Tough market for Lisbon hotels

Although 2010 was a step in the right direction for hotels in Lisbon, Portugal, the tough market conditions imposed by Europe’s economic downturn are stalling a full recovery.

A report released earlier this week by HVS, the hospitality consulting and research company shows that ADR remains low across the Lisbon market. It also forecasts that average occupancy, which increased in 2010 is set to decline for the next couple years and Lisbon’s best-performing market segment, 5-star hotels, is set for a surge in supply that will depress the bottom lines of existing properties.

Over 65% of the city’s annual visitors are European, with most coming from the rest of Portugal. Portugal had to accept an US$110 billion (€78 billion) IMF/EU bailout in May and the government has enacted tough austerity measures in response. Meanwhile gross domestic product is predicted to decline until 2014 and afterward only tepidly recover.

Despite Europe’s continued economic problems, of which Portugal’s are among the worst on the continent, Lisbon International Airport had a record number of passengers at 14 million and 2011’s numbers are looking even better so far, according to HVS. However, since Lisbon hoteliers cut rate so much in 2009, RevPAR is not projected to improve until 2013.

“Lisbon hoteliers will need to focus on increasing rates through creative, value-added marketing and diversification into new market segments,” the report recommends. “All the general managers interviewed in the 5-star sector said that rate increase is the main objective on the agenda.”

It appears that many of the arrivals are not spending their nights in Lisbon hotel beds, as occupancy was only up significantly in 2010 in the 5-star segment.

“The reality is that the 5-star segment is the only one which really managed to register a significant increase in occupancy,” the report reads.