Why Greece needs new hotel investment now

(Mediterranean Resort & Hotel Real Estate Forum)

Dr. Angela Michalopoulou, director general for investments at Enterprise Greece, will host a regional round table on the Greek hospitality industry at the Mediterranean Resort & Hotel Real Estate Forum in Tarragona, Spain, Oct. 16-18. Michalopoulou’s session will take place on Wednesday, October 18.

Ahead of MR&H, Michalopoulou spoke with HOTEL MANAGEMENT about how Greece's hospitality sector is growing, who is investing and what the future of Greek hotels will look like.

1. How are tourism and tourism-related industries helping the Greek economy?

Tourism is a central pillar of the Greek economy, and by many analysts it is considered to be the export champion for Greece. Even during the recent crisis, the tourism industry in Greece has been one of the mainstays of economic growth and employment, with a continued growth in tourist arrivals and revenues driven mainly by the determined efforts of the Greek tourism authorities and associations to upgrade the tourist product offering; and the development of new key markets, such as Israel, India, Middle East, China and strengthening of existing ones, such as Russia and United States.

According to the latest figures, in 2016, for a fourth consecutive year, Greece broke again its all-time records in tourist arrivals, by counting almost 25 million visitors (a 5-percent year-over-year increase) and €13.22 billion in tourist receipts, making tourism a vital sector for Greece, accounting for 18.6 percent of GDP.

2. How has Greek hospitality changed over the last 10 years?

Greece is particularly strong in existing hotel capacity with 9,730 hotels, 407,146 guestrooms and 788,553 beds (according to the Hellenic Chamber of Hotels). Between 2000-2016, hotel units grew by 22.6 percent, while in guestroom terms the stock grew by 31.7 percent.

Moreover, a comparison of hotel breakdowns based on their category shows that the country's hotel potential has been extremely upgraded, as the five-star hotels have almost quadrupled and at the same time increased their share of total hotel capacity from 1 percent in 2000 to 4.6 percent in 2016. Four-star hotels increased by 50 percent and three-star hotels by 37 percent during the same year. Lastly, two- and one-star hotels declined by 18 percent and 30 percent, respectively, and at the same time reduced their share of the total hotel capacity in the country.

Profitability in the tourism sector has also increased remarkably in recent years, making the sector lucrative for investment. In particular, the share of labor compensation declined due to a significant wage adjustment in this sector by 24 percent since 2011—two times more than the economy average wage reduction of 12 percent. As a result, gross operating profits corresponded to about 40 percent of each euro of value added generated in the sector in 2015—20 percent higher than the average of Spain and Portugal.  (Source: NBG REPORT 2016)

Based on World Travel & Tourism Council long-term projections of the increase in tourism demand through 2023, about €5.5 billion of new investments (3.1 percent of the 2015 GDP) in new hotel capacity and equipment will be needed by 2023 to bring the projected occupancy in line with its 15-year average (83 percent in Q3). Without new investments, the occupancy rate would increase to 95 percent by 2018.  

3. How are domestic and international investors changing the way hotels in Greece are being financed? Are there more branded hotels now than before the economic downturn?

The government’s priorities on the expansion of the tourist period, the attraction of higher-value tourist segments (high-net-worth, affluent), the increase of average daily spending and the opening of new tourist markets, created significant room and opportunities for international investors in many subsectors of the Greek tourism market. Major FDI export countries like China, UAE, Qatar, Saudi Arabia, UK, Russia, Turkey, USA & Canada, and other, have increasingly invested in Greece over the last seven years under various investment entities, i.e. individual investors, companies and funds. In this regard, Greek players became more extroverted and ready to combine strengths with foreign investors, a fact that showed the way to new partnerships, joint ventures and new investments all over Greece.  

We have seen a series of initiatives aiming to improve the economic environment and encourage these new investments in the tourism sector. Significant pieces of legislation pertaining to, new business establishment, easing of licensing procedures, introduction of alternative financing schemes, solution to NPLs, measures for enhancing market competition, and other, have been ratified and adopted by the business community.

In this way, the upturn in foreign direct investment activity in Greece has led to the increase of financing options from international organizations such as the European Investment Bank, which had an important impact in the particular field. The EIB has recently announced almost €2 billion in support to tourism projects in Greece in 2017. But apart from the international banking presence, Greece has updated its investment Incentives Law with state aid schemes for private investments in the tourism sector. During the first year of the Law in effect, investment plans across all economic sectors with a total budget of nearly €2 billion have been approved, with the tourism sector capturing nearly half of that budget and one third of the 770 submitted total proposals.

On top of that, the following developments had a chain effect in the sector and attracted the interest of more international investors:  

  • Large infrastructure projects took place and/or are currently in the pipeline affecting the overall tourism product (airports, ports, highways, metro, marinas, etc), including the privatization of 14 regional airports. A total of €330 million will be invested in airport infrastructure through 2020.
  • Larger penetration of international hotel brands in different kinds of tourism products (city hotels, resorts, all-inclusive, luxury, etc). These developments led local independent hoteliers to enhance their efforts to boost their market positioning by joining industry alliances (e.g. Small Luxury Hotels, Leading Hotels of the World, etc.). According to 2015 numbers, penetration of hotel brands in Greece accounted for 6 percent, but due to their comparatively larger size, represented 21 percent of the rooms. In comparison to other European countries, Greece showed larger brand penetration levels compared to Italy, Austria and Switzerland, while at the same time leaves room for more, to reach volumes of other large European countries, like Germany, France and the UK.
  • New projects under development: During 2016, 142 project files were submitted for new and existing four- and five-star hotels with a capacity of more than 300 beds each
  • Emerging new destinations in Greece, like Messinia and Argolida

4. What kinds of hotels are proving the most popular in terms of investor interest? Upscale? Midscale? Independent or branded?

During 2016, investment activity in the hotel market included renovations, repositioning of existing hotels, reconfiguration of commercial buildings and their conversion into accommodation facilities. The completed transactions including new hotel management and operational contracts displayed the interest for luxury hotels, predominantly in the four-star and five-star rating categories. The available stock was also enriched with lower capacity units, such as boutique hotels. The identified trend led to an increase of the boutique hotels’ share in the domestic hotel market with growth prospects for this segment remaining positive through the development of new facilities and the upgrade of existing stock. Athens for example, experienced a boom in new brands and independent hotel developments attracting the Investors’ Interest during the last time.

5. What do you think the future of Greek hospitality will look like? Will it be dominated by lots of large resorts, independent boutique hotels, midscale branded hotels or a combination of the above?

The hospitality industry has been growing fast in the last years in Greece, showing signs of improvement at all levels, both in qualitative and quantitative terms. The latest developments depict a growing trend in high-end tourism and upgrade of the total tourism product.

Over the next years, Greece is poised to receive significant investments in the tourist industry, focused on higher-value products, centered around:

  • Nautical tourism, both in terms of attracting a larger amount of cruise liners and in terms of extending the offering for yachting/ sailing holidays
  • Wellness tourism, exploiting in this way the untapped amazing thermal spring potential of the country combining in this way wellness and recreation
  • City Break tourism focused mainly around the two main cities of Athens and Thessaloniki with the upgrading of the hotel stock bringing the entrance of new international brands
  • Cultural and religious tourism, upgrading and leveraging the several historical, heritage and religious monuments and museums of Greece
  • Medical tourism, which presents an exciting growth opportunity if the skilled Greek medical personnel is combined with investments in existing facilities and infrastructure
  • Meetings and Incentives (MICE) tourism, positioning Greece as a major meeting and conference center for regional associations and companies and
  • Integrated resorts—holiday housing new developments in existing and new tourism destinations taking advantage of the new legislation for the development of integrated resorts, holiday housing and the acquisition of residence permits by non-EU citizens who invest in real estate through the Greek Golden Visa program. The program is currently one of the most competitive in Europe, offering plenty of benefits that include permanent residency to the owner and his/her family members (Ascendants and Descendants), traveling to Schengen countries and EU member states and access to public education and health care services.

So, to make a long story short, we think that the future holds major developments for us as a country, with Greece having the potential to be able to serve all kind of investment appetite, be it the presence of high end resorts in new destinations around Greece combining the tourist villas component, marinas but also special forms of tourism like golfs, thalassotherapy spa and etc, independent boutique hotels, or certainly branded hotels with latest deals paving the way to a larger penetration.

The Mediterranean Resort and Hotel Real Estate Forum (MR&H) is October 16 to 18 at Portaventura in Tarragona, Spain. For more information, visit www.mrandh.com

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