Hotel Competition Creates Bargains in Panama City

A glut of hotel rooms in Panama City is translating into great deals for visitors. Room rates are at all-time lows, making a trip to Panama’s fast-growing capital …

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A glut of hotel rooms in Panama City is translating into great deals for visitors. Room rates are at all-time lows, making a trip to Panama’s fast-growing capital a bargain compared to other popular destinations.

Overall, the average daily rate for a hotel room in Panama City dropped 4.3 percent in 2015 and occupancy rates settled at around 50 percent, after several years of declines, according to data from STR Global. Top hotels like the Intercontinental, Hilton and Waldorf Astoria are promoting five-star rooms for close to $100 or less a night.

There is no mystery about the reasons behind the low rates. The number of hotel rooms in Panama City increased by more than 200 percent from 2012 through 2014, according to the Panama Association of Hotels (Apatel). Today there are more than 18,000 rooms in the city, with another 1,000 rooms in the pipeline, STR reports.

Demand is not the issue, as Panama remains the fastest growing economy in the region. In 2015 the economy grew by 5.8 percent and it is expected to expand by another 6.2 percent this year, thanks to Panama’s role as the hub for business and trade in Latin America, according to the International Monetary Fund forecast.

With business strong, tourism has also surged, with arrivals increasing 4 to 6 percent annually in recent years, according to government data.

But that is not enough to keep up with the wave of new construction. Developers aggressively shifted from residential to hotel development in the wake of the downturn in condo sales after the 2008 global collapse and now they are paying the price. There are simply too many hotels competing for the same visitors.

In Panama’s property industry, we’ve seen this before. After a surge in construction from 2002 to 2009, there was a definite oversupply of condominiums in Panama City, resulting in a drop in prices and empty condos. But the market eventually absorbed the supply and prices started to rise again, especially for the best units. Developers have started to build residential projects again, a sign of a balanced and healthy market.

Hotel operators in Panama City are blaming the government for their troubles and asking for more money targeting tourism. The hotel industry has already convinced the government to ban short term rentals in apartments, which helped dampen competition—unfairly, it could be argued, since both homeowners and consumers like apartments as an option.

But it’s been a slow process to create a new advertising effort to promote tourism. In January, the Tourism Authority of Panama issued a tender for an agency to design and produce a new campaign, drawing bids from four companies. But the tender was ultimately revoked after it was learned the two entities bidding were owned by the same conglomerate.

In March the Tourism Authority of Panama issued a new $4.5 million tender, which attracted four bids and should result in the choice of an agency to lead the new advertising effort.

A promotions campaign will certainly help tourism and there are signs the hotel market is stabilizing. The drops in occupancy and rates have slowed in recent months. But with more hotels scheduled to open in the next year, supply and demand will remain out of balance. And that means visitors will continue to find bargains in the months ahead.

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