Spanish hotel performance growth attracts investor interest

The Westin Palace Madrid, Spain. Photo credit: Marriott International

Strong performance growth in several markets of Spain's hotel industry has driven investment interest to surge, despite Barcelona's struggling political climate, according to data from STR and Magma Hospitality Consulting. 

The country's financial crisis has not scared away international tourists. Strong international tourism demand has also driven investment in Spain's hotel industry. 

“Increasing holiday tourism, as well as ‘bleisure’ travel, have set the market up for numerous development opportunities, with several operators currently working to improve their products and services to meet this increasing demand,” Albert Grau, founding partner of Magma, said in a statement. 

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Spain recorded 37 consecutive months of RevPAR growth between March 2015 and March 2018. There have been marginal RevPAR decreases in recent months, mainly driven down by declines in Barcelona, which is Spain's largest hotel market with more than 60,000 guestrooms. Hotel performance remains on a strong upward trend throughout most key Spanish markets, including Madrid, which has more than 50,000 guestrooms.

The demand shifted from resorts to hotels between 2016 and 2017 due to security concerns, allowing performance to spike at hotels in several markets across Spain.

“Resort markets, such as Gran Canaria, have seen year-over-year declines as tourism demand has returned to competing destinations in markets like Turkey and Egypt,” Javier Serrano, STR’s country manager for Spain, said in a statement.

Madrid

Madrid saw the highest RevPAR growth of any market in Spain, rising 17.4 percent to €77.34 in 2017. A strong 14.2-percent increase in ADR to €106.79 drove the RevPAR growth. 

The city has been experiencing a mix between leisure and corporate business over the past three years. Madrid is one of Europe’s top short-break destinations as demand from several Asian and UAE markets has been growing, particularly in group bookings of 10 or more guestrooms at once. 

Spain's RevPAR performance in the first half of 2018. Photo credit: STR

Madrid recorded a 17.6-percent decrease in ADR and RevPAR in June 2018 due to several key events held in June 2017, including the ERA-EDTA Congress, and the calendar shift for the World Pride festival from between June 23 and July 2, 2017 to between June 28 and July 8, 2018. Madrid’s year-to-date RevPAR increased 7.6 percent before this drop in June.  

“There is tremendous potential for hotels in Madrid to continue driving rate growth. Compared with other European capitals, Madrid is still operating at a relatively inexpensive average daily rate. As demand continues to grow, and as the market’s landscape continues to change with more [high-end] hotel properties coming online, we should see rates start to rise as the market attracts a larger customer base with strong purchasing power. This, in turn, should help the revenue and profitability of the Spanish hotel sector continue to grow,” Robin Rossmann, managing director for STR, said in a statement.

Corporate demand in Madrid continues to rise thanks to the city’s strong international events calendar and the relocation of several company headquarters from Barcelona to Madrid. STR forecasts ADR will grow approximately three percent in Madrid by the end of 2018.

Barcelona

Barcelona hotels have maintained steady rates, despite ongoing political uncertainty. The city has seen declines only recently, particularly in occupancy following the October 1 referendum. Occupancy fell 5.2 percent while ADR decreased 1.4 percent in the first half of 2018, compared to the same period last year. 

However, Barcelona's hotel market is expected to recover quickly once its political climate stabilizes.

“Prior to last October, Barcelona hotels were consistently seeing monthly double-digit RevPAR growth throughout 2016 and 2017, when the market was still benefiting from strong international demand and shifted tourism demand from destinations in Turkey and North Africa. Barcelona’s recent instability has stunted these previous growth levels, with drops in occupancy driven by decreases in domestic and international demand, mainly from the U.S. However, if the market can maintain steady rates, we should see growth resume as consumer confidence returns to Barcelona,” Serrano said.   

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