Why Spain's Balearic Islands will be the next development hotspot

Image of Menorca: ©iStock / rownike.

Spain's Balearic Islands are due to see a transfer of power, with the individual governments of the islands following Ibiza’s lead and taking on tourism promotion duties themselves. But as the hotels prepare to compete with their neighbors, a level playing field is necessary throughout the accommodation sector. 

The main aim will be to adapt the institutional structure and the tourist positioning of each island to its unique character, with Menorca, focused on the high end, expected to attract interest from both tourists and investors. 

“You can see the difference between the brands—the brand of Ibiza is different to the brand of the other islands,” Xavier Batlle, senior consultant, Christie & Co., told HOTEL MANAGEMENT. “The one which is likely to benefit the most is Menorca—it is a protected island, it is a UNESCO Biosphere Reserve site. They want to keep tourism as part of the economy but they are balancing this with the island’s ecology. 

“The market is largely domestic and at the mid to high end and, for the international operators Menorca has been largely invisible, it’s known for its second residences and for apartment-style resorts but, where Majorca has been one of the better-placed international destinations, Menorca is going to be the next—the offering is amazing. The demand generators are the same as Ibiza, but it is not a party island like Ibiza.

“From an investor’s perspective, if someone wants to make a move into Menorca, now is the time. The potential is huge. The authorities might want to position the island on a much more protected basis, which will only see rates grow. Menorca doesn’t have the long season of Majorca or the spending of Ibiza, so there may be moves to reduce the island’s seasonality.”

An Upward Trajectory 

The Balearic Islands as a whole have been following supply in Spain upwards, as the country repositions itself while benefiting from the boom caused by the geopolitical instability that is hitting its Mediterranean neighbors such as Turkey and Tunisia. 

“Supply is moving upwards,” Inmaculada Ranera, managing director, Spain & Portugal, Christie & Co., added, noting that hotels with two or three stars still have a place in the islands. “But you don’t see that many low-cost players in most destinations, other than Palma. Most of the supply has moved the other way around. The Balearics has to be prepared—when other destinations recover they have to be able to justify their rates.”

According to a study by Christie & Co., there was nearly €200 million in hotel investment in the Balearics during 2016 (around 10 percent of total hotel investment in Spain), with tourist arrivals reaching more than 15 million in 2016, with an accumulated growth since 2011 of 4 percent to 5 percent.

“Menorca is booming, but there is an issue with connections, hoteliers here have been fighting for years for better connections, but the public administration is also aware of the natural resources and protecting those,” Ranera added. “Mass tourism and its impact is starting to be a key question on the table for the authorities as it is in other destinations.”

In Menorca, last season saw an 11-percent increase in tourist expenditure, with hotel rates up 12 percent and occupancy increasing 4 percent. As a result, hotel profitability increased 20 percent. New hotel openings during the year added 1,300 rooms, despite, the study said, “that the island's capacity continues to be a growing concern in the sector, especially in relation to nonregulated tourist accommodation.”

What Could Change

The growth of the sharing economy has the potential to affect operations as well as performance.  

“The cost of residential is starting to become so expensive that the hoteliers are having problems accommodating the extra staff that they need in the high season,” Ranera said. “The hoteliers are calling for the local administrators to act on Airbnb as they can’t afford to pay the rents they have to pay. 

“What is pushing the rental prices up is a lot of illegal activity. Cities can try different solutions, such as ruling that Airbnb is more than welcome, but not in the city center. Another option would be to cap the residential leases in a city. We all want to travel, but it’s about being a better citizen when we are there. It has to be an effort on all sides.”

“It’s not a lost war, it’s just a matter of putting resources into it,” Batlle said. “If there’s not a national strategy, or a Europe-wide strategy, it’s harder. They are getting into a global war, but with local strategies—they may weaken the enemy, but not defeat them.”

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