The Caribbean hotel industry has returned to good health and the region is set to see several exciting tourism and real estate developments in 2015. The World Tourism Organisation (UNWTO) revealed that 2014 recorded 1.1 billion international arrivals globally, an increase of 5% on the back of a huge growth in outbound travel from China. In 2011 revenues grew to $457Bn, the highest level since 2007. Revenues for 2016 are predicted at $550bn (source: Statista).
Regionally, the Caribbean Tourism Organisation (CTO) reports that arrivals to the region grew by 5.4%, a faster rate than had been initially expected. Among the factors the CTO identifies for this improved performance are the increased airline seat capacity and room stock, as well as new marketing initiatives.
Smith Travel Research reports that room stock level in the Caribbean rose by 0.8% in 2014, with a room occupancy rate of 68.0%, a 1.1% increase. KPMG’s Caribbean Hotel Benchmarking survey also confirms significant ADR and RevPar growth. It noted that Gross operating profit as a percentage of revenue improved to 21% in 2013 from 18% in 2012 and net operating Income nearly doubled in the same period.
In Barbados, the recently released Central Bank of Barbados Economic Review for the first quarter of 2015 reveals that long stay arrivals have reached their highest levels since 2008 growing by 11.5 percent, while expenditure is estimated to have risen by 6 percent. Most hoteliers are experiencing significant occupancy growth in 2015. According to STR, Barbados’s occupancy rate improved by 5.1% and the island was among the top five destinations with improved occupancy rates.
Global Trends in Real Estate Financing
The luxury real estate investment picture also looks promising. Looking at the global picture, recent studies by JLL, KPMG and EY have all pointed to record levels of investor confidence globally and in the region. The JLL Hotels and Hospitality Group report of June 2014 indicates that global leveraged IRR requirements are now at 15.1%, down from a peak of 20% in 2009 and global Cap rate requirements are down to 7.1% from 10% in 2009.
The reductions in IRR and Cap rate requirements have been driven by historically low borrowing rates which allow for considerable leveraging gains for the principal investors which included private equity or PE Funds, and property companies.
The renewed investor confidence in the Barbados brand is evidenced by the fact that the island is poised to see several exciting tourism developments in the coming year, including Settlers Barbados, Sandy Beach, Westmoreland Hills and Mullins Grove. Most of this investment is concentrated in the villa sector.
The villa sector has been the most resilient tourism generating market for the island. Villa accommodation ranges from standalone units to units in master planned luxury villa and condominium communities. Villas now account for 40% of the island’s room stock and have become an alternative for discerning visitors looking for more self-catering options at the high-end of the market. Most villas are owned by expatriates as second homes and many are rented out to vacationers by their owners as holiday homes.
The villa sector is also an important source of employment and taxes, foreign currency inflows from villa rental operations, while real estate inflows from the purchase of villas are not only an important source of FDI inflows but are critical to the island’s international reserves position and macroeconomic stability.
Purchases of second homes are very strongly influenced by growth in the financial markets and the strength of the pound as evidenced in the charts below:
Source: MSCI, Central Bank of Barbados
Source: Central Bank of Barbados
Barbados is poised for a significant recovery in its tourism and luxury real estate markets indicated by strong economic performance in our traditional trading markets, global recovery in real estate, cheaper borrowing rates and significant growth in tourism arrivals.