Let's make one thing clear: Medellín is not empty. Nor has it ceased to be attractive. Tourists continue to arrive, and the figures confirm this. More than 220,000 international visitors in December and more than $143 million injected into the economy are not a mirage.

The problem that has arisen is another: while demand is growing gradually and organically, hotel supply has skyrocketed disproportionately, mostly without understanding the market and, in many cases, without any real notion of what it means to simply own a hotel.

All this has resulted in a relentless price war, which means that in their eagerness to fill rooms and sell, hotels are sacrificing their profits for fear of losing out, causing the destination to fall into a dangerous downward spiral where all players suffer the consequences.

Oversupply as the root of the problem.

It's time to accept it: the hotel industry in Medellín has entered a phase of oversupply. There are too many rooms chasing the same guests. This growth was neither organic nor proportional, much less well planned. On the contrary, it was abrupt, disorderly, and, to a large extent, speculative.

Today, while there is open talk of thousands of new rooms on the way, projects that were launched under projections that were moderate at the time, with conservative scenarios and a belief that only a few players who understood the business would enter it, are suffering the consequences of the entry of unexpected players, who relied on third-party projections or even some who believed that having 200 rooms would be as easy to fill as 50.

In light of all this, the market is doing the only thing it knows how to do when there is an oversupply: adjusting prices downward. And the problem with this is that when occupancy becomes the only objective, rates cease to be a strategic variable and become a lifeline to try to break even.

The scale error: large hotels, small brands.

One of the most sensitive factors is the proliferation of large independent hotels in high-rate areas. When you have more than 120 rooms, the commercial rate structure changes completely and is no longer comparable to operating 60 or 80 rooms.

Operational complexity, payroll costs, fixed costs, and the financial pressure of the total investment value grow exponentially. For many of these projects, the difficulty of charging the high rates typical of the area while also achieving the normal occupancy rates of smaller hotels means that they end up sacrificing one of the two.

Maintaining high rates and lower occupancy is what large international brands do. Thanks to their name, the support of their network of partners, and their loyalty programs, they can afford to do so. Furthermore, they are not looking for immediate returns, as their strategy is based on long-term consolidation. In the case of large independent hotels, they prefer to have high occupancy, even if this means breaking the rate market and entering a negative spiral.

The fact that there are now new hotels in El Poblado charging less than $60 is a sign of stress. With the arrival of large-scale hotels, El Poblado has been forced to aggressively lower its rates in an attempt to compensate for the drop in occupancy due to increased supply. And when the primary market aggressively lowers its prices, secondary markets such as Laureles have no choice but to lower theirs as well, creating a cascade effect.

Platforms are the mirror and the thermometer, not the enemy.

OTAs, or online booking platforms, are often the easy target of criticism. They are accused of charging commissions and pushing discounts, but that view is incomplete. In markets such as Medellín, platforms are not the problem: they are the barometer.

They are, in fact, the first to show where the market is headed. Their data is the only thing that anticipates the contraction, reveals the oversupply, and allows us to clearly see what many prefer to ignore. There are more beds than tourists.

The reality is that platforms play a global game, and even in an oversupplied market, they compensate for their loss in rates with an increase in inventory. But that's not the issue, because for better or worse, they will continue to be a great sales tool with global power. The problem with OTAs is that they reduce hotel offerings to comparative data such as rates, photos, reviews, etc., which puts more and more competitive pressure on an oversupplied market.

One might think that the mistake lies in not making direct sales, that always depending on OTAs is a bad thing, but in reality, without them, the tourism boom would not have happened and today we would not have real data on the market situation. OTAs bring us ready-made customers, do the hard work for us, and their commission, which is based on success, is more than deserved.

Medellín in the international spotlight.

Cities such as Barcelona, Amsterdam, and Lisbon have already traveled this path of oversupply. They grew rapidly, celebrated record figures, and then faced an adjustment. The difference is that these cities understood that the solution lay in structurally expanding demand while conditioning supply growth through zoning.

Medellín has a growing bottleneck and also a thorn in its side in terms of coordination. The bottleneck is obvious: air connectivity. Without an expansion of the airport and more international routes, it will be difficult to balance supply and demand, especially since, for over a year now, the market has been self-regulating, making it difficult for hotels to increase their rates on a sustained basis.

In addition, the thorn in our side is the city's POT (Public Investment Fund), which, with its archaic 12-year structure, makes it difficult for the administration to react in a timely manner and with the necessary planning to prevent the market from becoming oversaturated and hotels from being built where housing should be, which is the real need of the city today.

Closing

The hotel industry in Medellín is undergoing a period of rate contraction that will cast doubt on projections, returns, and, in some cases, the very viability of many projects. Even so, it should be made clear that this situation is by no means a catastrophe; it is a market correction that will surely have its moments of high stress and its good moments as well.

What we must recognize is that the Medellín phenomenon is something unprecedented for everyone. In a city that breaks its own tourist arrival records year after year, the hotel industry has gone from having a shortage of beds and a gold rush-like construction boom to an oversupply of hotels with falling rates, even in high season, in just three years.

When I invited people to invest in my projects years ago, the last thing I expected was that instead of investing in us, people would start doing their own thing. Back then, there were three or four companies building hotels; today, there are so many that I can't even count them, and the hardest thing to understand is that most of them, when they started, didn't have an operator or know the business they were getting into.

Today, we are all paying the price for that ambition.

Alejandro Gonzalez
Co-founder of Blackroom