Hurricane Irma and Maria: Implications to the Puerto Rico Hospitality Sector

Once again, the resiliency of the people of Puerto Rico is being tested. This time by the September 2017 landfalls of Hurricanes Irma and Maria. In recent years, Puerto Rico has lost population and employment due to U.S. tax restructuring, resulting in high debt issuance and eventual bankruptcy. The island’s problems were exacerbated by the emergence of the Zika virus in 2015/2016, the effects of which are still being felt. Through it all, the leisure and hospitality sector has been a bright spot for the island economy. This article examines the Puerto Rico economy, historic catastrophic hurricane effects, and the impacts of the one-two punch of Hurricanes Irma and Maria on the Puerto Rican hospitality sector. 

Economic Background

Historically, Puerto Rico has had one the most dynamic economies in the Caribbean region as the once thriving agricultural sector was surpassed by the industrial sector as the primary driver of economic activity and income. Beginning in the 1970’s, IRS Section 936 fueled the growth of the industrial sector by providing U.S. firms with tax-free income, giving an advantage to Puerto Rico over Latin American counties in attracting capital intensive industries such as pharmaceutical, petrochemical and technology. However, in 1996 the U.S. Congress repealed Section 936, with a clause that retained its benefit for ten years for existing corporations. Many pharmaceutical companies closed their plants with the expiration of Section 936. 

Favorable tax treatment fueled investment in Puerto Rican municipal bonds, as the government replaced declining tax revenue with debt, which resulted in an economy with unsustainable borrowing. The island racked up more than $74 billion of debt across more than a dozen issuers as it borrowed to paper over budget deficits. Furthermore, there were $53 billion in unfunded pensions. Puerto Rico’s status as a U.S. territory hindered its ability to deal with the debt crisis and it defaulted on its obligations. In June 2016, President Obama signed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) granting the island access to U.S. federal courts to reduce its obligations and put creditor lawsuits on hold. In return for access to the courts, PROMESA established a Financial Oversight and Management Board for Puerto Rico, to manage the territory’s debt restructurings and approve its fiscal plans. In May of 2017 Puerto Rico officially declared bankruptcy, the largest public bankruptcy in U.S. history, exceeding Detroit’s $18 billion debt default in 2013. 

An island of roughly 3.4 million citizens, Puerto Rico lost population at an annual average rate of 1.5 percent from 2010 to 2016, losing 314,800 citizens. Job losses over the past six years have amounted to 40,300, a compound annual loss of 0.7 percent. Prior to the hurricanes in August 2017, the unemployment rate was 10.1 percent, compared to 4.4 percent in mainland U.S. 

The fragile and outdated infrastructure on the island was significantly damaged by Hurricanes Irma and Maria, with losses likely to exceed $90 billion. The debt crisis, rising unemployment, impacts of Hurricane Maria and net migration losses are cause for concern for the citizens of Puerto Rico. A recent report by the Center for Puerto Rican Studies predicts between 114,000 and 213,000 Puerto Ricans will leave the island annually from 2017 to 2019. States benefiting from the well-educated working age migrants are Florida, Pennsylvania, Texas and New York. The Wall Street Journal recently reported that the Office of Economic and Demographic Research projects that more than 53,000 Puerto Ricans resettled to Florida after Maria. 

From 2010 to 2016 leisure and hospitality was the one economic bright spot, adding some 9,700 jobs, or compounded annual growth of 2.2 percent. An additional 300 jobs were added through September of 2017. According to the Puerto Rico Tourism Company, the island attracted 5.08 million tourists in 2016 and visitor expenditures totaled $3.98 billion, generating some 3.74 million room nights. Visitation hit a 10-year high in 2008 at 5.21 million then bottomed out at 4.20 million visitors in 2012. Visitation statistics through year-end 2016 are presented in Table 1 below, and demonstrate generally positive trends. Even with Zika in 2015/2016 slight increases were achieved. 

Table 1: Puerto Rico Visitors and Expenditures 

Figure 1 details the Puerto Rican hotel market performance from 2000 through 2016. Disruptions in the mainland U.S. economy clearly had a substantial impact, though the subsequent recovery was remarkably strong, particularly in view of Puerto Rico’s challenges. 

The unravelling of the debt crisis and Zika virus in 2015 and 2016 were island centric (although Zika was a concern on other Caribbean islands and in South Florida). Mainland U.S. demand for travel was strong, but these concerns kept some tourists from traveling to Puerto Rico. Demand remained soft in the first few months of 2017, but strengthened through August. Both storms hit in September 2017. Since August 2017 some 2,944 rooms have dropped out of the market, through temporary damage or closure. 

It is important to look at October 2017 in the context of how it performed relative to October 2016 (a weak month due to the aforementioned issues). Most island hotels in October 2017 were open for FEMA and aid workers. There are very few tourists staying on the island. October 2017 volume exceeded October 2016 by eight percent. Due to decreases in supply occupancy was artificially strengthened to 70.1 percent. What is clear from the data is that the demand bump in October was not as significant to top line performance of the surviving hotels as was the ADR increase. Hotels have been able to push ADR $43 higher than in the year-prior. 

Hurricane Irma And Maria Impacts To Puerto Rico


Since 1950 some 753 named storms have originated in or passed through the Atlantic Basin, with 417 turning into hurricane force storms. While some of these storms turned northward or moved toward the mainland U.S., many passed through the Caribbean. The International Monetary Fund reports that during this time 238 records of disaster were caused by hurricanes, by 581 storms (298 tropical storms and 283 hurricanes). A disaster is classified as at least 100 people affected, at least 10 people killed, or a state of emergency being declared. Total damage in U.S. dollars amounts to $57.5 billion (in constant 2017 dollars), but there is speculation that this has been underreported. Table 2 shows the number of storms and hurricanes occurring in the Atlantic Basin, followed by Table 3 showing the most destructive hurricanes that have hit the Caribbean islands. 

Table 2: Atlanta Basin Hurricanes by Decade 1950 -2016 

Table 3: Largest Hurricane Damage to the Caribbean 1950 - 2016 

The 2017 hurricane season was devastating to the Caribbean and mainland U.S, with 17 named storms, of which 10 were hurricanes. Hurricane Harvey significantly impacted Houston with massive flooding; Moody’s estimating damage at $81 billion. Many islands in the Caribbean, including Puerto Rico, Dominica, St. Martin, Anguilla, St. Barts, the Turks and Caicos and the British and U.S. Virgin Islands were ravaged by Hurricanes Irma, Maria and Jose. Figure 3, published in the New York Times, indicates the hardest hit islands. 

Figure 3.​


While the impacts of Hurricanes Maria and Irma were primarily centered in the Caribbean, mainland United States bore the brunt of Hurricane Harvey’s force. Harvey was the first major hurricane to strike the United States since Hurricane Wilma in 2005. Houston, in particular, was devastated by the hurricane. The city flooded, cutting off citizens and killing at least 30 people. Estimates place the damage caused by Harvey at $125 billion. Despite the devastation to the city and surrounding areas, the lodging and hospitality sector saw a boom in demand. Displaced residents and relief workers sought shelter in hotels in the immediate aftermath of the storm. The figure below shows the year-over-year change in demand for the Texas markets covered by CBRE’s Hotel Horizons® for 2017. Demand grew across all markets in Texas; however, the Houston market saw a spike in demand 47 percent over 2016 levels as a result of Hurricane Harvey. 

Hurricane Irma made landfall on the US mainland in Cudjoe Key as a Category 4 storm, and carved a path up the coast of Florida. Damage to property was not as significant as the effects of Hurricane Harvey, though there was an estimated $50 billion in damage, making the hurricane the costliest in Florida’s history. The impact on the hotel industry because of hurricane Irma was markedly different than that in Texas with Hurricane Harvey. Many citizens chose to evacuate from the path of the hurricane rather than sheltering in place, so hotels in the most severely affected markets did not see the spike in demand that the hotels in Houston did. In fact, September 2017 saw the greatest decrease in year over year hotel demand for the year for the Fort Lauderdale, and Miami markets, 4.4 and 11.2 percent respectively. These declines were negated the following month as evacuees returned to their homes to rebuild, resulting in double-digit increases in rooms demand compared to October 2016. 


Hotel markets tend to see a spike in demand and rate directly after a hurricane, due to FEMA, emergency personnel and construction workers. The prior presentation of STR data in Puerto Rico reflects this phenomenon, even though there are almost 3,000 less hotel rooms operating on the island. After this initial bump, the disaster markets tend to take several years to fully recover to pre-storm levels, due to supply constraints, loss of convention and group bookings and stigma. Looking at the data from catastrophic Hurricanes Ivan, Hugo, Andrew and Katrina, in the respective markets of Grand Cayman, Charleston, Miami and New Orleans, it appears that demand took some two to eight years to reach pre-hurricane levels. The outlier was Hugo, which did not follow this pattern. While every storm is different and impacts are unique to the area, level of damage and ability to respond to the recovery, it is evident that catastrophic hurricanes negatively impact long-term hotel market performance. 

Table 4: Hurricane Demand Impacts

To the positive side, major storms provide an opportunity for many properties to pause and perform capital expenditures that may have otherwise taken several years to perform. Several Puerto Rican hotels are scheduled for capital expenditures and restorative enhancements following Irma and Maria. It should be noted that District Live!, a $90 million mixed-use entertainment venue under construction in San Juan’s Convention Center District was not materially impacted. Work resumed after Hurricane Maria and the project is set for opening in late 2019. 

Given the destruction and stigma associated with Irma and Maria’s impact on Puerto Rico and the eastern Caribbean Islands, growth rates to non-affected islands will vary by market. Islands like the Dominican Republic, Jamaica, Grand Cayman, and Aruba may see demand from leisure business originally booked for Puerto Rico and the eastern Caribbean. This business will also flow to Florida. 

Structures in Puerto Rico have been damaged, but given the widespread use of masonry construction the devastation is not as pronounced as it would have been with lower class construction. Islands with inferior construction such as Haiti were destroyed by the 2010 earthquake and subsequent 2016 passing of Hurricane Matthew. Flooding after the storm in Puerto Rico did not persist, as was the case with Hurricane Katrina in New Orleans or Hurricane Harvey in Houston. Still, many of the hotels and resorts have been damaged and reports are that they will need significant renovation, while some remain closed indefinitely. 

Utility damage (power in particular) is the most pronounced problem facing Puerto Rico. As of December 1, 2017, roughly half of the island was without power, with some 30 percent of customers still lacking it by the end of January 2018. It will be several months before power is fully restored. 

Cruise ships have returned, providing much needed revenue to the island. Many local businesses have taken months to reopen and provide services to the returning tourists, a problem that market participants believe will cause the 2018 winter season to be lost. However, the loss in tourist trade is likely to be substantially offset by the bump from aid and construction workers. Further, the consensus is that it will be a minimum two-year recovery, if there are no other unforeseen conditions. 

The monetary size of the recovery effort, the uncertain future of the economy, and the shrinking population base have led to bad publicity for Puerto Rico in the mainland U.S. which accounts for 89 percent of non-resident tourist arrivals. When the island physically recovers, a strong mainland U.S. marketing campaign welcoming tourist back is needed with a clear message that Puerto Rico is open for business and the warm and welcoming people of Puerto Rico are resilient. 


​​ ​Aaron Carone, MAI, MRICS has been a consultant with CBRE Hotels (formerly PKF) since 2015 based in the Jacksonville office. He provides real estate valuations, market/feasibility studies, consulting and market research in the hospitality industry. He has conducted market and economic feasibility studies for hotels and resorts throughout the U.S., the Caribbean region and Central A​​merica, with research assignments in England and the Netherlands. 

Mr. Carone obtained a​ Bachelor of Business Administration in Finance and Masters of Business Administration in International Business from Georgia Southern University. Prior to college, and while attending, he worked in the hospitality industry in bed and breakfast and resort properties. Mr. C​​arone has been a speaker at the American Planning Association national meetings, and worked with the University of Georgia master planning the barrier islands along the Georgia Coast. He presently serves on the International Relations Committee for the Appraisal Institute. 

​​ ​Jamie Lane is a senior economist for CBRE Hotels​​’ Americas Research. He is based in the firm’s Atl​anta office where he is responsible for econometric forecasting, producing the firm's quarterly Hotel Horizons® reports, and new product development. Other activities include conducting studies for hotel investment firms and o​perating companies using advanced quantitative methods and preparing research reports on contemporary hotel industry issues. 

Since joining CBRE Hotels (formerly PKF Hospitality Research) in 2010, Mr. Lane has done extensive research on the determinants of hospitality demand and creating models for profit, average daily rate (ADR), supply, and demand forecasting. In addition, he has published in academic and professional journals including the Cornell Hospitality Quarterly and the International Journal of Hospitality Management, as well as speaking at many industry forums. He holds a bachelor in Economics from the University of Georgia and a Masters of Business Economics from Georgia State University. Jamie is an active member of the National Association of Business Economists and the Atlanta Economics Club.  ​