(Hotelnewsnow.com) Considered a business hub for Central and South America, Panama has attracted a swell of investor interest—as well as new hotel projects—in recent years, but some analysts are wondering whether the increase in rooms will leave the country in a state of oversupply.
Those concerns don’t seem to be stopping developers from building.
“In the late 1990s, Panama City had a very limited supply of hotel stock—less than 2,000 hotel rooms. Today, the city boasts more than 10,000 rooms, with more underway. However, evidence of an impending bubble collapse is beginning to be observed,” said Fernando Garcia-Chacon, executive VP of Jones Lang LaSalle Hotels.
Occupancy for the upscale and luxury hotel segments neared 70% during 2007 and 2008, Garcia-Chacon said.
But it’s a different story today. “Year-to-date figures reflect continued weakness,” he said.
According to STR Global, sister company of HotelNewsNow.com, Panama reported 55.4% occupancy for year-to-date July, an 8.2% year-over-year decrease. Meanwhile, average daily rate declined 6.7% to $122.66 and revenue per available room went down 14.4% to $67.94.
This weak performance data, however, is not discouraging global brands and local developers from building.
There are 31 projects comprising 4,808 rooms in Panama’s pipeline, according to STR Global. The country has 14, 483 rooms in its existing supply.
Delivering the experience of Panama
K.C. Hardin, co-founder of locally based Conservatorio S.A., which has two luxury properties in its portfolio and is in the process of constructing the 50-room American Trade Hotel, said his company has developed a product that can probably withstand the increasing competition.
“We only know one trick—and that’s to try to deliver the experience of Panama in a really nice way,” Hardin said of Conservatorio S.A.’s portfolio. “We have a specific kind of customer that seeks it out,” he added.
That does not mean the company has gone without experiencing some declines. “What we’ve seen is that our high season is good or better than ever … Our highs have gotten higher, (but) our lows have gotten lower,” Hardin said.
Because of the small size of Conservatorio S.A.’s portfolio, Hardin’s team has not been able to discount on room prices too much during the low season, he said. So instead of lowering prices, “we look to add value and a unique experience.”
Strengthening hotel service culture
For Wyndham Hotel Group, the differentiator lies in its service culture, said Daniel del Olmo, managing director/senior VP of Wyndham Hotel Group Latin America.
Wyndham, which operates four hotels in Panama, two of which opened in July, is focused on strengthening the service at each of its properties in the country, del Olmo said.
To stay ahead of the game, Wyndham’s Panama hotels are in tune with each of their service culture identities, he said.
At the TRYP by Wyndham Panama Centro, for example, that identity is “Own this City,” which allows the hotel’s trip advisors to connect guests with local cultural, sports and food events.
It elevates the experience of each guest, del Olmo said.
That said, things have not been all positive in the realm of hotel service.
Panama has an unemployment rate of 4%, del Olmo said, and “that 4% are the people that would not necessarily have the capability to work in the hotel business.”
This translates into an extreme competition for good staffing in the hotel industry.
“Because there have been so many hotels coming in … so many properties across Panama have started seeing some of their employees shift for a dollar pay more per hour. That is also obviously affecting the guest experience,” del Olmo said.
However, the lack of qualified employees isn’t keeping Wyndham from building new supply.
“We will continue to prudently build up the marketplace. We have several more properties in the pipeline that are suited to open over the next couple years,” del Olmo said.
The next three to four years will be a challenge for operators in the market, he said, “but we do believe that the market will continue to see positive long-term growth.”
Counting on Panama’s appeal to tourists
Carlson Rezidor Hotel Group, which has five hotels in operation in Panama with a Park Inn by Radisson under construction, is counting on the country’s growing tourism sector to boost occupancy at its properties.
“Tourist revenues grew by 20.6% year-over-year, likely the result of increased infrastructure allowing for greater opportunities for tourist spending,” said Jean-Marc Busato, area VP of Latin America for Carlson Rezidor.
“A number of quality projects to bolster the country’s appeal to tourists are still in the works,” he added, highlighting a new convention center as well as new art exhibits.
Carlson Rezidor sees big potential in what’s coming, Busato said.
“We are currently in advanced negotiations to bring our Radisson Blu brand to the country,” he said.
Jones Lang LaSalle Hotels’ Garcia-Chacon said there’s potential in the resort market: “To a certain degree, Panama has a similar geography as Costa Rica, with the added advantage that it uses the U.S. dollar as its currency. The English language is also more prevalent.”
The conditions are ripe from Panama to grow this sector as global tourism demand begins to recover, he said.
Market stabilization
Another area that will be problematic is the management of hundreds of condo-hotel units built during the past five years, Garcia-Chacon said.
“For a variety of reasons, developers promoted this seemingly attractive structure to the point of significantly contributing to the imminent oversupply,” he said.
In some cases, investors likely were led to expect attractive investment returns that might evaporate as operating performance deteriorates. This could lead to additional calls for capital, rapidly deteriorating physical assets and adversarial relations between individual unit owners and the hotel management company, Garcia-Chacon said.
“We are hopeful that hotel developers will take a close look at the data and will realize how competitive the sector is becoming and will be more judicious with regard to new construction,” he said.