Spain's Canary Islands sing investors' song

Hotel Riu Palace Meloneras, on Gran Canaria. Photo credit: Riu Hotels & Resorts

Spain's Canary Islands have solidified their position in recent years as a top tourism destination in the Spanish region, with investor interest to match that of visitors. 

Markets elsewhere in the Mediterranean are recovering as political instability subsides, driving up competition for tourists. Still, opportunity remains for investors looking to reposition existing assets. 

“During the past few years, [the] Canary Islands have benefited from tourists seeking a safe environment given the political and economic instability in some Mediterranean destinations,” said Inmaculada Ranera, managing director, Spain & Portugal, Christie & Co. “As those countries recover stability, [key performance indicators] in the Canary Islands are showing a correction on the demand but proving the strength of the destination. Some external factors, like the collapse of [the] Niki or Monarch airlines, had an impact on the occupancy levels.” 

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The islands, Ranera continued, have increased the supply within the four- and five-star market, offering facilities that should help push average daily rate growth. “The Canary Islands are a consolidated sun-and-beach leading destination within Southern Europe, with excellent connectivity and low levels of seasonability and consistent demand flows and this positions the islands as one of the major holiday markets,” she said.

Gran Canaria

According to a study by Christie & Co., Gran Canaria was the highest performer, both in terms of RevPAR (at €82.47 in 2017) and occupancy (86.6 percent). The island had registered a slight decrease (-0.4 percent and -0.5 percent, respectively) in both KPIs on the year.

Until August 2018, the island registered a more pronounced decrease in both indicators, registering €77.97 in RevPAR, down 3.2 percent on the year and 83.3 percent in terms of occupancy, dropping 3 percent. ADR was close to flat, up 0.1 percent.

After five years of record-breaking tourist demand, the Canary Islands reached a historic peak in 2017, with 73.1 million overnight stays, maintaining and strengthening its position as the top Spanish tourist destination. 

The majority of the current supply, at 61 percent, was focused on the four-star segment, with 13 percent five-star and 22 percent three-star. In terms of pipeline, there were 10 five-star hotels representing 3,062 rooms, seven hotels (2,256 rooms) at the four-star level and two with 66 rooms in the three-star market. 

Investor Interest

“The interest of investors keeps being high in relation the Canary Islands and they are mainly looking for either beachfront hotels already consolidated or hotels which need [capital expenditure] investment and repositioning in order to increase the future upsides on their investment,” said Ranera. “Both overseas and domestic investors are interested, as well as local and international brands and tour operators. A consolidated demand and five consecutive years of continuous increases and high levels of international demand, makes the Canary Islands in one of the most attractive markets within Southern Europe.” 

Brands, she added, are interested in working with investors on assets that could provide entry into a consolidated market with strong KPIs by improving the asset facilities. “A nonseasonal market with occupancy levels equal to or above 85 percent in the main islands is without any doubt an attractive place to acquire and operate hotel assets,” Ranera said.

After the study was released, a suicide bomb attack in nearby Tunis injured nine people. More than 6 million foreign travelers visited Tunisia in the first nine months of 2018, according to government data, as tourism rebounded from jihadist attacks three years ago. Arrivals rose 16.9 percent to 6.3 million in the nine months to the end of September, surpassing the number for the whole of 2014. 

Tunisia’s recovery may now be in doubt. Those destinations that offer stability are likely to benefit. 

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.