Hotel projects in the pipeline may make for good statistics, but the reality is that things are a little more complex.
That’s the view of consultant Robert MacLellan, chief executive officer of Caribbean specialist hospitality company MacLellan & Associates.
Referring to statistics quoted by Smith Travel Research, Mr. MacLellan said that counting the number of projects from earliest development to completion was a difficult task.
“However, with 80 per cent of my work in the Caribbean over the last 15 years being development oriented, I felt qualified to further evaluate that pipeline. My research suggests that only 19 of the 69 projects, listed in the pipeline report, are likely to open within the next two years.
“I believe that the 15 projects listed as ‘Abandoned’ and ‘Deferred’ [by Smith Travel Research] are unlikely to be resurrected at all – at least, as previously envisaged. Within a two year window, I estimate that only one of six projects listed as in ‘Pre-planning’, five of 12 in ‘Planning’ and four of 11 in ‘Final Planning’ will make significant progress toward opening. Of the 25 projects ‘In Construction’ my projection is that only nine will open within two years,” Mr. MacLellan said,
Beware the climate
He said most abandoned and deferred projects were either on “second rate resort sites” or caught up in legal disputes which may take years to resolve. In the meantime, infrastructure deteriorates due to the Caribbean climate and weather.
“Many of the mixed use resort projects are probably nonviable in today’s market, having commenced during the 2007/8 bubble with underestimated development costs and unrealistic projections of real estate sale prices, often compounded by poor project management. Only now, during this past high season, has the leisure real estate market in the Caribbean started a good recovery.
“Some of the resort developments, still at planning stage, are in destinations where well-established regional hotel companies are currently in very serious financial trouble with their existing properties. Those hotels in construction, which are targeting the mid and lower price market, will be entering a Caribbean market segment where achieved average room rates have not yet recovered even to 2007 rates, while increasing energy costs and food costs have far exceeded inflation over that same period. As ever, regional banks are cautious – but also now more knowledgeable – in evaluating projects for debt finance,” he noted.
However, Mr. MacLellan said that there were signs of recovery, particularly for the higher end of the market. This meant that fresh concepts including innovative architecture, sports, spa and other facilities would be looked upon favourably by those wishing to invest.
“There are resorts, with all of these qualities, currently under construction in St. Kitts, Anguilla and the Grenadines, with others in final planning stages in Dominica and the Dominican Republic.
“Equity and debt finance is out there, but only for the right projects,” he said.
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