Brazil upgrades hotel supply as Olympics, World Cup approach

As they gear up for the 2014 FIFA World Cup and the 2016 Summer Olympic Games, Brazil’s Ministry of Tourism and the Brazilian Development Bank (BNDES) are looking to refresh the country’s hotel inventory with a 1-billion Brazilian reais (US$544.5-million) line of credit for property refurbishment, expansion and ground-up construction.

But unlike the development booms that typically precede other major world events, Brazil’s will likely focus on its existing supply—not new builds, according to advisors and developers who work in and have studied the region closely.

The main reason? Oversupply.

“We already have lots of rooms in the big cities of Brazil. … what we most need is renovation of the existing hotels,” said Diogo Canteras, managing director of HVS in Brazil.

According to STR Global, there are 1,316 hotels comprising 167,035 rooms in the country, thanks in part to a surge in condo-hotel development in the 1980s and 1990s. The result has been a market weighed down by too much product, yielding average daily rates that are half that of other major countries and markets within the Americas. In January 2010, for example, the country posted an ADR of US$95.55, compared with Argentina (US$165.92), Costa Rica (US$172.73), Puerto Rico (US$192.90) and Venezuela (US$147.98).

But it’s not just oversupply that plagues the industry, Canteras said. Age is an equally debilitating factor. “The average age of a hotel is 30 years. … They really deserve a good renovation.”

Nowhere is that more true than the mid-market, which represents the majority of Brazil’s existing supply.

“I see the refurbishment much more focuses on the mid market,” Canteras said. “… They have depreciated a lot during these last years, and with some renovation you can better position this property from a mid-market property to an upper, mid-market segment (property).”

Renovations sought through the new line of credit will do more than provide a face lift; they’ll help propel the Brazilian hotel industry toward the standard of its counterparts throughout South and Central America, said Rogerio Basso, practice leader of Latin America for Ernst & Young.

“It’s certainly a move in the right direction to professionalize and enhance the standards and the quality of the lodging supply,” he said.

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