Caribbean Hotels Enjoying Four Years of Double-Digit NOI Growth

The 2015 edition of Trends in the Caribbean Hotel Industry, published by PKF Consulting, a CBRE Company, indicates that the double-digit growth of net operating income (NOI) for Caribbean hotels is still going strong. 2014 saw a 17.3 percent increase in NOI for the typical Caribbean hotel, making it the fourth year in a row that Caribbean hotels have seen a double-digit increase in NOI.

Revenues and expenses for hotels

The Caribbean hotel industry consists of a sizable number of distinctive resort properties in numerous locations, offering the chance to make money from a range of services and amenities.

For Caribbean properties, room revenues continue to be the main source of income (57.6% of total revenue in 2014). In the previous year, hotels in the Trends survey sample saw an increase in room revenue of 7.4%, primarily due to an increase in the average daily rate of 5.1 percent.

“Hotels in the Caribbean with ADRs over $300 USD were able to increase their rates in 2014 without negatively impacting occupancy. Travelers who frequent these establishments are less price sensitive and can afford the higher prices, “Scott Smith, managing director of PKFC, said. “The less expensive properties, on the other hand, had less success increasing their rates. These properties are facing increased competition from the all-inclusive resorts that represent a strong price-value proposition to rate-sensitive travelers.”

The typical Caribbean hotel in the survey sample was able to increase its bottom line by 17.3 percent despite only experiencing a 5.0 percent increase in revenue. “The main factor in this improved flow-through was the Caribbean hotel operators’ ability to keep expense growth to just 2.2%. Particular progress was made in the labor cost area, “said Smith.

Compared to comparable U.S. resorts, the region’s total labor costs increased by 1.6 percent rather than 3.7 percent. “The majority of Caribbean nations have a large labor pool and pay is generally low. The level of employment growth that has increased wages in the United States has not yet been seen in the Caribbean region “Smith also

Historically, local utility costs have been higher than those in the US. However, study participants reported lower utility costs at their hotels for the second year running. “For both practical and moral reasons, Caribbean resorts have been at the forefront of green and sustainable practices. They are now starting to see the benefits of these energy-saving techniques “Smith took note.

Despite effective cost control in 2014, Caribbean resorts still have lower profitability than comparable U.S. resorts. Compared to their comparable U.S. counterparts, which had profit margins of 29.0 percent, the average Caribbean resort in the sample had a profit margin of 19.7 percent in 2014.

Cuba

Although the majority of people in the world have had access to the recently opened Cuban tourism market for decades, the opportunity for Americans to travel there again has drawn a lot of interest.

“The other Caribbean nations have expressed some concern in light of news that relations between Cuba and the United States have improved. These nations fear that American tourists will flee to Cuba and that the airlift and cruise lines will follow “Smith clarified. Travel for pleasure is not one of the twelve permitted travel categories for Americans to Cuba at the moment.

The 2015 edition of Caribbean Trends provides more in-depth information on the events affecting Cuban tourism as well as data on visitor arrivals in 2014.

Mixed Signals

With expectations for higher occupancy, ADR, and profits, the Caribbean’s overall outlook is positive. “According to the financial information, everything will be “crisp,” as the locals put it, and the Caribbean hotel market will keep expanding at a healthy rate. While the direct effects of new lodging developments won’t be felt for a while, they have raised some worries about overbuilding in the area “Smith rounded out.

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