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Brazil hotels shows early signs of performance recovery

Brazil hotels show early signs of performance recovery

Brazil’s hotel industry has endured significant performance declines due to a severe recession and the fluctuations associated with hosting the 2014 World Cup and 2016 Rio Olympics. 

However, the early signs of performance recovery are visible in year-to-date occupancy growth in nine different Brazilian cities—as well as in the double-digit growth (+10.4%) reported at the country level for October specifically. The highest rates of occupancy growth for the October year-to-date time period were reported in Belo Horizonte (+9.5%), Salvador (+8.1%) and Brasilia (+8.1%). 

Is ADR growth next?

The return to occupancy growth could also point to an imminent return to growth in average daily rate (ADR), especially as the economic environment continues to stabilize and hotels are able to see stable demand. 

The idea that Brazil has reached the bottom in ADR is supported by historical trends. When reviewing data beginning in January 2012, we see that recent ADR levels in the country are nearing pre-mega event levels (BRL283). 

While year-over-year comparisons continue to show negative for ADR, absolute levels have risen each month since August.

RevPAR on the rise

With the mix of occupancy growth and ADR declines, seven cities posted growth in revenue per available room through the first 10 months of 2017, led by Fortaleza (+6.4%) and Belo Horizonte (+5.6%). Rio de Janeiro (-44.7%), still greatly affected by Olympic month comparisons, was an obvious outlier along with Barra da Tijuca (-52.8%). 

São Paulo Forecast

Hotels in São Paulo have already showed resilience in 2017, with RevPAR now expected to grow just above the 2.0% mark, mostly due to renewed demand. Our forecast for 2018 projects that demand will continue to grow, between 1.5% and 2.0%, but ADR growth around 3.0% is likely to be the main driver of overall performance. There are, however, some upside risks linked to the impact of events in the city, which might result in stronger growth, especially as Brazil moves further away from the recession. Oxford Economics expects a 2.4% increase in GDP for 2018.

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