Barcelona ban on new hotels sends developers elsewhere
 
Barcelona ban on new hotels sends developers elsewhere
17 MAY 2017 7:48 AM

The Catalan capital is said to be losing business, while others benefit from the city’s freeze on new hotels.

BARCELONA, Spain—In a fairly unprecedented move, Barcelona, Spain, has applied an iron fist ban to new hotel openings and refurbishments, and is actively chasing hotel investors out of the city center.

While other city planners from Bali, Indonesia, to Beverly Hills, California, and Mauritius, Africa, have imposed or considered a suspension on hotel development, Barcelona administrators have taken that quite a bit further by making it a rule of law.

“What began as a moratorium is now a law,” says Javier Serrano, market manager for Spain and Portugal at STR, parent company of HNN.

Approved by the Ajuntament de Barcelona City Council in January, the new law seeks to dramatically curb the city’s annual 32 million tourists by limiting the number of hotel and tourist apartment beds that can be offered.

According to STR, there are currently 58,289 rooms in the Barcelona market and 1,152 rooms under contract (in construction, planning or final planning) in the pipeline.

The government wants to keep it that way, under the Special Tourist Accommodation Plan introduced by Mayor Ada Colau soon after she took office in July 2015, and now enforced by law.

Colau and her supporters say current tourist numbers are unsustainable for a city of 1.6 million, and hotels earmarked for key locations such as the Drassanes Reials Royal Shipyards in the historic city and port area would further deplete housing stock and force residents out.

Projects halted
“They have knocked back a couple of high profile hotels including the Four Seasons and there may be more on the cards,” said Montse Planas, of the Chamber of Commerce-backed tourism consortium Barcelona Turisme. “They don’t want more hotels so they simply won’t give permission to more hoteliers.

“The law aims to bring down the supply growth and halt investments as well as refurbishments,” Serrano said, “to keep supply under control, and allow no new construction.”

It also puts a halt on issuing licenses for tourist apartments.

Serrano says the Canary Islands did a similar thing with a self-imposed moratorium on all but luxury hotels in 2013.

“But in the Canary Islands case the moratorium was lifted in 2015 and it has now become a hotspot for development. It didn’t do any lasting damage especially with regards to international investors, he said. “But Barcelona is proving very different he adds, despite some claims the effects will not be felt until the current development pipeline trickles out.”

Serrano added that both domestic and international investors now are favoring Madrid over Barcelona.

“The Four Seasons wanted to open in Barcelona and they were turned away,” he said. “Soon they will be opening in Madrid. Probably as a direct result of this moratorium, they decided to focus their energies elsewhere.”

Another major casualty of the “Colau Moratorium” as it’s widely known, was the 400-bed Grand Hyatt earmarked for Jean Nouvel’s landmark Torre Agbar. Despite escaping the freeze on licenses, Emin Capital renounced in January, citing long delays for its decision to sell the building as office space.

The main opposition group in the City Council slammed the news, accusing “Colau obstacles” of sending a message to the world that “international capital investments that add value are not welcome in Barcelona.”

Anticipating being knocked back, other developers might now be looking elsewhere, as their interest in Barcelona wanes, Serrano said.

“There are currently 27 new projects in the development pipeline so there is some supply coming in,” he said, “but they got their license to build prior to the new law, not in the past two years. Now all such developments have shut off.”

Others benefit
While Barcelona “is definitely losing out because of this,” Serrano said, it is having the opposite effect on businesses in surrounding areas.

“We think the greater Barcelona region may benefit from the moratorium, as tourists and hotel developments move away to nearby coastal communities such as Badalona and l’Hospitalet de Llobregat,” he said. “The statistics show that, and the trend is likely to continue for at least two to three years.”

Hoteliers with existing properties are reportedly benefiting in the short term from soaring room rates, occupancy and real estate value of hotels.

Local media have reported a buying and selling flurry of hotels at up to triple the going price, after the granting of licenses to build or extend some 35 hotel projects was “paralyzed.”

Despite that, the hotelier’s association Gremi d’Hotels de Barcelona is not seduced by the plan.

“To not grow is to dwindle and lose competitiveness,” said Manel Casals, managing director of the Gremi d’Hotels de Barcelona. “Managing tourism, which we agree with, and ruling out all growth of the hotel sector are not the same thing. When big hotel chains are eliminated from the picture, you lose guests who travel in relation to specific brands, to another market.”

Some hoteliers are more optimistic about the moratorium.

“Many hotel groups have seen great business opportunities increasing the city’s bed inventory year-after-year since the Olympics, but most have been built in the same area, concentrating rooms and leaving others such as the Vila Olímpica almost untouched,” said Ricard Casimiro, GM of luxury independent Hotel Omm in the Modernista-architecture filled Eixample district.

“The city center has to maintain its authenticity, thus the government has put a stop on new hotel licenses while planning a proper growth that positively affects the whole city instead of overcrowding just the center,” he said.

Casimiro continued, “At the beginning, we all were a bit reluctant, but nowadays I believe most of us could agree that something has to be done to benefit Barcelona’s future. My guess and my hope is that the government will allow new hotels to open in surrounding areas, thus expanding the city center.”

For Serrano, there is little question that Barcelona is shooting itself in the foot.

“The law is having a definite fallout on supply, with new investors especially in the luxury sector, moving to Madrid and to the Canaries. Again we see that in the statistics with higher growth in room numbers in Madrid than in Barcelona,” Serrano said.

“And we’ve also seen an impact on average daily rates, which have increased very sharply too in Barcelona, forcing demand to relocate to other areas. Budget hotels are lifting their rates significantly. We’ve seen a 10-euro ($11.09) year-on-year hike in ADR prices of economy hotels since last year …. The incumbent hotel operators may well be happy about that, but it could scare off the tourists and end up having a negative impact on demand and also on hoteliers not enjoying the same demand,” he continued.

“There’s going to be a point where you don’t have any more competition, but you have high occupancy, rates are growing and growing, and you risk increasingly scaring business away to other markets.”

Wait-and-see approach
Either way, Serrano doesn’t see the moratorium adding up in the long term.

“If you throttle supply, that’s going to force up room rates. The whole idea was to keep occupancies down, but they’re increasing, demand is increasing. … we don’t have any more hotels,” he said. “The aim is to spread demand over all areas in Barcelona, even it out more, but we’ll have to wait and see if that succeeds.”

Casimiro disagreed that the growth of room rates has already been hit by the government measures.

“To build a hotel takes over two years from the approval of a license,” he said. “Thus new hotels have been opening recently with still a few more to come in 2017. And yes, most of them in city centre again.”

The latest report on hotel investment in Spain by financial advisors Irea also shows Madrid outstripping Barcelona by 80% in 2016, with 21 transactions compared to 13.

“New projects are non-existent," the report said, putting “a sharp drop in investment in real estate for conversion to hotel use” partly down to the hotel moratorium.

Meanwhile investors are getting increasingly edgy about the legal uncertainty, Casals said, who predicts there will be an “avalanche” of claims from promoters stung by the moratorium with massive losses of profits sunk in blocked projects.

Jordi Ferrer, an economist with Deloitte in Barcelona, estimates losses of up to €750 million ($831.4 million) due to a failure to sell some 2,500 planned rooms. As a result, he believes the city could face compensation claims of up to €400 million ($443.4 million).

AvaLaw, a law firm which advises Spain’s hotel industry, says small and mid-sized projects have been particularly hit by thwarted construction plans.

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