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Global Hotel Network®
Panama 2008
Global Hotel Network® Market Report: Panama
Date posted: May 2008
Mark A. Lunt
Principal
Ernst & Young, Miami
Rogerio Basso
Senior Manager and Practice Leader - Latin America
Ernst & Young, Miami
Sheraton Panama Hotel &
Convention Center
Oriol Gimenez
Senior Analyst
Ernst & Young, Miami
Global Hospitality Resources®, Inc., asked Mark Lunt, Principal; Rogerio Basso, Senior
Manager and Practice Leader - Latin America; and Oriol Gimenez, Senior Analyst, all part
of Ernst & Young’s Hospitality Services Group in Miami, to provide an update on the
current state of Panama's hospitality industry. They report:
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Introduction
Benefiting from its strategic geographic location proximate to North and South America,
and established air access to major destinations, Panama is emerging as a sought-after
business and leisure destination in the Americas. Its booming economy, which grew by
approximately 11 percent in 2007, gravitates around ship trade through the Panama Canal.
The canal, which was handed back by the United States in 1999, has since seen traffic
expand by one third. Other sectors such as banking (one of the most modern financial
systems in Latin America with assets of over $50 billion), construction, lodging, retail, and
energy are also gaining importance as Panama City seeks to position itself as an alternative
to Miami as “the hub of the Americas.” A stable pro-business government, low inflation
(aided in part by a US dollar-based economy), attractive tax incentives, and favorable
foreign ownership legislation, should allow this country of 3.3 million inhabitants to lead its
Central American peers in terms of Gross Domestic Product (“GDP”) and Foreign Direct
Investment (“FDI”) growth.
Tourism Market Overview
Visitation
According to preliminary figures from the
World Travel Organization, overnight
visitor arrivals to Panama surpassed one
million in 2007, resulting in the second
consecutive year of visitation growth over
20 percent. Enhanced visitation is
facilitated through convenient air access
served by major international and regional
airlines such as Continental, Delta,
American, KLM, Lufthansa, Iberia, Copa
and Taca, in addition to the US$21 million
expansion of Tocumen International
Airport (completed in 2006).
InterContinental Playa Bonita Resort & Spa
While more than half of visitors (56 percent) report leisure as their main purpose of travel,
Panama continues to lag behind Costa Rica in positioning itself as a leisure destination,
despite its rich natural attributes. Visitation is concentrated in and around Panama City with
offerings including the Historic District (Casco Viejo), tours to the Panama Canal, and
shopping and entertainment options, complemented by nature tours in the backcountry and
beach offerings on the Pacific Coast’s resorts. Business demand accounts for almost one
third of total visitation (31 percent) and is driven primarily by the banking, financial
services, transportation, energy, and telecommunication sectors. Convention activity (6
percent) remains low, with no immediate expansion plans for the small, and out-dated,
34,000-square foot Atlapa Convention Center. As such, and reflective of leisure travel
patterns, visitation is strongest from December through April, in addition to the holiday
summer months of July and August, as family demand across the Americas and Europe
intensifies.
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Panama’s international visitation is sourced primarily from the United States (27 percent)
and neighboring Colombia (18 percent). Other important source markets include Mexico,
Costa Rica and Ecuador, whereas European visitation, representing less than ten percent of
total visitation, is dominated by Spanish and Italian visitors. Neighboring countries are
attracted by Panama’s multiple retail and tax free trade zones, as well as resort offerings
along the Pacific Coast, as recently more stringent visa regulations in the United States
make Panama an increasingly convenient destination. US visitation has grown concurrent
with the growth in business activity as well as the increasing popularity of the destination as
a retirement haven, driven by its English-speaking population, affordable healthcare and
housing prices, and low taxation.
Lodging
Panama’s lodging supply (15,800 rooms as of 2006) is highly concentrated in the capital,
where approximately 60 percent of the
inventory is located. The remaining supply is located along the Pacific Coast regions of
Chiriqui (11 percent) and Cocle (nine percent), as well as the city of Colon (eight percent).
According to the Instituto Panameno de Turismo (“IPAT”), occupancy in Panama City for
first class hotels averaged 53.6 percent in 2006. During the first eight months of 2007
(latest information available), occupancy for these hotels increased approximately 11
percentage points to 63.3 percent relative to the same period in 2006, while hotels with
more than 100 rooms achieved occupancy of 78.2 percent, as large chain-affiliated hotels
continued to outperform smaller independent urban properties. Despite supply additions of
12 percent in 2005 and 8 percent in 2006, occupancies have continued their steady increase,
signaling solid underlying fundamentals. Driven by its mix of business and leisure
travelers, major city hotels report operating at very high occupancies (close to 100 percent)
during weekdays, with weekend occupancies dropping to the 70s. As a result, the market is
experiencing double-digit average daily rate (“ADR”) growth. In particular, since 2005,
upscale full-service hotels have experienced annual ADR increases of over 20 percent, and
were estimated to have performed at approximately mid $100s in 2007. Given the lag in
supply additions due to construction timing, 2008 and most of 2009 are anticipated to
witness increased occupancy and ADR levels as demand continues to outpace supply in
Panama City.
Outside of the capital, the lodging market appears less robust, albeit with some promising
signs. The largest resort complexes are conveniently located proximate to the city and
airport (less than a 90-minute drive) on the Pacific Coast, and cater to a mix of local and
international, value-conscious travelers. Examples of such properties include the
InterContinental Playa Bonita Resort & Spa (opened in 2006), the Hotel Melia Panama
Canal, the Playa Blanca Resort (formerly Barcelo Playa Blanca Panama), the Royal
Decameron, and the Gamboa Rain Forest Resort. With the exception of the 800-room
Royal Decameron, an all-inclusive property, the resorts report modest occupancy levels and
higher seasonality. In addition, the San Blas and Bocas del Toro archipelagos concentrate a
significant portion of the country’s small-scale independent resorts. While access remains
an issue, the natural attributes of these areas should continue to bring development interest,
together with more exclusive, master-planned developments along the Pacific Coast.
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Supply Changes
According to Lodging Econometrics, there are currently 1,748 rooms under construction in
Panama, representing approximately ten percent of the existing inventory, with an
additional 1,000 rooms within 16 projects under various planning stages. It should also be
noted that the last internationally branded hotels were developed in 2004, when the 240room Radisson Decapolis and the 120-room Courtyard by Marriott opened, while recent
supply increases have come in the form of expansions.
Announced and rumored projects and renovations include the following:
In addition, two resort projects, located on the Las Perlas Archipelago (accessible from
Panama City via a 15-minute air transfer) are anticipated to feature a lodging component:
Kingfisher Bay is anticipated to feature a boutique hotel, residential units, a 100-slip
marina, and an 18-hole golf course, as well as a central village.
Isla Viveros, a 1,500-acre resort residential development, is anticipated to feature a five-star
hotel, home sites for sale, an 18-hole Jack Nicklaus signature golf course, a full-service
marina and various dining and recreational offerings.
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Political/ Economic Environment
Following President Martin Torrijos’s victory in 2004, Panama has experienced a growing
economy, decreases in unemployment, favorable changes in the tax system, and most
recently, a series of free trade agreement negotiations, most notably with the United States.
Mr. Torrijos has also been a strong advocate of the Panama Canal expansion, which plans
to double its capacity, with an investment of $5.3 billion, to take advantage of Chinese
growth and rapidly rising volumes of world trade.
Economic development is anticipated to continue in the mid-term at a strong pace, led by
enhancements to seaport and airport infrastructure, in addition to increased activity in the
Panama Canal and the free trade zone of Colon. Triggered by economic development,
commercial real estate development is anticipated to continue to observe significant
growth. While the economy remained strong despite the United States’ economic
slowdown, Panama continues to be highly dependent on external economic conditions.
Future growth is anticipated to be linked to three major initiatives: the Free Trade
Agreement with the US (pending Congress approval), the canal expansion, and energy
initiatives including an $8 billion oil refinery proposal that would be jointly developed with
Occidental Petroleum and Qatar Petroleum Company.
Despite the optimistic outlook, income distribution remains one of the country’s biggest
long-term issues. In addition, concerns regarding a potential residential bubble in Panama
City, driven by approximately 40,000 units under construction and many more under
planning, may trigger a slowdown in economic growth as construction and real estate
contract.
Tourism Outlook
Future visitation growth will be ultimately dependent on Panama’s ability to promote and
diversify its offerings and demand base (e.g. providing alternatives to Panama City’s
growing urban atmosphere and its surrounding shopping areas). Plans to develop a
sustainable Tourism Master Plan 2007–2020 focused around the private and public sectors,
and developing tourism standards for the industry are currently underway. Additionally,
IPAT plans to invest $39.5 million on tourism-related projects such as advertising
campaigns, signage and way-finding along main tourist roads, and construction of
information kiosks and visitor information centers, among other things.
Benefiting the country’s tourism profile is Royal Caribbean Cruises Ltd. (“RCCL”)
selection of Panama as a homeport, which should greatly enhance the destination’s
awareness. In its first season, which is slated for late 2008, RCCL will operate 17, oneweek cruises. Test runs are anticipated in mid 2008. Other major infrastructure
developments such as the expansion of Tocumen Airport and the costal road, Cinta Costera,
are anticipated to further facilitate visitation growth from the cruise sector. In the resort
arena, tourism should continue to be highly dependent on local and regional demand, as the
country waits for a new breed of upscale mixed-use resort communities to tap onto the
growing base of ageing baby-boomers.
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Overall, the lodging sector in Panama appears poised for continued prosperity. As top-line
performance has continued to outpace operating costs, profit margins have increased, and
are creating significant interest amongst operators and international investors for
acquisitions, repositionings, as well as new development. Supply growth appears justified
in the midscale to upscale segments, whereas the luxury sector remains untested. However,
continued GDP and tourism growth will be required to support these additions to supply, as
well as coordinated efforts from the government to bring awareness to alternative offerings
along the coastline. In all, the natural and cultural attributes of the country are indicative
that, with careful planning and promotion, as well as lending confidence from the strong
banking sector, Panama may soon be a strong competitor in Central America.
Copyright © 2008, Global Hospitality Resources®, Inc., San Diego, CA USA All rights
reserved. www.GlobalHotelNetwork.com
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