Hotel repositionings prove a boost to Spanish tourism

View of the coast Magaluf on Mallorca, Spain. Photo credit: Alex//Getty Images

In the course of the last few years, the Spanish market has been favorable for many repositioning projects. One of the most important factors has been the strength of demand, even during the financial crisis, thanks to the increase in the arrival of international tourists for holiday and “bleisure.” Thanks to this excellent health and of growth prospects for the future, the Spanish hotel industry is committed to improving its products and offering its increasingly demanding clients what they require.

Spain is presently going through a positive phase and forecasts are healthy for the next fiscal years. This means that business owners and hoteliers can consider investing to improve their assets’ positionings. 

The Spanish domestic economy is currently at the end of a two-year recovery period, and the macroeconomic figures of the main issuing markets are positive. Lastly, some of the major competing countries, such as Turkey, Egypt and Tunisia, are still going through difficulties that are often linked to security.

FREE DAILY NEWSLETTER

Like this story? Subscribe to IHIF!

The hospitality industry turns to IHIF International Hotel Investment News as the must-read source for investment and development coverage worldwide. Sign up today to get inside the deal with the latest transactions, openings, financing, and more delivered to your inbox and read on the go.

We are aware, in particular, that in some holiday destinations in Spain, it is essential to renovate hotels that have been rendered obsolete. The current business target is to appeal to new client profiles and demand segments. To achieve this objective, the first step is to improve and elevate assets, making them more attractive. 

Another positive element for this transformation is that Spain is a hub for international brands and is more appealing to demanding clients that choose their holiday destinations based on certain hotel standards. This is also an opportunity to define increasingly specialized products aimed at specific niches. 

The final decision about product repositioning will always be taken by the owner. However, in cases where management and ownership are separate, the operator can also boost this change with the aim of increasing its profits, which is in turn beneficial to the owner. In this context, the required capital to embark in these investment projects can come from hotel chains, but also from equity funds, investment funds or hedge funds that seek to improve the asset’s positioning focused on a short-term sale. 

Major Spanish Holiday Destinations—Repositioning Projects

The Costa Blanca, Costa del Sol, Costa Brava, Costa Daurada, as well as the Balearic and Canary Islands, are the main holiday destinations in Spain. In all of them, we can find repositioning projects of significance, not only part of the hotel industry per se, but of the destination itself. This is a key element for the success of the strategy. Apart from the private initiative of hoteliers, support is essential by promoting the destination, based on the new demand target. This entire process should be a collaboration between private entities and public administrations. 

Magaluf, a resort town on the island of Mallorca, is an example of such initiatives. There, Meliá Hotels International, in collaboration with other partners, has invested €190 million to renovate its 11 hotels in Calviá Beach. It was a worn-out destination, dominated by low-income tourism, but will be transformed into an appealing option for family and adults-only tourism after this important operation, which will finalize this year.

Tenerife, together with Madeira and the Azores, has created an alliance to boost innovation in tourism. There are significant projects focused on repositioning being carried out in the island. For instance, the Hard Rock Hotel opening or the Grupo Piñero plan, which will entail a €50-million investment to modernize its hotels. In Tenerife, the legislation is also favorable for these changes as only five-star hotel buildings are permitted.

Another destination suffering from similar symptoms is Torremolinos, on southern Spain's Costa del Sol, where a global investment of €150 million has been set in motion to renovate the offering, and aimed at encouraging the arrival of different traveler segments, such as sports-minded, health-minded or congress tourists. Urban and shopping tourism are also being boosted by the City Hall. 

There have been ambitious repositioning plans announced in Spain by hotel groups, such as Meliá Hotels International (€250 million in 2016 only), Riu Hotels & Resorts (€400 million in investment in 2017 toward renovations), Barceló Hotel Group (€100 million annually toward  repositioning), Iberostar Hotels & Resorts (€90 million in the last year for renovations of existing hotels), and Palladium Hotel Group (€450 million until 2018 marked for repositionings). The volume of these investments is clear evidence that we need tools to solidly analyze them before carrying out the different projects. 

The Role of External Consulting 

To count on the advice of experts who are not involved in the day-to-day processes of the hotel chains is essential. It is important to avoid rushed decisions based only on knowledge of the internal reality of the hotel, and not taking into account the external situation of the market. When we embark on a repositioning project, it is essential to carry out an exhaustive analysis of the hotel, the local market, the target demand and global trends. From that point on, the different concepts and scenarios can be determined so the board has enough information to compare and analyze before making a decision about considerable investments.

Consultancies are able to consider different scenarios, from the most conservative to the most ambitious, so the board can decide the best strategy after evaluating in detail all the possible options. The role of the consultant in this sense should be to contemplate the work previous to the analysis by means of an in-depth study about the current operation of the hotel and the market context it operates in. From that point on, the consultant should offer new concepts based on different scenarios and financial forecasts. This analysis will also determine if the hotel group is truly prepared to tackle the different repositioning projects with the existing management structure. 

Among the different options for a hotel repositioning project are solutions such as launching new brands to appeal to demand segments that were not interested in the previous models. Another typical alternative in this type of project is an agreement with managers of private labels that are experts in the market and can choose the best operational and sales options. 

It is in these types of changes of management models linked to repositioning that the Spanish market can offer the most opportunities for international brands.

Magma Hospitality Consulting is a consultancy specializing in the hotel sector aimed at offering unique solutions to the challenges and opportunities of the market in order to achieve the desired level of competitiveness and profitability. The firm was founded in 2004 by its two partners, Albert Grau and Bruno Hallé.

Suggested Articles

The hotel investment properties chief sees emerging trends on the horizon as investment patterns shift.

The 120-room Fairfield by Marriott hotel, now under construction in Kitimat, British Columbia, is slated to open in Q1 2020.

The hotel will be a conversion of the former Al Areen Palace & Spa.