Brazil’s key cities gearing up for the 2016 Olympics

Brazil’s key cities gearing up for the 2016 Olympics

With the London 2012 Olympics over, the spotlight has started to shift to Brazil, which will be hosting the 2014 FIFA World Cup and the 2016 Summer Olympic and Paralympic Games. Brazil reported increases of 9.9 percent in revenue per available room (RevPAR) for the first seven months year to date, led by 14.5-percent increase in average daily rate (ADR) in local currency, according to STR Global.

“With the attention set for the next four years toward Brazil as it prepares to host the largest sporting events in the world, we anticipate to see supply growth taking place across the country”, said Elizabeth Randall Winkle, managing director at STR Global.

“However, we are expecting to see lower growth levels in well-established destinations such as Rio de Janeiro and Sao Paulo, which account for almost 30 percent of the room inventory of branded hotels in the country”.

Rio de Janeiro City has benefited from low supply growth combined with steady demand improvements of 0.4 percent and 7.2 percent, respectively, between 2009 and 2011 on an annual compound basis. During the first seven months of 2012, the room inventory declined slightly as demand growth slowed to 3.4 percent YTD. Despite the tougher economic conditions, Rio de Janeiro City boosted its ADR by 29.1 percent in local currency to BRL450.06 (or 10.5 percent in U.S. dollar terms) during the first seven months this year. Furthermore, the exchange rates against major currencies became more favourable for international visitors, and large events such as famous Carnival (in February), and the Earth Summit Rio +20 in June 2012 have helped sustain RevPAR growth.

Rio de Janeiro City’s Luxury and Upper Upscale hotels reported average room rates of BRL658.85 (+38.0 percent in local currency), supported by occupancy reaching 74.1 percent YTD. During the same period, Upscale and Upper Midscale hotels, benefiting from continuous high occupancy levels of more than 83.0 percent, saw YTD ADR increase from BRL277.40 in 2011 to BRL342.71 (+23.5 percent) in 2012.

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Leading up to the sporting events, a significant number of infrastructure projects are underway across Rio and the rest of the country. With limited hotel supply available in Rio, there is an emphasis on expanding the room offering. The city and the region are expected to add an additional 6.4 percent in the current room inventory until 2014. Beyond 2014 and leading up to the Olympic Games, hotel inventory is expected to increase by 8.8 percent.

Other cities across Brazil also will benefit from both events, such as Sao Paulo and Manaus. In Sao Paulo, hotel supply is expected to remain practically unchanged, releasing pressure on hoteliers from possible new supply growth. However, in Manaus, with a fraction of Sao Paulo’s room inventory, the football tournament will bring a boost in hotel supply with inventory expected to grow by 20.2 percent by 2014.