Uncertainty around the omicron variant notwithstanding, the Caribbean is open for international tourism and has benefited this year particularly from U.S. travelers.
The 32 million travelers visiting the Caribbean in 2019 represented the peak of the past decade, according to Caribbean Tourism Organization data, and industry analytics firm HVS forecasts that the region should reach that peak again in roughly two years.
“While we’re recovering, the Caribbean travel and tourism sector is growing at a fast rate — particularly because we’re digging out of a deeper hole, but contribution to [Caribbean] GDP by travel and tourism is almost 50% for 2021,” said Parris Jordan, HVS managing director, at the recent Caribbean Hotel Investment Conference and Operations Summit held in Nassau, Bahamas.
Typically, about 50% of the region’s inbound travelers come from the United States, followed by Europe and Canada, but this year, those U.S. travelers drove demand in the region even more since Europe and other non-U.S. feeder markets tended to have heavier restrictions on travel.
The changing nature of COVID-related restrictions — in addition to the fragmentation of the region’s mix of independent countries, territories, commonwealths and other government structures — has perhaps been the biggest obstacle to recovery in the Caribbean, but despite that, the region overall is in recovery mode, said Kristina D'Amico, HVS senior vice president and director of the Caribbean region.
At the time of the conference in November, about two-thirds of the islands did not require COVID vaccination, a factor D’Amico said “is always changing.”
“Understanding the current restrictions to get back to your home country is what is impacting the Caribbean,” she said. “It can be challenging in smaller countries to get tests to come back home.”
As of Dec. 6, all air travelers regardless of citizenship or vaccination status are required to show a negative pre-departure COVID test taken the day before they board a flight originating from any foreign country returning to the U.S., according to the Centers for Disease Control.
Europe, the United Kingdom and Canada also are continuing to revise travel and vaccination requirements in light of the omicron variant.
But prior to omicron’s emergence, D’Amico said a strong summer season benefitted the Caribbean as a whole.
“All of the islands have seen significant improvement over 2020, with the U.S. Virgin Islands and Puerto Rico definitely leading the charge,” she said. “The islands with the least restrictions are having the fastest recovery, naturally. Vaccines and increasing airlift help, too.”
“All islands had a strong summer,” she said. “The first quarter, which is peak season, was a little weak, which did not help carry the rest of the year, but … we’re seeing very strong bookings for peak season 2022.”
A few highlights by country:
- Aruba, Barbados and Curaçao: Canadian and South American travelers typically lead travel to Aruba, and European travelers typically make up a significant chunk of travelers to Barbados and Curaçao, all of which was down in 2021. But increased demand from U.S. travelers is helping these areas rebound, D’Amico said.
- Bahamas: While limited group business is having an impact, U.S. travelers who can reach the island relatively quickly are bolstering leisure demand and average daily rates.
- Dominican Republic: U.S. travelers again lead the charge, and D’Amico said Punta Cana arrivals in 2021 surpassed 2019 levels.
- Puerto Rico is “a real success story,” D’Amico said, with ADR, revenue per available room and overall visitation numbers up significantly, helped in large part by the return of cruise ships and high vaccination rates.
- U.S. Virgin Islands: Air arrivals have surpassed 2019 levels, D’Amico said, and the islands’ U.S. territory status “gives it a significant competitive advantage.”
Supply Trends
STR data shows more than 15,000 hotel rooms, concentrated in the upscale and luxury classes, in construction in the Caribbean. STR is CoStar’s hotel analytics firm.
The Dominican Republic right now has the most rooms under construction in the region. Curaçao hotel supply has also experienced a recent uptick, with the September opening of the 399-room Mangrove Beach Corendon Curaçao All-Inclusive Resort, Curio Collection by Hilton.
Another future impact on supply will come when Frenchman’s Reef Beach Resort and Spa in St. Thomas, USVI, reopens next year. The property closed in 2017 to rebuild following damage sustained from Hurricane Irma. In May, Fortress Investment Group purchased the 478-room Marriott property from DiamondRock, which had paused renovations because of COVID.
Transactions, Financing Trends
Jordan said that while sales have been challenging in the region due to significant bid-ask spreads, “there has been increasing interest from the investor community from the third quarter of 2021.”
“Banks have turned from neutral to favorable, but investors have to have all their ducks in a row when they request financing,” he said.
The availability of financing continues to be determined by the project’s sponsor, airlift, branding and business plan, Jordan said. Typical loan-to-value is between 50% and 60%, and interest rates remain low.
Loans for acquisitions and refinancing are available, especially with strong sponsors in good markets, Jordan said, while new-construction lending will come at a higher rate.
Delayed renovations and capital expenditure will be an issue moving forward, which may result in lost flags and potential distressed sales, “but only time will tell,” Jordan said.
In general, however, the region is poised to benefit from the extended period of pent-up demand, he said.
“The Caribbean market has proven its resiliency year after year; however, we’ve never seen a challenge like this,” he said. “But we’re seeing positive signs that a recovery is here. There’s been a significant investment by major players, including U.S. flags. They believe in the region and in the recovery.”