Oct. 8 (Bloomberg) -- Marriott International Inc.InterContinental Hotels Group Plc and Starwood Hotels & Resorts Worldwide Inc. are ready to compete for guests in Rio de Janeiro as the city famous for its Carnival parades and beaches races to more than double hotel capacity to host the 2016 Olympic Games.

The Brazilian city that beat out Chicago, Madrid and Tokyo must increase its hotel rooms to more than 48,000, according to an evaluation report by the International Olympic Committee. Rio currently has a capacity of about 22,000 rooms, said Gregory Rumpel, executive vice president at Jones Lang LaSalle Hotels.

Rio’s need to upgrade is an opportunity for foreign hoteliers now accounting for about 12 percent of Brazil’s lodging to wrest market share from independent local operators, Rumpel said. Occupancy in Rio from January through August climbed to 64 percent from 62 percent a year ago while falling in the top 25 U.S. markets to 61 percent from 69 percent, according to Smith Travel Research Inc.

“The Olympics will be a great opportunity for international hotel brands to come in and increase their footprint in the area,” Rumpel said.

Rio, home to about 7 million people, was chosen last week to host the 2016 games just as growth in Latin America’s biggest economy begins to recover from its worst recession in 19 years. Gross domestic product will expand 4.5 percent next year after rising 0.01 percent in 2009, a central bank survey of 100 analysts published Oct. 5 showed.

Expansion

Brazil, whose record low interest rates, tax cuts and government spending are helping spur the expansion, also will host the soccer World Cup in 2014.

“The fact that the Olympics are going to be held in Rio is definitely increasing our focus on the area,” said Alvaro Diago, InterContinental Hotels’ head of Latin America.

“We are currently looking at a series of hotel projects in the city,” he said. “It goes beyond the Olympics. In the long term, the city needs more international, modern brands. They can put Rio further on the map.”

IHG, based in Windsor, England, has 11 hotels with 2,787 rooms it manages or franchises throughout Brazil. The company would be mainly interested in operating Rio hotels, rather than owning them, Diago said. IHG now runs one InterContinental in the city and is negotiating to open a Holiday Inn close to the convention center.

Marriott

“We could have another InterContinental and a Crown Plaza, a Holiday Inn and two or three Holiday Express in Rio,” Diago said in a telephone interview.

Accor SA, based in Paris, is the largest international hotel operator in Brazil, with 141 properties and 22,558 rooms in the country, according to an August report by LaSalle Hotels, part of Chicago-based Jones Lang LaSalle Inc. Bethesda, Maryland-based Marriott oversees four hotels with 1,116 rooms while McLean, Virginia-based Hilton Worldwide manages two venues with 846 rooms and has a third under construction, according to LaSalle.

Rio’s average room price in U.S. dollars fell 13 percent to $147.77 from January through August, according to Smith Travel Research Inc. U.S. rates in the top 25 markets dropped 12 percent to $116.68.

Brazil was in second place behind Peru among South American travel bookings from September 2009 through February 2010, Genevieve Shaw Brown, senior editor at booking service Travelocity.com, said in an e-mail.

‘Good Market’

A weekend standard room with booking restrictions at Accor’s Sofitel Rio de Janeiro on Copacabana Beach was priced at $297 a night, according to the hotelier’s Web site. A prestige suite was quoted at $1,068. A deluxe room on the weekend with ocean view at JW Marriott Hotel Rio de Janeiro was $364 a night while a presidential suite cost $1,098.

“Brazil is a good market,” Marriott Chief Financial Officer Carl Berquist said in a July interview. “It has held up better than many others.”

Marriott spokesman John Wolf declined to comment further. The company operates one hotel in Rio, according to Wolf.

About 124 hotel building projects are underway in Brazil, according to the LaSalle Hotels report. Of the additional hotel rooms needed for the games, about 8,500 likely will be provided by cruise ships because of a lack of development opportunities, according to the IOC evaluation report.

“It’s impossible to double the inventory just in Rio itself because of land restrictions,” said Ricardo Mader, executive vice president for Brazil at Jones Lang LaSalle Hotels.

Crime Concerns

Rio also must overcome its reputation for violent crime. The city recorded 2,069 murders last year compared with 510 in Chicago, a city of 2.8 million. Stray bullets from rival drug gangs battling to control more than 1,000 shantytowns ringing the so-called “Marvelous City” claim dozens of lives each year, police say.

“Yes, there will be more hotel activity,” Jan Freitag, vice president at Hendersonville, Tennessee-based Smith Travel, said in an interview. “But remember, this is just a two to three-week event. It doesn’t make any sense to invest $50 million to $100 million in an asset that takes you a couple of years to build. The underlying fundamentals have to work.”

Starwood’s View

Starwood, which according to LaSalle has six hotels with 1,651 rooms in Brazil, is looking to expand in the country. Almost 70 percent of Starwood’s planned hotels are outside the U.S. The company currently operates the Sheraton Rio Hotel & Resort and the Sheraton Barra Hotel & Suites in the city, according to the Starwood Web site.

“We see Brazil as a business country to operate in,” Chief Executive Officer Frits van Paasschen said in an Oct. 5 interview with Bloomberg Television. “We’ve already been busy at work there and are even more excited now that the Olympics are going to take place there.”

He declined to say whether the Olympics would prompt Starwood, based in White Plains, New York, to boost its current pipeline of hotels in the country.

The games will “certainly lead to a very rapid development and build up of new hotels,” said Patrick Scholes, a senior equity research analyst at FBR Capital Markets & Co.

“The question is, what is the staying power of Rio after the Olympics and what impression will Rio make on the rest of the world,” Scholes said.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

Last Updated: October 8, 2009 11:58 EDT