Spain will continue to attract international hotel brands, with more budget brands set to expand their portfolio as domestic and international tourism grows in the country, a recent study has revealed.
According to the Spanish Hotel Market Outlook 2024 by Global Asset Solution, Spain’s tourism sector in 2023 surpassed initial expectations and exceeded the pre-pandemic figures. This has resulted in tourism prices rising by around 18% from 2019.
This upward trend is expected to continue through this year, with the tourism industry likely to outperform the country’s overall economic growth, the study said. In 2023, overnight stays increased 1.9% compared to 2019. This growth can be attributed to two factors – the resilience of domestic tourism, which saw a 5.5% increase; and the recovery of international tourism, with 85.2 million international visitors in 2023 from 83.5 million in 2019.
MAJOR INVESTMENTS AND DEALS
Investment volume (considering existing hotels, conversion projects and land for development) across Spain in 2023 touched €4.2 billion ($4.54 billion). This figure constitutes 36% of the total investment in the country and was the only real estate sector to improve from 2022.
A total of 205 assets were transferred, up from 163 in 2022. Hotel asset transfers saw a significant rise in 2023, with 171 hotels (representing over 21,000 rooms) changing hands, up from 158 hotels/18,000 rooms traded in 2022. Investors were mostly drawn towards high-end hotels due to their consistent demand and comprising 85% of all transactions. A total of 11 major hotel portfolios contributed to 64% of the total volume of €2.6 billion ($2.81 billion) in the past year.
Investment funds emerged as the primary investor profile, with a significant presence of sovereign funds, and accounted for 70% of the total volume. Private investors and hotel chains represented 13% and 10%, respectively. Capital mostly came from international buyers, especially from Saudi Arabia, the U.A.E. and Singapore, accounting for over 75%.
The acquisition of the Mandarin Oriental Barcelona by the Saudi fund The Olayan Group, valued at over €200 million ($216.35 million) garnered considerable attention, the study said.
GIC, Singapore’s sovereign wealth fund, made a major investment this year with the acquisition of a 35% stake in HI Partners, a Blackstone hotel investment vehicle. This investment follows GIC’s recent purchase of a majority stake in the Sani chain Ikos Resorts, which was the largest hotel deal of 2022.
The highest investment volume was recorded in Madrid and Barcelona.
“The position of Spain and the entire Iberian Peninsula continues to attract investment, thanks to the attractiveness and solidity of the destination, both urban and vacation. Although prices are already at healthy levels, there is still potential for revaluation and profitability in line with what investors are looking for,” said Albert Gau, partner and co-director of Cushman & Wakefield Hospitality in Spain. “In vacation destinations, we can see more value-added investment opportunities in second- and third-line beach locations for product repositioning, while in urban areas, more trophy assets or conversion opportunities from other uses to hotels are sought in cities where regulations allow it.”
MARKET STRUCTURE
The hospitality market in Spain has primarily been defined by family-owned business, such as Meliá, Iberostar, Riu and Barceló, which originated in the 1950s and 1960s. Over time, these businesses expanded into newer markets and are now managed by the second or third generations.
Tourism opportunities in the country has attracted foreign hotel companies and encourage the entry of new investment funds, which are now the predominant category of investor. Hotel supply continues to be dominated by independent hotels and the country offers many opportunities for new hotel brands.
However, despite owner-operated hotels dominating the sector (58% in rooms from hotel groups), management and franchise contracts (+31% and +10%, respectively) have posted a healthy growth. Half of Spain’s total hotel room supply comes from owner-operated hotels, which presents a substantial opportunity for international hotel companies to convert this supply into branded hotels. In the past few years, 11 new hotel groups have debuted in Spain, including Four Seasons and Rosewood.
Of the new rooms inventory, 66% are resorts totaling 14,904 rooms. The urban segment represents 34% of the rooms, totaling to 7,736 rooms. Although coastal areas are a major tourist attraction, major luxury hotel chains prefer big cities, like Madrid, Sevill, Barcelona and Bilbao. Budget hotel brands are now eyeing secondary cities, like Lugo, Girona, Logroño, Mataró, and Sant Cugat.
LOOKING FORWARD
Spain’s geopolitical stability will help its tourism sector to touch new highs this year. This year, the country is expected to welcome 113.8 million travelers (a 16% increase from 2023) and record 352 million overnight stays (a 15% jump from last year). Foreign tourist arrivals are projected to surge 25% from 2023 levels.
This year, ADR is expected to rise 2.3% compared to 2023. Despite the slower growth rate, occupancy values will remain stable, with a marginal increase of 1.1% from 2023.
RevPar is projected to increase 3.4% from 2023, reaching €81.7 ($88.38) by the end of this year. In 2025, there are forecasts of slightly higher ADR increases, averaging at 3% annually.