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Spain: Madrid, second-tier cities shine; resorts near peak

Once the basket case of Europe, Spain has returned from the dead and its hotel market is one of the brightest spots in Europe.

Operators have been enjoying improved occupancy, average rates and RevPAR as tourism kicks up. Spain drew more than 75 million visitors in 2016 and hoteliers are expecting 80 to 85 million this year.

“Four years ago, it was a disaster,” said Jairo González, CEO of B&B Hotels in Spain and Portugal. “But tourism is back and domestic demand is better due to the economy recovery. People are spending money.”

The elephant in the room is Catalonia’s move to secede from Spain and pressure from Madrid to thwart a breakaway. Hotel operators say the unrest threatens to stall the recovery and note that Barcelona hotels are seeing cancellations. Barcelona already had disrupted the market by imposing a ban on new hotel licenses in the city center. That’s prompting investors to look to Madrid and secondary cities such as Granada, Seville and San Sebastian, which are still recovering from the recession.

Three of Spain’s largest operators —  Barceló Hotels Group, AccorHotels and Marriott International — have 14 projects in the country with 1,925 rooms under way, data from Lodging Econometrics show. Yet the 17,356 overall rooms to be added by 2019 will increase supply by less than 5%, according to Lodging Econometrics.

The facade of the Room Mate Alicia Hotel in Madrid
The facade of the Room Mate Alicia Hotel in Madrid

A newer influence is institutional capital — Spanish and U.S. REITS, private equity and family offices — with investors adding liquidity by renovating older or distressed assets, sometimes rejuvenating properties sunk by nonperforming loans. Investment transactions soared more than fourfold to US$2.4 billion in the first half of this year, according to CBRE Hotels.

“A fragmented ownership base and inefficiencies present opportunities for turnaround funds,” said Keith Evans, London-based vice president at Starwood Capital Group. “There are a lot of institutional investors but a scarcity of supply – of deals available.”

Starwood Capital’s joint venture with Meliá Hotels International recently sold 2,000 keys, or two-thirds of a portfolio of beachfront hotels, to a London-based family office, London & Regional Properties. The joint venture is launching a second round of renovation on the 1,000 keys it retained, Evans said. And Blackstone Real Estate Partners Europe V in October agreed to acquire Hotel Investment Partners, which owns 14 primarily coastal hotels, from Banco Sabadell.

Spain’s beach resorts led the recovery beginning with the Arab Spring of 2010 and subsequent civic upheavals in the Middle East and North Africa. The strife caused affluent Europeans to shift vacations to the safer footing of Spain’s Costa del Sol, and the Balearic and Canary Islands, according to Sophie Perret, a director at London consultancy HVS. “That was an inflection point,” she said. “People decided it was better to pay more and be safe in Europe.”

Although Spanish operators historically have dominated the resort market, international firms have joined the party. Marriott International’s W Hotels is investing with Hong Kong’s Platinum Estates Ltd. to open a beachfront complex hotel near Marbella in 2021 with 200 guest rooms and 100 low-rise condos and villas. And France’s Club Med is returning to Spain in a deal with Arab investors to renovate a 40-year-old hotel in Marbella.

With the resort market near peak and Barcelona mostly out of play, investors see potential in Madrid, as well as Granada, Seville, San Sebastian and Bilboa — cities known for cultural attractions and cutting-edge cuisine.

“The cities are still recovering,” said Raúl González, CEO for Europe, the Middle East and Africa at Barceló. “So there’s more room for improvement.” Barceló operates 232 properties, 58 in Spain. The company’s mix has historically been 70% resort but the urban focus is apt to shift the balance, González added.

Barceló opened its first 5-star hotel in Madrid early last year — Barceló Emperatriz, named for a 19th-century empress and advocate of women’s rights. A second 5-star hotel in Madrid — Barceló Torre de Madrid — followed last year. Seven hotels are in the works, including locations in Granada, Barcelona, Madrid and Cádiz.

Fast-growing Room Mate Hotels has made a splash with its highly designed boutique hotels in European and North American. It operates 13 Spanish hotels, with five in Barcelona and four in Madrid. It’s opening two more in Madrid and one in San Sebastian. “San Sebastian is coming up strong,” said President and founder Kike Sarasola, referring to the north coast city known for its Michelin-starred restaurants and fresh food markets.

San Sebastian is on the radar of another fast-growing chain, France’s B&B Hotels. B&B acquired the Spanish chain Sidorme and its 15 budget properties last year and has 10 in the pipeline, according to Spanish CEO González. The chain has one hotel on the outskirts of San Sebastian near the French border and is developing a second on the south side. “The city center is impossible, it’s so expensive,” he said. “But we like the north (of Spain) because the competition in the south is fierce.”

There are still obstacles – the specter of terrorism, instability in Catalonia and heightened competition from Airbnb and other sharing-economy players. The challenge for Room Mate’s Sarasola: “How do we grow without losing our edge?”

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