CHARLOTTE AMALIE, U.S. Virgin Islands — Travel to the Caribbean is not slowing down, and hoteliers are maximizing high rates while the sun shines. In this region, that’s most of the time.
The Caribbean has hit all-time highs in hotel key performance metrics this year, according to CoStar data. Through September, the region excluding Cuba notched occupancy of 75%, up 12% year over year; average daily rate of $367, up 20% year over year; and revenue per available room of $275, up 33% year over year.
“We didn’t see rates dip here the way we saw rates dip in the U.S.; rates held and now they’ve just exploded and we’re not seeing it taper off,” said Hannah Smith, senior analyst at STR, at the Caribbean Hotel Investment Conference & Operations Summit.
Demand Strong
About half of all travelers to the Caribbean are from the U.S., and even though some islands and island nations took longer to reopen post-pandemic, demand has bounced back. Travelers from the U.S. tend to favor Jamaica, the Dominican Republic, Puerto Rico, the Bahamas, Aruba and the U.S. Virgin Islands, said Kristina D’Amico, managing director and leader of the Caribbean region for HVS, producers of the conference.
Other islands and island nations have their own specific feeder markets. For example, South America is a big feeder market to Curaçao.
But visitation is up everywhere, and cruise and airline arrivals will exceed 2019's prior peak levels this year, D’Amico said.
Another positive for tourism in the region is that “there’s less seasonality now, and you see more months with higher occupancy than ever before,” D’Amico said, citing high occupancy levels in April, May and even December, which are typically slower months.
And it’s not all leisure demand driving the region. Group travel has fully recovered, Smith said, which adds a necessary piece of demand.
“Although it’s a smaller portion of the overall demand mix, it’s really important to the overall profitability of hotels here,” Smith said. “Groups are also vitally important in terms of having base demand.”
In the Caribbean, group demand accounts for about 19% of demand compared to 31% in the U.S., according to CoStar data.
Limiting Factors
Hotel supply, plus the infrastructure needed to support it, is a major limiting factor in the Caribbean.
Hotel rooms in construction in the Caribbean now are concentrated in the upper-upscale and luxury chain scales, according to CoStar data. Most of those rooms in construction — more than 5,000 — are in the Dominican Republic, followed by Jamaica and Puerto Rico.
Certain islands, notably Curaçao and Jamaica, are adding hotel supply at levels that keep pace with demand, D’Amico said, while others such as Puerto Rico are feeling the pinch of low supply.
Airlift and a challenging transactions environment compound the effects of low supply.
While airlines continue to add new routes, airlift and high flight costs are still limiting factors. Plus, it’s not simple to island-hop by plane and travelers typically need to fly back to Miami to head to another island.
And while hotel projects are making their way slowly through financing and development, the challenges are high, said HVS Managing Director Parris Jordan.
“There’s been talk of inflation for many years, increasing insurance expenses and the Caribbean has always had challenges with financing,” he said. “But if you do it right, with the right capital stack, partners and projects, you will get financed.”
Of course, weather catastrophes are always the wild card in the Caribbean. The region continues to rebuild from 2017’s two category 5 hurricanes, Maria and Irma. In some cases, owners are renovating hotels that were hit, and other cases require full rebuilds. But with hurricanes a given in the region, government officials from around the Caribbean emphasize their focus on rebuilding strong infrastructure to help the region withstand future events.