Market Analysis Reveals Significant Lack of Hotel Inventory in Ambergris Caye, Belize
Ambergris Caye, Belize, November 2, 2016 (Newswire.com) - Belize has a unique set of circumstances that directly influences its hotel market. Tourism in Belize has been growing at double-digit rates for the past 4 years, and for the first three quarters of 2016, has seen the largest increase in tourism in all of Central America. The question is: How is it possible so few hotels have been added to the country over the past decade?
The answer to this question lies in the Belize banking system. Belize banks are required to maintain reserves of 24% of every dollar deposited into their banking system (one of the highest reserve requirements in the world). Compare this to the United States, where banks are allowed to lend out $40 for every $1 deposited, and you will see why capital-intensive investments are scarce in Belize.
Currently, on the island of Ambergris Caye, there are about 2,379 rental units available (this figure includes hotel rooms). Given our calculations, this means that over 50% of demand for overnight accommodations is being left unfulfilled, due to a lack of available inventory.
Will Mitchell, Real Estate Expert with RE/MAX Island Real Estate
In the United States, where banks have the ability to utilize leverage to an extreme degree, you run the risk of bank failures like we saw in 2008 and 2009. However the upside of lending practices in the United States is lower interest rates for borrowers.
Belize has the exact opposite circumstances. While there has never been a bank failure in the Belize, it is also very hard for new construction to take place. A very safe banking system results in higher interest rates for borrowers (usually around 10.5% in Belize) and more money down (usually around 40%). This is why it is very difficult for new builders in Belize to finance and build large hotel projects.
This isn’t the end of the story though. Overnight accommodations in a tourism market typically take two forms. The first is hotel inventory, which we discussed above. The second is rental inventory, comprised of privately owned houses, condos, and apartments.
Historically, most of the rental units available in Belize were owned by families who visit Belize for 2-4 weeks per year, then leave their unit available for nightly rentals in the remaining months of the year. This has started to change though, due to the mass influx of baby boomers buying property in Belize for retirement. Instead of occupying these units for 2-4 weeks, retirees are occupying these units year-round. This has resulted in a significant contraction in the number of rooms available for nightly rentals. This is especially true of Ambergris Caye, the #1 tourism and retirement destination in all of Belize, accounting for over 70% of overnight tourism arrivals to Belize.
All of this begs the question, how much demand is being turned away from Ambergris Caye because tourists cannot find a place to stay? The answer, as we will explore below, is surprisingly high.
Calculating Supply and Demand of Hotel and Rental Inventory on Ambergris Caye
The aforementioned supply and demand imbalance has many investors looking into Ambergris Caye opportunities. Obviously, the circumstances listed above create a phenomenal opportunity for real estate investors looking for strong cash flow investments. But, just how big is the opportunity?
To answer this question, we looked at comparable markets in the United States in order to make a statistical inference about the actual imbalance between supply and demand of overnight accommodations in the Ambergris Caye market. We decided to use online search volume as an indicator of demand, due to the fact that 90% of hotel bookings are completed online. Below is an overview of our process and calculations.
First, we chose three markets (Orlando, Cancun, and Las Vegas) to use as comparable tourism markets. We then found the total number of hotel rooms available in each market, the annual average occupancy rate, and the number of Google searches for booking hotels within that market. While we may be missing some search volume by excluding other search engines, we limited our calculations to just Google to decrease variance across markets.
The goal of our calculations was to find how many overnight bookings there are in a specific market, compared to the demand exhibited through Google searches for overnight accommodations.
Example 1: Orlando
Average Hotel Occupancy Rate: 77%
Keyword Search Volume = 1,922,100
Total Orlando Room Count = 144,125
Bookings = Occupancy * Total Room count: (0.77*144,125) = 110,976.25
Booking to Search Ratio = (Bookings/ Google Searches)*100: (110,976.25/1,922,100)*100 = 5.77%
Example 2: Cancun
Average Hotel Occupancy Rate: 81.6%
Keyword Search Volume = 1,919,100
Total Cancun Room Count = 126,000
Bookings = Occupancy * Total Room count: (0.816*126,000) = 102,816
Bookings to Search Ratio = (Bookings/ Google Searches)*100: (102,816/1,919,100)*100 = 5.38%
Example 3: Miami
Average Hotel Occupancy: 84.2%
Keyword Search Volume = 893,400
Total Miami Room Count = 50,000
Bookings = Occupancy * Total Room count: (0.842*50,000) = 42,000
Booking to Search Ratio = (Bookings/ Google Searches)*100: (42,000/893,400)*100 = 4.70%
In looking at our three sample tourism markets, you can start to see a correlation stand out in the data. Roughly 5% of people searching to rent hotels within a specific market will end up booking a room. That percentage, when averaged across the three markets, comes to:
Average = (4.70% + 5.38% + 5.77%) / 3 = 5.283%
Using this “Bookings to Search Percentage,” we are now able to estimate the number of hotel rooms needed to handle the demand generated by search engines. In our market of Ambergris Caye, we find, using the Google keyword tool, that there are roughly 97,000 monthly searches for hotel renters in the market. If we take that and multiply it by our rough estimate booking rate:
97,000 * 5.283% = 5,648.31 hotel rooms
Currently, on the island of Ambergris Caye, there are about 2,379 rental units available (this figure includes hotel rooms). Given our calculations, this means that over 50% of demand for overnight accommodations is being left unfulfilled, due to a lack of available inventory.
It goes without saying, there is a serious supply and demand imbalance in the Ambergris Caye market, and there in lies the great opportunity for investors. When buying or building a rental unit on Ambergris Caye, you can very nearly ensure maximum asset utilization and cash flow, due entirely to existing market forces.
For more information about Ambergris Caye, the Belize Field Trip, and other Belize Real Estate related news, please contact:
Will Mitchell
RE/MAX Island Real Estate
Ambergris Caye, Belize
will@belizefieldtrip.com
Sources for calculations:
http://www.sun-sentinel.com/business/tourism/fl-str-may-2016-hotel-stats-20160621-story.html
http://www.emarketer.com/Article/How-Much-Search-Traffic-Actually-Comes-Googling/1011814
http://www.answers.com/Q/How_many_hotel_room_are_there_in_Cancun?#slide=3
https://www.hotel-online.com/press_releases/release/exceeding-expectations-cancun-2014-occupancy-rate-up-by-6.6-outlook-for-201
http://www.orlandosentinel.com/business/tourism/os-cfb-orlando-hotels-annual-figures-20160130-story.html
http://vegasinc.com/business/real-estate/2012/aug/09/las-vegas-lands-third-behind-orlando-and-washingto/
http://www.miaminewtimes.com/news/miami-leads-nation-in-hotel-occupancy-rates-and-revenue-7659289
Source: RE/MAX Island Real Estate