The primary market for Caribbean tourism is North America, and in particular the United States, where employment, wages, and disposable income statistics are on a seemingly endless upward trajectory. As a result, we have seen profound growth in tourist arrivals to the Caribbean, even after 2017, one of the most devastating years for hurricanes in the region.
Despite more people flocking to the islands, regional hotel performance has been relatively flat the past two years: ADR was up about 1% in 2018, with occupancy down a little more than 1%, according to STR.
James V. Andrews is senior managing director at Integra Realty Resources – Caribbean.
Meanwhile, data from the Caribbean Tourism Organization (CTO) suggests arrivals to destinations that have reported the full year so far are up about 6.4%. Excluding destinations affected by the 2017 hurricanes, the growth was more than 8%. Let’s take a look at why this is happening.
Where tourists are staying
One aspect of the answer appears to be that more tourists are staying in non-hotel lodging units such as villa rentals and private homes that are marketed for short-term accommodation. We see this with the growth in hotel inventory paired against lackluster growth in hotel performance. The number of hotel rooms in the Caribbean region (excluding Mexico) grew by only 2.6% in 2018. But if we exclude destinations affected by hurricanes in 2017, including Cuba, the number of rooms grew by about 4%, and by a total of about 23% in the past three years.
Growth in supply is clearly outpacing demand, but at the same time, arrivals are still growing at a faster clip. Developers are clearly seeing the opportunity to add assets, and numerous international hotel and resort chains are rapidly expanding in the region.
According to the CTO, hotel accommodations ranged from about 50% to 80% of all tourist arrival accommodations to various island destinations in 2016 (before the effects of the hurricanes), excluding outliers that rely on a higher allocation of boat charters as part of their tourism product.
Most destinations reported that 60% and 70% of arrivals stayed in hotel accommodations in 2016 (before the 2017 hurricanes), which would imply about 35% of the 18 million tourist arrivals, excluding Mexico and Cuba, or about 600,000 to 700,000 tourists, stayed in villas, homes and other types of units.
The highest reliance on traditional hotels in 2016 came from the U.S. Virgin Islands at 82%, with the remaining 18% allocated to guest houses, apartments and other private accommodations such as villas and Airbnb-type rentals. In 2016, this would have accounted for about 140,000 tourists that stayed in accommodations other than hotels. This dynamic has changed dramatically following the passages of Irma and Maria through the USVI in 2017.
Home-sharing bookings
According to a recent USA Today, Airbnb bookings in 2018 grew by leaps and bounds, with the biggest increase in the USVI — an astonishing 600% increase. Of course, this was affected by the fact that nearly all the large hotels in that destination have not yet re-opened following the 2017 hurricanes. Overall stayover arrivals to the USVI dropped from nearly 800,000 in 2016 to about 480,000 in 2018, so it is assumed that well over half of tourist arrivals in 2018 stayed in non-hotel accommodations.
One factor that seems to have made a difference in markets such as the USVI is private home (and home-sharing) bookings available on Expedia and its sister company Travelocity. Expedia bought HomeAway, which also owns competitor VRBO, in late 2015, and its listings have been more and more prevalent on Expedia’s search engine in the past two years. In fact, a recent search reveals private home listings represent the vast majority of results in Expedia/Travelocity when looking for accommodations in St. Thomas.
Meanwhile, the Cayman Islands reportedly hosted more than 8,600 guests through Airbnb in 2017, where there is said to be about 470 Airbnb listings and about 6,200 total accommodation units. Of the 6,200 accommodation units reported in 2017, only 2,487 were known to be traditional hotel rooms. This is largely due to the predominance of luxury beachfront condominiums available for short-term rental in this family-oriented destination.
It should be noted, however, that USA Today stated Cayman ranked third in growth of Airbnb bookings in the Caribbean in 2018, with a 100% spike. This would equate to about 4% of total stayover tourists in 2018 to an island that has a lot of condominiums and villas rented through resort rental pools and villa rental agencies; and in fact, the ratio of tourists staying in traditional hotels was only 42.9% in 2017.
This ratio was down from 46.7% in 2016, despite the opening of the 266-room Kimpton Seafire in November 2016. At a ratio of 113 tourist arrivals per room, this new hotel opening would have accounted for the majority of the growth in arrivals in 2017 and 2018, with most of the other new arrivals, numbering around 14,000, presumably belonging to growth in performance of Airbnb as well as condominiums and villas.
Is it a threat?
So at a ratio of 4% of total arrivals, Airbnb does not seem to be a huge threat to this destination in particular, except when you consider at a current arrivals/room ratio of 113, Cayman will need to increase its arrivals by over 57,000 (13%) within about three years to keep a steady occupancy level based on the number of rooms in the active pipeline. This does not include any required increase in arrivals due to growth in the number of private homes and villas available for rent online. Overall, the region will need to boost arrivals by over 11% to maintain consistent hotel occupancy levels given the current hotel pipeline.
Meanwhile, the greater Caribbean region has maintained a ratio of arrivals to hotel rooms at about 100, which is virtually unchanged from 2017. This is good news for hotels, suggesting that arrivals have kept pace with growth in hotel inventory, and not losing much market share to other types of accommodations.
It’s important to point out that many hotel developers are wisely leaning toward all-inclusive and luxury class products, which are less likely to compete against home sharing units for tourists. Nevertheless, the region will need to continue to market vigorously, along with its hotel partners, to maintain the solid occupancy levels they are currently experiencing as private homes, condos and villas become more and more popular throughout the region.