not considered in the analyzed sample.
4 Considering all qualified rooms in Porto Alegre, the new hotel supply represents an increase of 7.1% in the analyzed period. Part of this new supply is not considered in the analyzed sample.
5 Considering all qualified rooms in Belo Horizonte, the new hotel supply represents an increase of 17.5% in the analyzed period. Part of this new supply is not considered in the analyzed sample.

Pedro Cypriano, Consulting Director of HVS Sao Paulo, has extensive knowledge of the Latin American hotel market, as well as relevant experience in projects in Europa, Asia, and Africa. Over the past 10 years, Cypriano has been involved in more than 250 projects in global hospitality and tourism consultancies, and distinguished research institutes. As an executive of HVS, Pedro has led development plans for hotel chains, brand & management selection and contract negotiations, structuration of mixed-use complexes, business plans for investment funds, as well as hundreds of market studies, valuation and feasibility analysis for hotels and resorts. He is the author of the book "Hotel Development in Brazil: market overview and perspectives", published by Senac, and guest panelist of leading universities. Pedro has a MBA from Insper Business School, a Master degree in Hotel Development from University of Alicante (Spain), a specialization in Finance from Saint Paul Business School and a Bachelor degree in Tourism from University of Sao Paulo (USP). Contact: pcypriano@hvs.com.
She is a professional with five years experience in the Brazilian tourism and hotel market. Prior to joining the team of HVS South America in early 2012, Rebecca has served as a consultant in a leading corporate travel agencies in Brazil, Franstur Kontik. Since then, has participated in approximately 50 projects, including studies of economic feasibility, valuation and market research. Having analyzed several markets and categories, such as budget or luxury hotels, and also resorts. She has a Bachelor degree in Tourism from the University of São Paulo.

1 Comments

  1. Cheryl Pirie-JacobsApr 30, 2015

    Good day - would you please confirm if the ADR and RevPar references in this article are based on BRL or USD currency. Many thanks.

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