Puerto Rico’s lodging market abounds with opportunities, following crises over the past several years. According to JLL’s Puerto Rico Hotel Destinations Report hotels across the Caribbean island have come back online after renewed capital investments and paired with economic incentives and strategic efforts of the Government of Puerto Rico and the U.S. Government, the island is primed for a hotel market comeback.
Air capacity to the island in 2019 will increase for the first time since 2016 and to meet this demand, by 2020, approximately 2,400 hotel rooms will be re-introduced to the market, along with more than 850 new rooms currently being developed. These figures will place available lodging supply ahead of prior supply levels by 2020. Additionally, GDP is projected to increase by 3.9 percent in 2019 and numerous investor-friendly policies are fueling strong lodging market performance.
“Spurring tourism development is a priority of the Government of Puerto Rico. The Island’s “Open for Business” policy, strategic geographic position, air and maritime access, modern infrastructure, and highly skilled bilingual workforce coupled with unprecedented incentives packages make it a fertile environment for hospitality industry investors. In addition, Puerto Rico is under the U.S legal system with financial sectors regulated by the FINRA, SEC and FDIC and part of the U.S. free trade zones and custom system. The combination of these characteristics and unique advantages make Puerto Rico the ideal destination to invest in right now”, states Carla Campos, executive director of the Puerto Rico Tourism Company.
Tourism and hospitality investors receive a 90 percent exemption rate of property taxes, as well as a 100 percent exemption on municipal construction and sales taxes. New tourism projects could be eligible for tax credits for up to 40 percent of project development costs, compared to 10 percent in the past.
Additionally, Puerto Rico’s designation as a Qualified Opportunity Zone enables investors paying U.S. taxes to invest recognized capital gains in qualified projects in Puerto Rico on a tax-advantaged basis, creating a compelling environment for development or major renovation projects like the El Conquistador.
For example, Puerto Rico Governor Ricardo Rosselló recently announced the $120 million transaction of the former Gran Meliá Puerto Rico Hotel, which will re-launch as the Hyatt Regency Coco Beach Resort and was completed partially through tax credits granted under the Puerto Rico Tourism Development Act and also qualifies as an Opportunity Zone deal.
The Governor also stated that while Puerto Rico currently has 15,000 hotel rooms, its aspiration is to double that to 30,000 rooms—and those rooms won’t only be in traditional areas either. “Within our vision, we’re not only looking to bring more visitors to the island but enhance and lengthen their stay,” he said. “People associate it with beaches, and that is one of our attractions, but we’ve seen people are coming to Puerto Rico for our authenticity and culture. That can be extrapolated to places that today are not being seen as tourist destinations. The island is 100 miles by 35, so there is accessibility to all of those spots. Our objective is to showcase that experience, so you can have a menu of places, whether it’s the colonial settings in the south or in the mountainous regions; we have the longest ziplining efforts in the world, and we have some of the longest underground rivers and caves as well. We are developing a green tourism and green economy aspect that will allow us to reach some other areas of Puerto Rico.”
“San Juan is one of the most stable lodging markets in the Unites States from a RevPAR perspective and investors are taking notice of this stability,” said Andrew Dickey, JLL Executive Vice President. “In general, Puerto Rico’s pro-investment environment particularly in tourism and hospitality, along with limited supply growth over the last 20 years, has set the stage for a strong lodging market and long-term fundamentals.”
Locations comprising Puerto Rico’s Metropolitan Area host most of the island’s lodging supply: San Juan has 61 percent of total room supply and is known for its historic sites, cultural activities and vibrant entertainment and night scene. The city is also home to the Port of San Juan and the Puerto Rico Convention Center (PRCC), both of which drive demand. Additionally, Carolina is home to Puerto Rico’s international airport, which handles more than 90 percent of total commercial passenger traffic. Carolina also features diverse demand drivers as the municipality is known for its renowned beaches and industrial center.
Markets to watch include the Convention District, where in addition to the PRCC, will soon be home to The District! Entertainment complex and an upcoming film complex, as well as the up-and-coming neighborhood of Santurce, which features trendy restaurants and bars and an artistic atmosphere.
“While events such as the Zika virus and hurricanes, particularly Hurricane Maria, were devastating, Puerto Rico is showing clear signs of an even stronger rebound,” said Ben Appelbaum, JLL Vice President. “The amount of opportunity across the island is remarkable – whether it’s a well-known market like San Juan or an emerging hot spot like Miramar, investors and owners are confident in Puerto Rico’s commitment to rebuild and it’s a lodging market where they want presence.”
View the full report http://bit.ly/2XNG0mZ.
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.