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Over the past decade, Spain has been one of the fastest growing economies in Western Europe.
After a European-wide recession in the early 1990s, Spain experienced sustained growth from 1994 through to 2007. This growth was mainly caused by a boom within the construction sector, an abundance of cheap debt and a significant influx of immigrants. However, in 2007 domestic demand started showing signs of overheating as real estate prices had almost tripled in less than 10 years and the economy had a large current-account deficit which exceeded 10% of GDP.
The advent of the international credit crisis in mid 2007 put many highly leveraged developers under pressure. Some were unable to refinance their debt, while others saw the cost of debt increase substantially, leading to the possibility of defaults and foreclosures.
The economic challenges of 2007-08 are likely to continue during 2009 with an expected rise in unemployment being a key issue. EIU expects a recovery to start in 2010 as debt availability increases, consumer confidence returns and private consumption grows.
The capital of Spain is the political and financial centre of the country. Due to its geographical expansion, the city has developed new neighbourhoods and industrial areas, while a new business district in the north of the city is currently under development. Madrid is home to technological companies such as Dell, Motorola and Telefónica together with pharmaceutical giants such as Pfizer, Merck and GlaxoSmithKline. Madrid’s importance as a conference and convention destination is underpinned by the IFEMA Exhibition Centre which was extended in 2007. On the leisure side, even though less popular than Barcelona, the city offers a large number of art museums and palaces worth visiting.
The city has developed a strong international profile attracting both leisure and business visitors, especially since the Olympics in 1992.
On the leisure side, Barcelona is a popular weekend destination as it not only offers a wide array of modern art including 9 UNESCO World Heritage buildings but also a Mediterranean lifestyle, which is appreciated by many tourists. In addition, the port of Barcelona (extended in 2007) is a great source of cruise arrivals with over 2 million passengers welcomed in 2008. On the business side, the Fira de Barcelona and the Palau de Congressos make the city one of Europe’s premier destinations for meetings and conventions.
Lastly, the new high speed train linking Barcelona and Madrid in 2.5 hours is expected to increase mobility between both cities in terms of leisure and business visitation.
Hotel supply in Madrid and Barcelona is mainly focused on the 3- and 4-star segment. These categories represent almost 75% of the total room supply in both markets. As at December 2008, Madrid comprised 359 establishments totalling over 42,300 rooms. This was an increase of 3.2% over the number of rooms recorded in 2007. In Barcelona 309 establishments were recorded comprising over 29,000 rooms, an increase of 5.1% in rooms from 2007. Some of the most prestigious openings in 2008 were the ‘Me’ by Melia in Barcelona, the Hilton Airport Madrid and the newly refurbished Villa Magna Hotel in Madrid. International brands account for approximately 55% of the total supply in both cities.
Madrid is due to see the opening of 9 properties during the course of 2009 representing some 600 rooms, most of which will be positioned within the 4-star segment. Openings of note include a Selenza Hotel (45 keys) and four Quo Hotels (+200 keys).
Barcelona is expected to see the opening of 20 new properties in 2009 representing some 2,519 rooms, which like Madrid will largely be within the 4-star segment. Some of the most notable properties scheduled to open include a Mandarin Oriental (100 keys) and a W Hotel (475 keys).
On the whole, we expect hotel development to continue in both locations, although some projects are likely to be delayed or cancelled all together due to the ongoing economic turmoil.
As illustrated below, overnight stays in Barcelona and Madrid have experienced significant growth and reported a Compounded Annual Growth Rate (CAGR) of 10.3% and 8.0% respectively during the last 4 years. Data for the year to September 2008 in Madrid shows a 3.5% decline in total arrivals with a 0.6% increase in overnight stays versus the same period in 2007. This is mainly due to a 10.7% decline in national arrivals.
While Madrid is more reliant on the domestic market, Barcelona captures a significant proportion of international visitors. This is a result of the numerous marketing initiatives undertaken by local authorities which have positioned the city as one of the eminent short break destinations in Europe.
Both cities show similarities in terms of international source markets with the UK, USA and Italy being of particular importance to both cities.
According to data sourced from STR Global, Madrid’s RevPAR in 2007 increased by 7.3% in comparison to 2006. Year to November 2008 statistics suggest that the market has been impacted by the current economic crisis: average occupancy has dropped by 7% contributing to a 4.6% decline in RevPAR over the same period in 2007.
In addition, the Madrid market is highly seasonal. Whilst September to October occupancy is above 77%, August and January record very low occupancy levels of 47% and 58% respectively. This illustrates the nature of the market which, as highlighted before, has a higher proportion of corporate demand and is consequently impacted by the relative lack of leisure demand during the summer holiday period.
STR Global’s latest figures indicate that Barcelona’s 2007 RevPAR increased by 11.5% in comparison to 2006. In line with Madrid’s performance, year to November 2008 figures also show signs of the economic crisis with occupancy dropping almost 7.9% contributing to an 8.9% decline in RevPAR compared to the same period in 2007.
The Barcelona market is more evenly split between business and leisure demand, contributing to a less seasonal performance trend than Madrid. December and January are the weakest months whilst occupancy during the remainder of the year ranges between 68% and 83%.
Finally, Barcelona has historically enjoyed a higher room rate than Madrid due to a larger amount of internationally branded hotels.
A number of hotels have changed hands in Barcelona and Madrid over the past two years. In 2007, single asset sales in Barcelona included SB Diagonal Zero, Hotel Abbot and the Aparthotel Atanea. In 2008, the Husa Via Barcelona and the Hotel Sky were sold. During the same year, Madrid saw the sale of the Bauza Hotel & Restaurant and the Sanvy Hotel.
Madrid and Barcelona are the two most dynamic cities within Spain with constantly evolving hotel markets.
Spanish developers have historically demonstrated some resistance towards internationally branded hotels displaying a bias towards national operators offering them attractive fix lease agreements. The current climate is likely to push developers towards introducing international brands with greater marketing strength and consider different types of ownership structures.
As global brands (especially luxury) enter the market, overall product quality will be further enhanced, which will be beneficial in achieving higher rates. We believe that this will reduce the gap in average room rates that Barcelona and Madrid have traditionally experienced versus other major European cities such as London, Paris and Milan.
However, the challenge for both cities in the short term will be how to deal with the current economic turmoil as well as to absorb the new supply entering the market. The latter could potentially have an adverse impact on occupancy as well as average rates in the short to medium term.
For further information please contact
Managing Director to Spain and Portugal
Christie + Co
Direct line: +34 93 343 61 61
Director of Marketing
Direct line: +44 20 7922 1961
Christie + Co
Direct line: +44 20 7227 0711
Head of Hotel Consultancy
Christie + Co
Direct line: +44 20 7227 0782
Notes to Editors
Christie + Co uses desk-based research and experienced local industry specialists to produce bi-monthly city reviews. Hotel trading data is provided by STR Global.
Founded in 1935, Christie + Co is the leading firm of surveyors, valuers, consultants and agents specialising in the hospitality, leisure, retail and care sectors. Currently employing close to 350 professional and specialist staff, it has 17 offices throughout the UK — with valuation, agency, investment and consultancy teams focused on its key sectors. Christie + Co’s international operations are based in Barcelona, Berlin, Frankfurt, Hamburg, Helsinki, Dusseldorf, London, Madrid, Marseilles, Munich, Paris and Rennes.
STR Global is the new company recently created by leading hospitality research companies Smith Travel Research (STR), Deloitte’s HotelBenchmark™ and The Bench. STR Global provides clients - including hotel operators, developers, financiers and analysts - access to hotel research with regular and custom reports covering over 36,200 hotels in 512 markets in 94 countries. STR Global provides a single source of global hotel performance data, offering concise, accurate and thorough industry research worldwide.
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