According to STR Construction Pipeline’s July 2014 report, Mexico as well as the Caribbean will enjoy a hotel construction boom with 167 hotels (28,140 rooms) expected in the future. This is a 21.8% increase in rooms Under Contract from the previous year and a 23.2% increase in the number of rooms under construction for the same period. These numbers come to prove research firm JLL’s reports, which believe the outlook for Mexico’s hotel industry to be positive since trends predict a 15% increase in hotel acquisition volumes. In money terms, this could mean over $700 million from the hotel industry in 2014, which is seven times more than the $100 million made through hotel transactions in 2009.
One of the main reasons behind the hotel construction boom in Mexico is the assistance this industry has been receiving from the energy sector. After the electricity market was opened by the President Enrique Peña Nieto’s landmark energy reforms, many changes took place, including prioritizing renewable energy sources. Mexico now expects most of its solar and wind capacities to be produced by businesses, including hotels. Hotels also have an incentive to comply since electricity is expensive for them at 13 cents per kWh. In addition, they and large businesses tend to pay 65% of total electricity sales. Therefore, it is in their best interest to choose renewable energy.
To further explain how hotels can start saving on electricity bills, solar systems installer Narcis Isern Subich points out that a hotel in southern Mexico would pay $17,000 for a 6-kW solar system. Within ten years, the investment would be paid off and the hotel could easily save $28,000 on electricity. “Since the cost of energy is so high, it is a good investment for businesses,” he said. “I look for clients who are passing into industrial consumption. The material lasts 25 years, so the first five years you pay off the investment, the next 20 years you are saving on energy costs.”
In an effort to convince hotels of the need to embrace green energy sources, Mexico is constantly hosting conferences which highlight solar and wind power among others. The country’s latest effort was WindTech Mexico 2014, which took place on October 7 and 8 at Sevilla Palace Hotel in Mexico City. In addition to highlighting the latest projects under development in different parts of Mexico, the conference aimed at connecting energy buyers and end-users with producers and their clients.
However, despite the growth potential of the Mexican hotel industry, the hotel pipeline is bound to be constrained. This is mainly due to high barriers to entry, which include the lack of land within populous metropolitan areas such as Mexico City and, ultimately, the higher prices associated with available areas. It will not be long, though, before the government takes a firm step towards eliminating this problem. After all, 2014 is expected to be the year Mexico finally boasts a promising economic and political environment that attracts foreign investors and reels back those who left the country during its tougher times.
In fact, the Federal Government of Mexico is already promoting transaction vehicles such as FIBRAs and CKDs, both of which JLL analysts believe to be responsible for the record-level transaction volumes made in the country this year as well as the acquisitions of 2013. With transactions equal to $270 million in 2013 in Mexico City alone, the capital is now considered Latin America’s most liquid hotel market.
Other model of growth is Hoteles City Express, one of the fastest growing limited-service hotel chains in Mexico targeting business people. Following the path of energy and automotive business.
With the support of the government and the energy sector, it will not be long before Mexico starts reaping the benefits of its quickly-growing hospitality industry, not only for business destinations, but relying on the ongoing infrastructure expansion connecting them with leisure cities.
Bottom line, the growth of the hospitality industry is based on a deep research of energy business opportunities.