Spain's second-tier hotel markets are coming in first
CÃ³rdoba is a Spanish city with development potential. Photo credit: iStock / Getty Images Plus / SeanPavonePhoto
With both domestic and international tourism rising consistently throughout Spain, the countryâs secondary cities are offering hotel investors new profits. And while international brands have traditionally kept their focus on the top-tier destinations throughout the country, second-tier cities are proving their value. While individual hotel transactions in the secondary cities were currently more a matter for local investors, the enduring popularity of Spain is attracting international investors.
Growing Numbers & Barcelona's Moratorium
In line with the countryâs wider economic sustained recovery, the hotel investment sector as a whole reached a new record in 2017. With a transaction volume totaling â¬3.9 billion, Spain has positioned itself as the third-largest hotel investment market in Europe, below the UK (Â£5.4 billion) and Germany (â¬4.2 billion)â"countries that recovered more rapidly from the economic downturn, and traditionally attract high hotel investment volumes.
While investors have pushed into the market, supply has been limited in Barcelona by the moratorium that restricts development, with rumors that Madrid is set to follow suit. According to HVS, since the start of the moratorium, the strategy has paralyzed at least 38 hotel developments in the city, accounting for expected losses valued at approximately â¬3 billion and several thousand jobs.
Only the few projects that were granted permission before this new law will be able to enter the market in the coming years, and the future for new hotels thereafter r emains uncertain. Accordingly, only six hotels have either recently opened or are expected to open in the next two years in the city, adding up a total of approximately 1,000 new rooms to the market, a mere 2.5 percent of the current supply.
Secondary Cities Come In First
A study from Christie & Co. found that Spain's secondary cities represented an attractive alternative to primary destinations as they offered higher returns in comparison. Primary destinations have seen decreasing yield levels in the last few years as a direct impact of the large volume of investments received.
Christie & Co. singled out seven secondary cities with real potential: Santander, Alicante, CÃ³rdoba, Granada, Toledo, Santiago de Compostela and Valladolid. The locations obtained higher RevPAR figures in 2017, a greater variation between 2016 and 2017 and a greater accumulated growth since 2015 behind the most competitive urban destinations of Barcelona, Madrid, Valencia , Sevilla, San SebastiÃ¡n, MÃ¡laga and Bilbao.
In addition, these cities recorded more than 10 million overnight stays in 2017, representing 3.2 percent of the total overnight stays registered in the whole country. Nearly six million tourist arrivals were recorded in these cities last yearâ"up 3 percent from 2016â"representing around the 5.79 percent of tourist arrivals in Spain in 2017.
Santander ranked as the city with the highest ADR at â¬86, followed by Alicante (â¬77) and CÃ³rdoba (â¬71). Alicante had the highest occupancy at 73 percent in 2017 (up 7.2 percent vs. 2016), followed by Granada (71 percent) and CÃ³rdoba (67 percent). As new owners look for returns, those second cities could come to the fore.
âThe recovery of domestic tourism as well as the growth of international tourism, have generated a profitability increase for all secondary destinations analyzed,â Xavier Batlle, Christie & Co.'s associate di rector (and responsible for the consultancy division in Spain & Portugal) said. âThis, added to its good accessibility and excellent demand generators, has made them an attractive destination both for investment and development.
âThe recovery of domestic demand has been largely related to the recovery of the internal consumption of Spanish families that already reached positive rates in 2015, something that had not happened since the beginning of the crisis.â
Batlle added that there was a âperception of risk attached to secondary destinations due to their historical dependence on domestic demand,â but added that he believed this would âdisappear once these cities show more consolidation on their performance, as the significant presence of international demand on them should wake up international investors.â
The current investor profile, Batlle said, was âmainly national hotel operators and local family offices,â adding that, for internation al investors a âred lightâ was the difficulty in âfinding international brands interested in these markets.â
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.Read more on Legal Matters Spain Barcelona Christie & Co. HVSSource: Google News Spain | Netizen 24 Spain