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The Spanish hotel market has been undergoing an undeniable revival since 2014, and the encouraging predictions present exciting future opportunities.
ECONOMIC RECOVERY AND GOOD HOTEL PERFORMANCE
With a remarkable recovery of the national economy (the Bank of Spain expected the Spanish economy to grow at a rate of 3.1% on average in 2015, in line with the IMF estimations) and a consistent tourism market, the hotel sector is in good shape.
International tourism arrivals reached 65m in 2014, which represents the biggest y-o-y variation in the last 14 years. And this number was expected to be outpaced in 2015, as 64,6m of international tourism arrivals were registered until November. Total expenditure was recorded at c. €63m in 2014 (representing 6.5% growth on average) exceeding previously recorded figures. The increasing demand has had a positive effect on hotel performance in 2014 and 2015, with increases both in occupancy and daily rates by 3.6% and 3.3% respectively, compared to 2013.
As a result, revenue per available room (RevPAR) has reached a compound annual growth of nearly 4% over the last five years.
INVESTMENT APPETITE ON THE RISE
Spain remains an attractive proposition for international, and also national, investors even though hotel prices have yet to fully recover when compared to other European destinations. Estimated hotel investment figures are at c. +€1.6 billion for 2015, with more than 132 known transactions.
Hotel debt trades which started in 2014 are expected to continue in the short-medium term, with these sales being particularly appealing to North American private equity funds. These loan transactions involved mainly distressed assets, both urban and coastal, throughout the country.
Trophy assets in main urban destinations have been popular with international investors; notably the sale of the W Hotel in Barcelona to a Qatari fund last year and the recent purchase of the Ritz Hotel in Madrid by Mandarin Oriental and Olayan Group. We have also noticed greater interest of international investors in coastal destinations, such as Canary Islands, Balearic and the Mediterranean coast, as they are consolidated markets and currently benefit from a strong international tourism demand. Also, these markets present lower prices and generous yields for investors when compared to the major cities.
The market has had a reactivation of national investors, and 2014 saw an increase in domestic investment estimated to represent c.54% of total investment, which continued to increase in 2015. In this context, it's interesting to point out the role that SOCIMIs (equivalent to REITs) are playing, as they represent a flexible alternative to reach funding without involving the banks or private resources. These platforms are becoming very appealing for hotel chains willing to expand in Spain.
The most relevant operation in this regard has been recently formalised between Hispania and Barcelo, with an initial investment of €421m in 16 hotels. This new REIT is focused on hotels and resorts and aims to attain 12,000 rooms in Spain. Barcelo will continue as operator of the hotels acquired under lease contracts for an initial period of 15 years.
On the other hand, there is an increasing trend among operators to follow asset-light strategies with many of them willing to sale their assets to focus on management. A perfect example is Melia’s recent sale of 7 properties to Starwood Capital, which will continue to be managed by the Spanish operator.
GROWING HOTEL PROJECTS VS. NEW GOVERNMENTS
With the market recovering and with the boost of investment, we are noticing an increase of hotel projects for the coming years through the conversion of existing buildings rather than new constructions. New projects are planned in cities (especially Barcelona, Madrid, Bilbao and Valencia) as well as in beach destinations (mainly Balearic and Canary Island and other Mediterranean destinations) and entail the entrance of international chains in the country, such as Hyatt and Four Seasons.
What is particularly remarkable are the conversion projects of landmark buildings and corporate headquarters in main cities, such as the former hotel Asturias in Madrid, Miramar Palace in Malaga or Torre Agbar in Barcelona. Many of these projects are focused on the luxury segment and will allow Spain to move away from being seen as a “cheap” sun and beach destination.
In parallel, recent government changes in many Spanish destinations such as Barcelona, Madrid and Majorca, has brought uncertainty to the Hotel market. The future of these new projects and other circumstances affecting hotel supply and demand in Spanish cities will depend on the policies applied, especially regarding the concession of new hotel licenses, the imposition of tourist taxes and the regulation and limitation of the volume of visitors.