Hotel investment on the rise to meet growing demand

An increasing number of tourists as well as large-scale events scheduled for the coming years is spurring significant investment across the hotel industry, as Peru prepares to meet rising demand. Growth prospects are attracting investment from international and local investors alike, generating alliances between the two. Meanwhile, the government is continuing its efforts to streamline bureaucratic procedures in order to further facilitate investment in the sector.

Hotel Stock

Peru’s hotel capacity is limited. As of July 2014, there were 16,940 establishments and a total of 228,388 beds, according to the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR), though not all meet international standards. Nearly half of the offer is concentrated in the central part of the country, primarily in Lima. Given the seasonal nature of some destinations, average occupancy rates vary, with Lima and Cusco displaying some of the highest rates, at 67.8% and 62.9%, respectively, according to MINCETUR.

“The industry is in the process of expanding its hotel capacity significantly to meet the projected demand for the next few years,” Miguel Arévalo Castro, general manager at the Peruvian Hotel and Restaurant Association (Asociación Peruana de Hoteles, Restaurantes y Afines, AHORA), told OBG. “As it stands, we would not have enough accommodation in Lima,” he added. The annual meeting of the World Bank and International Monetary Fund in 2015 (expected to attract 12,000 participants), the Asia-Pacific Economic Cooperation leaders’ meeting in 2016, and the Pan-American Games in 2019, are among the events scheduled to take place in Lima in coming years, which will drive up demand.

The hotel infrastructure gap extends beyond Lima. A 2013 study by MINCETUR evaluating the hotel deficit in seven main cities estimates the gap in these cities will cost $903m to fill by 2017. Meeting demand would require an additional investment of more than $1.5bn by 2020 and another $2.4bn by 2027. All told, that is more than $4.8bn of work for the 2013-27 period.

Investment

According to the National Chamber of Tourism (Cámara Nacional de Turismo, CANATUR), investment in the hotel industry will reach $1.5bn by 2016 and rise to $2.5bn by 2019, when the Pan-American Games will take place. At least 12 new hotel chains are set to enter the market by 2016, including Four Seasons, Holiday Inn by InterContinental, Courtyard by Marriott, Wyndham and Hyatt, while a number of existing brands have announced expansions. ProInversión, the national investment promotion agency, which has a department dedicated to assisting investors navigate the complex Peruvian system, told OBG several other international chains, including Spanish operator NH Hoteles and Brazilian chain Dreams have also shown interest and should enter the market in coming years.

Capital Investment

The largest share of projects is anticipated for the capital. Miraflores, an upscale district in Lima is on investors’ radars, currently receiving $150m in investment in 15 projects, according to CANATUR. The district will be the location of Peru’s first Courtyard By Marriott, which began construction in 2014. An investment of $28m, the 10-storey 154-room hotel, will feature facilities for corporate events, as well as a bar and restaurant open to the public. Construction is scheduled to finish in mid-2015. Building work on the Four Seasons in Miraflores’ San Martin neighbourhood is also scheduled for 2015.

The hotel chain Meliá has announced the opening of its second hotel in Lima in early 2017 under the brand Tryp. The hotel, which will represent an investment of $12m, will be located in the heart of Miraflores. The chain’s plans for the country include entering the Lima market with a new concept of corporate hotels, under the brand Innside, and expanding the presence of its Meliá and Tryp brands beyond the capital, to Cusco and Arequipa, with hotels oriented towards the business and leisure segments. The chain is also contemplating opening a Paradisus Resorts in the northern beaches, focused on the leisure and incentives segment. Also in Miraflores, NH Hoteles has plans for a 200-room hotel in the four- to five-star segment. According to CANATUR, ongoing projects in Miraflores are set to increase the hotel offering in the district by 30%.

San Isidro, Lima’s financial centre and home to luxury hotels like The Westin and Swissotel, has been another popular option for the high-end segment. Since only four- and five-star hotels are currently allowed in San Isidro, other neighbourhoods, like Golinda in Magdalena and San Miguel, are attractive options for investors in the three- to four-star market, not least for their proximity to the airport.

With cumbersome bureaucratic procedures to get licences for new hotels, international chains entering the Peruvian market have tended to opt for agreements with local partners by buying and upgrading or expanding existing hotels. Tibisay Monsalve Restrepo, general manager at Sociedad Hoteles del Perú, an association that groups the most prestigious hotels in the three- to five-star segment, told OBG: “International chains are looking mainly for bigger hotels, but unfortunately, the supply of hotels for sale that have more than 100 rooms is very limited.”

The sharp rise in real estate prices in Lima in recent years has seen the amount of investment needed for new hotels rise. “What before was an investment of $15m-20m for a hotel is now $30m-40m,” Luis Villa Prado, CANATUR’s general manager, told OBG. Land prices in Miraflores are among the highest in the country, with the average price per sq metre ranging between $2000 and $3000. On the Malecón, the six-mile stretch along the cliffs above the Pacific Ocean, it can reach $6000. While international chains have focused primarily on the four- to five-star segments, AHORA’s Aré valo told OBG, “The hotel industry is seeing growth across all segments, from hostels to five-star hotels, to meet demand from different tourist profiles.” A significant portion of hotel investment is local, with Peruvian chains Casa Andina, Inkaterra, Terra Viva and Mountain Lodge of Peru having significant presence across the country. Casa Andina has recently announced six new projects, which will mark the chain’s expansion outside the main markets of Lima, Arequipa and Cusco.

Beyond Lima

While Lima attracts most investment, MINCETUR’s study identified six other cities which, based on their infrastructure gap and rising hotel demand, present considerable opportunities: Arequipa, Cusco, Piura, Lambayeque, La Libertad and Loreto.

Home to Machu Picchu, Cusco has seen tourism to the region grow at average annual rates of 8%. Its accommodation shortage is estimated to exceed 1140 rooms, according to MINCETUR. The region offers opportunities for leisure hotels in the Sacred Valley as well as hotels geared to the corporate segment in Chinchero. Construction of the new Chinchero Cusco International Airport, expected to be operational by 2020, is likely to increase demand for hotels in the Sacred Valley, where archaeological centres like Ollantaytambo, Pisac and Maras-Moray are concentrated.

Arequipa, along with other northern cities like Trujillo and Chiclayo, is a flourishing business tourism destination. Its current room shortage is estimated to be around 440. Demand for midrange to upscale corporate hotels in districts near the historic centre is most prevalent, in particular Arequipa City, Cerro Colorado, Selva Alegre, Cayma and Yanahuara.

Strategically located along the Pan-American Highway and home to popular beaches, Piura offers opportunities for both the corporate and the leisure segment. The recent business boom in La Libertad and Lambayeque, as well as its varied tourist offering – from beaches to the Moche route – make these cities particularly attractive for midscale hotel projects, targeting both business and leisure tourists. With virtually no upscale accommodation, Loreto, Peru’s most northern region located in the Amazon forest, offers the most opportunities in this segment, in particular for accommodation combining a river experience in the Amazon or comfort adventure in the jungle.

Red Tape

Long bureaucratic procedures to obtain municipal licences have traditionally constituted the biggest deterrent to investment in Peru’s hotel industry. While this remains an ongoing issue, the government is making efforts to address it. In May 2014 a new set of regulations was passed known as the “reactivating package”, containing several measures that streamline the investment process. “A procedure that before used to take six months can now be done within 15 days just with a few changes,” Villa told OBG. According to Villa, the package is so recent that it is still relatively unknown. “The government has been trying to act quickly to fix bureaucratic hurdles. The problem now is that there hasn’t been an appropriate dissemination of information to civil servants,” he said.

In September 2014 MINCETUR also announced the creation of an initiative known as ventanilla única ( single-window). Ultimately designed to attract investment to the sector, it integrates a number of public entities and is expected to streamline bureaucratic procedures considerably. So far 15 public bodies have been incorporated. Streamlining is expected to continue, alongside other efforts to attract additional investment.