Mediterranean mood strong spurred by eurozone growth, continued hotel investment

TARRAGONA, Spain — Many parts of Europe remain volatile as geopolitical matters flare, but in the hospitality investment and development space, especially in the Mediterranean region, sprits are high, buoyed by a propitious global outlook and only moderate setbacks on business from terrorism.

At the Mediterranean Resort & Hotel Real Estate Forum, hotel and destination executives convened here at PortAventura to discuss the topics impacting the hospitality industry and explicitly in the Mediterranean region.

Thanos Papasavvas, an economist and founder and CIO of ABP Invest, tried making sense of an uncertain world. The good news, he said, was that, according to the IMF, there is "a positive outlook and upgrade of world economic growth," citing data that suggest a 3.6-percent growth rate in 2017, and "not just in some parts of the world, but across developed and emerging markets." 

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While he was mainly bullish on the eurozone—"It's having its best performance since the financial crisis in terms of growth, low inflation, falling unemployment and improving sentiment," he said—a Greek himself, he referred to Greece as "still on life support," though showing some early signs of recovery. There, he said, the economy is expected to grow above 2 percent, its best performance in a decade.

Further regionally, Papasavvas called attention to Germany, which he said, "loves the eurozone," and is benefitting from the cheap euro that helps with exports. His main concern in Germany is the spread of the AfD and Chancellor Angela Merkel’s eventual departure.

Economist Thanos Papasavvas said Greece was "still on life support," but remained bullish on Europe as a whole.

Italy, he said, is the eurozone laggard, "facing financial and structural headwinds as well as political uncertainty." Meanwhile, Papasavvas was less than warm toward U.S. President Donald Trump's policies, though remained confident in the country's system of checks and balances. "But uncertainty and volatility could," he said, "impact markets." He called an impeachment of Trump "a positive outcome."

Though the era of quantitative easing could be coming to a head, Papasavvas remained optimistic, alluding to a benign economic environment with positive growth, contained inflation and stronger political commitment to the eurozone by member states.

Hospitality In Focus

This broad optimism in Europe and the Med is funneling down directly into the hospitality industry. Robin Rossman, managing director of STR, referred to Europe as "the star," outperforming the rest of the world in hospitality performance. The continent has seen a 6.6-percent uptick in RevPAR year-to-date August. 

The outlier in it all has been Northern Africa, where RevPAR has grown YTD August 41.2 percent, though, as Rossman astutely pointed out, this has been led by Egypt, where RevPAR doubled this year, a likely cause due to the country's currency devaluation in 2016, which has made the country cheaper for visiting tourists. 

Hotel owners will revel knowing that the demand/supply quotient is still in their favor. "There is demand growth everywhere in the world and it's mostly outpacing supply growth," Rossman said, pointing specifically to now seven years of demand growth outpacing supply in Europe. "Occupancies in Europe are 10-percent higher than the previous peak," he said, adding that rate growth in 2017 is also pacing above the two previous years, ameliorated by strong transient growth.

STR's Robin Rossman said if he was investing in hotels, he'd home in on the Med.

Further, northern Med cities are performing at a high level with a 10- to 20-percent occupancy premium over the southern and west Med, according to STR. 

"The resort markets have flourished with the northern Med benefitting from tourists staying away from Turkey and North Africa," Rossman said.

Elsewhere, the impact of terrorism on hospitality and travel has been less pronounced than many feared. Tunisia, which suffered two separate terror attacks in 2015, "is almost back to 2014 levels," Rossman said. Meanwhile, Istanbul had a dire 2016 and first half of 2017, but a sharp rebound in July and August, which Rossman called shocking, before explaining that the likely root for the rebound was Russia lifting sanctions.  

And, in Barcelona, Rossman said the data showed no impact from the Las Ramblas attack.

In summary, Rossman said, "If I was investing, I’d be looking at the Med."

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