LIMA, Peru — Latin America is facing the same macroeconomic challenges as the United States — namely, still-high interest rates hampering real estate transactions and persistent inflation — but travel trends remain resilient.
Latin America also has its own set of economic and political challenges that have an impact on travel and tourism development in the region, said Reinier Schliesser, principal economist at CAF, the development bank of Latin America and the Caribbean. Schliesser spoke at the recent SAHIC Latin America & the Caribbean Hotel & Tourism Investment Forum.
“Geopolitical and climate-related risks are particularly important to our region,” he said via translation. “They affect global commerce and international activity.”
He cited last year’s regional droughts that restricted shipping activity through the Panama Canal and that could potentially happen again this year, depending on water levels. Political instability in many Latin American countries also contributes to volatility that contributes risk to monetary policy.
Still, Schliesser echoed many U.S. economists when he said that “while macroeconomic policy in the short term won’t help us reactivate economic growth, long-term growth is evolving and there’s still significant expansion” of GDP in the region.
Travel in Latin America is proving resilient as well.
After booming hotel occupancy levels around the region last year, 2024 is showing normalization, said Patricia Boo, senior area director of Latin America for STR, CoStar’s hospitality analytics firm.
“2023 was the year of supercharged occupancy growth around the world,” she said via translation, with hotel occupancy now very close to or surpassing 2019 levels in all regions.
In 2023, occupancy in Central America grew 8% over 2022 and occupancy in South America grew 2% over the prior year. Both ended 2023 at around 60% total occupancy. Rate growth in Central and South America, like in North America and elsewhere, is starting to decelerate.
But the opportunity in Latin America is in the hotel development pipeline, Boo said.
“Central and South America have 57,000 rooms in the pipeline, or 5% of the existing supply in the region,” she said.
The luxury segment has the smallest existing room count in Latin America but makes up the majority of the hotel development pipeline. Most hotels in development across all segments are branded, and the Mexican Caribbean leads with nearly 4,000 rooms under construction.
Brazil has a sizable under-construction pipeline. Hotel rates also increased at a healthy pace across the country in 2023 compared to the prior year — up 36% in Brasilia, 31% in São Paulo and 25% in Rio de Janeiro.
Brazilians did a lot of domestic travel in 2023, due in part to visa difficulties and exchange rates to the U.S. dollar. Resort destinations in the country saw strong demand in 2023.
As big-picture metrics normalize, Boo said there are other shifts in travel trends that may have an impact.
“Be very aware of domestic and international demand, and how this shifts over time,” she said. “Now Brazilians are starting to travel elsewhere and it’s important to understand" that such travel changes can create shifts in leisure demand.
She said demand from business travelers is also picking up around Latin America, which will counterbalance potentially moderating growth in leisure travel.
Other factors to keep an eye on in the region are potential hits to hotel demand during an election year, which many countries face this year; and the power of events to drive demand, Boo said.
She cited the impact of Taylor Swift’s Eras Tour on the region, telling attendees to “be aware of what’s going on with events like these, because undoubtedly they’re generating a lot of effect on the cities.”
Many cities that hosted the tour saw significant last-minute hotel bookings.