Brazil Hotel Industry Faces Big Challenges

A plethora of hotels have popped up in Rio de Janeiro for the Summer Olympics, with the expectation that the afterglow would boost occupancy rates in the city and other parts of Brazil.

Normally, this expectation would be reasonable, considering that most cities hosting the Summer and Winter Games experience not only an immediate economic boom, but also a long-term lift that often enables them to reach a new plateau.

Rio, however, is reeling from the effects of the outbreaks of the Zika virus, a prolonged recession and a political crisis, among other things. This leaves any immediate post-Olympics economic benefits in serious doubt.

Brazil had every reason to be optimistic about a healthy afterglow in 2009, when it was awarded the games, and this instigated a wave of hotel building. At the end of 2009, the country had 201,301 hotel guest rooms; by June 2016, the number had increased to 235,288, according to STR. Rio’s hotels increased by more than 50 percent during the past six years, states a report by real estate firm JLL.

About 100 additional hotels, with nearly 18,000 guest rooms, are under construction in Brazil.

The new hotels include the 170-room Trump Rio de Janeiro and the Courtyard/Residence Inn Rio de Janeiro Barra da Tijuca, Marriott International’s first dual-branded property in Brazil.

The country’s hotel occupancy rate slipped from 55.9 percent to 51.6 percent during the second quarter of 2016. The Olympics will provide a big jump in August, as many hotels are sold out. But given the country’s crises, the immediate future of the hotel industry doesn’t look very bright.

As a result, some hotel companies have scaled back or dropped their plans to build new properties. Four Seasons announced in 2011 that it would build two properties in Brazil, but has postponed one of the projects. It will be opening the other property, its first in Brazil, in Sao Paulo next year. Sao Paulo is generally considered a better location for the hotel than Rio, because its economy is stronger and more diversified, and it is driven by business travelers.

Eventually, Brazil is expected to rebound from its crises, and when it does, occupancies and room rates are expected to rise as steady streams of visitors once again are lured by the warm weather and many cultural attractions.

“Developers are looking at the medium and long term because Brazil has good fundamentals,” said Diego Bufquin, an assistant professor at Rosen College of Hospitality Management in Orlando, in an interview with The Wall Street Journal. “They are still investing quite a lot of money, but they will have to be a little patient.”

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