One Year Later: The Rebound of the Caribbean following the 2017 Hurricane Season

It's been a year since the most dynamic, active, and destructive hurricane period hit the Caribbean in decades. Despite the devastating effects, the resiliency of the Caribbean hotel market has been demonstrated particularly well over the last year.
Kristina M. D'Amico
It has been one year since the most dynamic, active, and destructive hurricane period hit the Caribbean in decades. Despite the devastating effect to the region, the resiliency of the Caribbean hotel market has been demonstrated particularly well over the last year, spurred by a strong recovery effort and bolstered by an influx of new airlift to the region. 

Strong Recovery Effort

Of the 32 Caribbean island nations, just seven were significantly affected (three quite severely) by the 2017 hurricane season. Significant progress has been made on each of these seven major islands, as follows:
 
 
Source: HVS Research and Market Interviews, as of July 31, 2018
 
In addition to the significant progress that has been made in the rebuilding process, there are many new developments in the pipeline of the affected islands, including 400 new hotel rooms in Dominica and more than 3,000 rooms in Puerto Rico. In addition, St. Martin/Maarten is also experiencing new hotel stock with renovations and conversions to new brands, such as the former Riu Palace to a Secrets Resort, and the Sonesta Great Bay Beach Resort to an all-inclusive Planet Hollywood Resort. 

Lessons Learned

One year later, hoteliers have learned many lessons. The 2017 hurricane season was unique given that the region had not faced a major hurricane in years; thus, many hoteliers were not prepared for what was to come. After discussions with many hotel owners that experienced different levels of damage, one of the biggest topics was related to insurance policies. Hotel owners quickly learned to be patient, as there was an unexpected challenge given the overload of claims and lack of adjusters. Delays were evident, and not planned, due to the lack of personnel to assess each claim. Historically, given the high costs to operate assets in the Caribbean, many owners have focused on keeping insurance costs low with high deductibles because of so many years of non-activity. Owners have now learned the importance of having a significant amount of money in their reserve accounts for such an occurrence. In addition, with the many delays to receive insurance settlements, owners realized how much more crucial it was to be able to react with significant capital reserves available, as without the significant funds, many hotels were forced to close. Owners on islands with damages not related to structural issues (e.g., landscaping, minor water intrusion, and general cleanup) also learned the importance of understanding the details of their premiums, as these items did not add up enough to meet their deductibles; therefore, the entirety of the money needed to be funded from reserves. 
 
However, on the positive side for the affected resorts, insurance proceeds have helped to provide hotel owners the opportunity to carry out capital improvements in an effort to renovate and modernize their properties. Many hoteliers have taken advantage of this opportunity to reposition and will reopen as a different brand to better position their assets going forward. Concurrent with the rebuilding process, building codes will be more strictly monitored going forward, which may help mitigate damages in the future.

Positive Regional Outlook, Bolstered by New Air Lift

One of the most crucial elements to the success of the region is airlift, as tourism to any island destination is dependent first and foremost on the accessibility of the destination. Despite the minor setback in the region, American, Delta, JetBlue, and Spirit Airlines have announced new routes and increased their frequencies to many islands in the Caribbean, as shown in the chart below.
 
Source: HVS
 
In addition to the above U.S.-based carriers, carriers such as Bahamas Air, Copa, and Sunwing have also announced new routes to the Caribbean, attesting to the strength and resiliency of the region, as well as the renovations at major airports, to grow capacity throughout the region.
 
Both St. Vincent and the Grenadines Argyle International Airport and Antigua’s V.C. Bird Airport underwent major transformations during the last few years and are now benefitting from the additional airlift. St. Martin’s Princess Juliana International Airport’s renovation is scheduled to begin in the fall of 2018 and will include an 18-month rebuild to a state-of-the-art facility with roof designed to sustain Category-5 wind gusts. St. Thomas Cyril E. King Airport also recently announced an expansion plan to create new jet bridges, build new parking garages, and connect a ferry terminal to expedite travel to St. John and St. Croix. Curaçao’s Hato International Airport, an island unaffected by the 2017 hurricane season, is also amid a major transformation with a new arrivals hall, check-in area, and terminal expansion.
 
Increases in airlift and capacity have provided developers with opportunities for new projects in the islands, helping to bolster a robust pipeline of development. The significant and ongoing intra- and inter-Caribbean airlift continues to support positive tourism and development growth.

Closing Thoughts

In the song “Better Boat,” Kenny Chesney sings “Now and then I let it go/I ride the waves I can’t control/I’m learning how to build a better boat.” One year later, affected hoteliers have also had to build a “better boat” for their businesses. Through this rebuild, many positive conclusions have been drawn from the situation, as aging products were forced to undergo renovations and as insurance policies were thoroughly reviewed anew. Even throughout the trials and tribulations in the region due to hurricanes and previous epidemics, such as the Zika virus, visitors to the Caribbean keep coming back, as evidenced by the recent increases in airlift. The Caribbean is unlike any destination and is meant for long-term hospitality investments.
 
To learn more about the topics presented in this article, as well as hotel investment opportunities in the Caribbean, join HVS for the 8th Annual Caribbean Hotel Investment Conference and Operations Summit (CHICOS) to be held November 8 & 9 at the Fairmont Southampton in Bermuda. CHICOS brings together more than 300 regional and international investors and operators, in addition to the numerous other industry stakeholders, each year to discuss the region's markets and possibilities.

Register now https://chicos.hvsconferences.com/
Kristina D’Amico is a Director in the HVS Miami office. Her expertise spans consulting and valuation for both existing and proposed hotels and resorts throughout South Florida, the Caribbean, and Latin America. Kristina’s significant international consulting and appraising experience includes assets in the Caribbean Basin across 16 Caribbean islands, as well as the Riviera Maya region of Mexico and various countries in Latin America. In particular, due to her creative thinking abilities and her skill with complex projects, she has an extensive background in consulting and valuation of proposed and existing all-inclusive resorts, as well as mixed-use resorts with a residential component. She is a state-certified general real estate appraiser and is working through the final requirements for her MAI designation. Contact Kristina at (305) 378-0404 Ext. 1016 or [email protected].

2 Comments

  1. The struggle continues for them I see but the article is correct about tourists coming back. The area is beautiful and unlike most of the rest of the world so the tourism is there. Just hope they can get as close to 100% as possible. Thanks for the information!

  2. Kristina, great article. The information about the status of each area is interesting and helpful, and will no doubt be useful to developers, lenders and potential visitors alike. It would be interesting to know how those hotels that are open are faring. Perhaps a sequel article?

Submit a Question or Comment