Signs of recovery in Spain and Portugal are fueling interest in the markets.
LONDON—While the overall economic conditions of Spain and Portugal remain muted at best, speakers at the recent Hotel Investment Conference Europe said there are rays of hope slipping through the cracks for the Iberian Peninsula’s beleaguered hotel industry.
“We’re seeing some signs of recovery; at least we have a feeling that the situation is not getting worse,” said Juan Rodés, partner at Baker & McKenzie, and the moderator of the “A focus on Spain and Portugal” discussion. He said slightly declining unemployment rates and the completion of bank restructuring are evidence of a fledgling recovery.
Rodés said there is no longer a discussion regarding the futures of the countries as members of the European Union, which is a big step toward stability. Still, each country has its own set of obstacles and success.
John Alarcón, development director of Spain and Portugal for Meliá Hotels International, said much of the hope for Spain lies with the number of tourists that visit each year.
“Spain still is the fourth (busiest) tourist destination worldwide, and tourism is an important portion of the (gross domestic product),” Alarcón said.
He said 58 million tourists are projected to visit Spain this year, a 3% increase over 2012.
“We are very optimistic in the sense the hotel sector is going to grow,” Alarcón said.
The optimism is also percolating in Portugal’s hotel sector.
“Portugal is taking the medicine. It’s very bitter,” said Gilberto Jordan, board member of Selecta SA. “But we have reached the bottom.”
Jordan said hotel occupancy rates and average daily rates have increased in key cities across Portugal, including Lisbon, which has seen occupancy grow 4% and rates increase 3%.
“Overall the sales volume for the hotel industry has increased,” Jordan said.
Manuel Formigal, adviser of asset management at Eurofin Hospitality, said markets such as Lisbon and Porto are performing well.
Jordan said there’s been an increase in the supply of trendy hotels, which tend to attract wealthier guests. But it doesn’t have the general oversupply on hotels that neighboring Spain has, he said.
“Overall you see a positive tendency in the economy,” Jordan said. “Real estate prices are still depressed, but they seem to be bottoming out.”
Rodés also said Portuguese hoteliers are encouraged by the country’s 6% increase in exports during the past year.
The management equation
The hotel industry in Spain and Portugal is chiefly comprised of independent owner/operators. Alarcón said about a quarter of the hotel supply in Spain is managed by global companies, with his company and NH Hoteles as the largest participants.
“There are still a lot of opportunities for management companies to get into independent hotels,” Alarcón said.
However, hotel owners in Spain are reluctant to get into management and franchising situations because they cherish their independence, Alarcón said.
“Top 10 chains represent 18% of the market; the rest of the market is controlled by private investors,” Alarcón said.
Alarcón said that mindset might be shifting as evidenced by the 2011 joint venture between Marriott International and AC Hotels which folded 18 hotels in Spain into the Marriott portfolio.
“We need more international brands coming in to push the market,” Alarcón said.
Formigal said the same is true in Portugal, where 60% of the hotel supply is managed by independent owners and/or operators. But global companies must build a level of trust with Portuguese hoteliers before there can be rapid expansion.
“The international brands are starting to explore Portugal,” Formigal said. “There definitely is an opportunity for management contracts.”
Jordan said the appetite to accept global brands and management contracts in Portugal has grown.
“This (global economic) crisis has changed perception that we can do it all ourselves,” Jordan said, adding that the distribution capacity of international brands has to be taken into consideration when establishing financial goals and budgets.
One reason owners’ interest in discussing aligning with brands and management companies is their presence on the Internet—through their own distribution networks and those of online travel agencies.
“Times right now, in crisis time, is when (owners) start seeing the performance of their hotel going down, and that’s an opportunity (for international brands),” Alarcón said.
A franchising model hasn’t made its way completely into the hotel cultures of the two countries, the speakers said.
“Banks are starting to want franchising,” Rodés said, adding that global brands have difficulty when trying to do management contracts because the contracts are for such long periods of time.
Rodés said the transactions market in the two countries has been quiet, but that seems to be changing.
“We’ve seen more interest from foreign investors in the last six months than we had in the last four or five years,” Rodés said.
Alarcón said the interest from global investors is due to sales prices, which began falling last year. However, that interest is focused on urban areas.
“There is no interest in the resort destinations because there is no business,” Alarcón said.
Rodés said Russian investors are beginning to show interest in the coast areas. “It’s going to be step by step in the next years (to increase deal interest),” he said.
As one would expect, the larger markets have drawn the most attention from global investors.
Rodés said Barcelona is drawing major interest from investors because it’s the best performing city in the country.
“Hotels can balance corporate business with international national tourists,” Rodés said, noting citywide occupancy for the year is between 80% and 85%.
It’s a different story for resort areas. Jordan said increased bookings in the resort areas of the Iberian countries are coming from tour operators who want guaranteed supply.
“In resort destinations most of the market is controlled by tour operators,” Alarcón said.