RIO DE JANEIRO, May 25 (Reuters) - Accor SA, Europe’s largest hotel group, plans to slow construction of new hotels in Brazil this year, focusing instead on deals to convert independent hotels into franchisees in order to maintain growth in a sinking economy.
Accor’s head of new business in the Americas, Abel Castro, said in a recent interview that the group planned to sign contracts for 10 conversions this year, double the number of deals last year, when it started the new strategy.
“Today the market isn’t as active as it was last year and the outlook is more cautious. Since you may see weaker demand, independent hotels understand the need to be connected with an international brand,” Castro said.
Converting hotels saves Accor time and money compared to new construction, but it will contribute to a sharp downturn in civil construction that is driving unemployment and rattling Latin America’s largest economy. Brazil’s construction industry has shed 275,000 jobs in the past 12 months.
Accor executives warned last month of a cautious outlook in Brazil, which contributes 7 percent of the group’s revenue.
Still, Brazil remains central to expansion plans in Latin America. Last year the group signed 49 new hotel contracts in the country, worth 1.9 billion reais ($615 million), which was about three quarters of its new deals in Latin America.
This year the group plans to sign another 50 new hotel contracts in Brazil, including the 10 expected conversion deals.
A new hotel can take four years to complete, with an investment of about 25 million reais for the mid-market Mercure brand, while a conversion can take as little as three months and cost about 3 million reais - usually paid by the current owner.
By 2020, Accor plans to have 500 hotels in South America, almost double its existing 251 properties, Castro said. The group now has 190 new projects under development in the region.
Accor has 220 hotels in Brazil and plans to have 378 properties in the country by 2018.
$1 = 3.10 Brazilian reais Writing and additional reporting by Brad Haynes; Editing by Diane Craft