MADRID – Thanks to strong performance growth in several markets, Spain's hotel industry has seen a surge in investment interest despite the political situation in Barcelona, according to STR and Magma Hospitality Consulting.
"Investment into Spain's hotel sector has been largely driven by strong international tourism demand, even during the financial crisis," said Albert Grau, founding partner of Magma. "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."
Spain as a whole recorded 37 consecutive months of growth in revenue per available room (RevPAR) between March 2015 and March 2018. There have been marginal RevPAR decreases in recent months, mainly driven down by declines in Barcelona, the country's largest hotel market (more than 60,000 rooms). According to STR analysts, throughout most key Spanish markets, including Madrid (more than 50,000 rooms), hotel performance remains on a strong upward trend.
"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," said Javier Serrano, STR's country manager for Spain. "Hotels in several Spanish markets benefitted from shifted demand from these markets throughout 2016 and 2017 as they struggled with security concerns."
In 2017, Madrid experienced the highest RevPAR growth (+17.4% to EUR77.34) of any market in Spain, mainly driven by a strong increase in average daily rate (ADR) (+14.2% to EUR106.79). Madrid has enjoyed a healthy mix between leisure and corporate business over the past three years. According to STR analysts, Madrid is one of Europe's top 'short-break' destinations, and demand has been steadily increasing from several markets in Asia as well as the U.A.E., particularly in group bookings (bookings of 10 or more rooms at once). Although Madrid recorded a 17.6% decline in both ADR and RevPAR for the month of June 2018, it was mainly due to an off year for a number of key events that were hosted in June 2017, such as the ERA-EDTA Congress, as well as the calendar shift for the World Pride festival (23 June-2 July 2017 to 28 June-8 July 2018). Prior to this June decline, Madrid's year-to-date RevPAR was up 7.6%.
"There is tremendous potential for hotels in Madrid to continue driving rate growth," said Robin Rossmann, managing director for STR. "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 higher-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."
According to STR analysts, Madrid's corporate demand continues to rise because of a strong international events calendar as well as the relocation of several company headquarters from Barcelona to Madrid. For year-end 2018, STR forecasts ADR growth of roughly 3% for Madrid.
Despite ongoing political uncertainty, Barcelona hotels have managed to maintain somewhat steady rates, with more notable declines recently. Following the 1 October referendum, the market's occupancy levels dropped considerably. In the first half of 2018, occupancy declined 5.2%, while ADR fell 1.4% compared with H1 2017.
"While it is still too early to make any sort of prediction on what will ultimately happen in the market, Barcelona will likely make a quick recovery when the situation stabilizes," Serrano said. "Prior to last October, Barcelona hotels were consistently seeing monthly double-digit RevPAR growth throughout 2016 and 2017, when the market was still benefitting 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."
Media & Communications Coordinator - STR