THR's opinion

Christophe de Bruyn, THR's CEO, shares his view on the hotel investment market and outlook in Spain

Opinion piece by Christophe de Bruyn, THR's CEO and member of the ISHC (International Society of Hospitality Consultants), based in his participation at the "Opportunities in Spain, Portugal and Italy" session within the Hot.E: Hotel Investment Conference Europe 2019

Hotel investment market and outlook in Spain

Although the volume of transactions in Spain has substantially reduced in 2019, in comparison with 2018, we cannot speak about a decline (which would sound negative), but rather a decrease. This is not due to less appeal or to a worse situation, but predominantly that 2018 was an extraordinary year with flagship transactions. Those big transactions of multiple assets at the same time are now unavailable, or they are not at the price that would be competitive enough.

There is no hotel investment bubble in Spain, but a conjunction of macro-economic and macro-tourism factors, exceptional performance indicators, available cash and strong investment appeal from both domestic and more importantly foreign investors (American and Asian). This also includes good yields around 6%.

In 2019, Spain is still the one of the main investment markets in Europe because these fundamentals remain, though they are not as attractive as before. Meanwhile, other countries which were not so attractive in the past, like Portugal and Italy as well as Greece, have made a comeback. This means that the money going towards transactions in Mediterranean Europe, both in urban and resort destinations, is more diversified and wants to diversify further.

It must be noted however that Spain still remains attractive and offers opportunities. We are not close to an end, but we are now with a more reasonable pipeline of new developments as well as transactions on existing properties. It is not close to the end, but the expectation is less focused on a total volume of operations and is now more single asset oriented and also investment in alternative hospitality (hostels, students’ residences, etc.)

Will hotel companies in Spain continue increasing their asset light strategy vs. bricks and mortar ownership?

Definitely, this is a worldwide trend, very strong also in Europe, although in Spain it goes with a mix of different models to avoid strong investment commitment, which is sometimes unusual in other countries, and showing high flexibility of Spanish hotel companies: lease contracts, both fixed and mixed, management contracts, franchise, minority stake in key investments, and even full investment in key strategic assets.

However, Spanish hotel chains will keep looking for small chains’ acquisition if price is right. The average age of hotel establishments reaches almost 10 years and many individual assets need repositioning. Not all owners have the capacity or are not willing to spend the capex for this purpose, so investors have good opportunities to acquire these properties and lift them up.

Urban vs. Beach destinations

In Spain, transactions have been attractive in both typologies in the past 3 years due to the investment in taking place in urban, resort and “bleisure” destinations both in prime and secondary destinations. Performance of destinations and properties in those selected destinations has been strong.

All of these destinations are mature and have shown good or reasonable resilience even during a crisis period. Resort destinations are all on the coastline and spread over the entire coast, from Costa Brava to Cadiz and Costa de la Luz. 5-star resort hotels have seen strong increase in performance; 4-star also but less.

The outlook for 2020 is not as attractive as in the past 3 years and 2019 has shown light signs of decrease – or not further growth. Mitigating the less attractive outlook or more difficult environment – depending how the macro-economic and tourism indicators evolve - will oblige owners to reinforce positioning (brand, capex to have a competitive product, high rating on OTAs) and investors to concentrate on those destinations with a varied mix of source markets, preferably domestic and international (not depending exclusively or mostly on one market such as UK, Germany or Russia, for instance).