Investment in the Spanish hotel sector hit 3.3 billion euros in 2022, the country’s third highest investment year in history and up 3 per cent over the previous year, with other key market indicators also on the rise, according to a report compiled by Colliers International.
And indications are that the good time continue to roll into this year although there are concerns about macroeconomic factors affecting the market, industry consultants said.
“Last year was the second in a row of investment over 3 billion euros and you could say that the 2022 figures actually represent a true record as the previous all-time highs in 2017 and 2018 were when Blackstone acquired HI Partners and Minor too over NH Hotels, respectively,” Colliers International Managing Director for Hotels Spain, Laura Hernando, told Hospitality Investor.
“So 2022 was in fact what could be termed a ‘normal’ year unaffected by huge purchases and therefore a real record,” she explained.
Sales by asset numbers also increased with 133 hotels totaling 17,754 rooms changing hands compared to 127 properties of 19,043 rooms sold in 2021, although total value was largely the same at 2.9 billion euros in 2021 vs 3 billion last year.
Purchases of 19 properties for conversion last year amounted to 184 million euros, almost doubling the figure for 2021, while there were 11 sales of land earmarked for hotel use worth 99 million euros, second only to the record pre-pandemic year of 2019.
Other takeaways from the report were that foreign capital remains a strong source of investment in the Spanish hotel sector, vacational transactions returned to prominence, and investment in the luxury sector accounted for a third of the total, signaling investors are feverish for 5-star properties.
Foreign forays
“We’re seeing continued interest from foreign investors who have been the main purchasers over the past seven years and in 2022 they put up 2.4 billion euros or 72 per cent of total investment,” Hernando explained.
Major international players were Singapore’s sovereign fund which bought two hotels, the Israeli group Fattal Hotel Management which snapped up six properties, along with Sancus Capital, Brookfield, Engel & Volkers and Eurazeo & PSP Investments, among others.
Spain’s two leading domestic investors were Socimis Millenium and All Iron which the report said was carrying out “a vigorous pace of acquisitions.”
“We are also definitely seeing renewed focus on the resort sectors of the market over the urban as the 2021 split between the two was 50-50 but last year it was 58 per cent in favor of vacation properties,” she said.
All this interest is being fueled by the booming numbers of domestic and international guests, Hernando argued, demonstrated by data showing that Spain is back as a world-leading travel destination as pandemic concerns ebb and the number of flights increase.
Exceltur, the country’s principal tourism lobbying group, reported that sector earnings hit 159 billion euros in 2022, or 1.4 per cent over 2019. And according to the Spanish Institute of Statistics, overnight hotel stays last year reached 320 million, up 85 per cent over 2021.
Executives from Spain’s leading hotel chains announced two weeks ago at the FITUR travel fair that so far this year reservations were well above those for the same period in 2019, as was ADR with surging demand pushing room rates higher.
“More and more, tourism is becoming a real necessity in people’s lives, people are setting aside money to travel and this is all reflected in the numbers we’re seeing coming to Spain,” the Colliers executive said.
“Concerning Spanish resort regions which have garnered the most investor interest, the Balearic Islands led the list with 33 operations worth 913 million euros which is near the record for that region set in 2018,” she said.
Malaga province, which incorporates the famed Costa del Sol resort strip, overtook the Canary Islands among vacational purchases and attracted 562 million euros in hotel investment with major players like Brookfield, Stoneweg and Bain Capital taking stakes.
The Canaries registered only six transactions totaling 175 million euros in 2022, which Hermando termed as “surprising.”
“It’s a very attractive destination as a year-round resort region with high occupancy throughout the year but it’s not really clear why the Canary Islands didn’t see more investment,” she said.
As it has over the past five years, Spain’s capital in 2022 led urban investment, posting a historic maximum of 803 million euros in 19 hotels with 2,500 rooms, accounting for 24 per cent of total national investment.
Perennial rival Barcelona only attracted a third of the investment Madrid did at 225 million euros for seven transactions and well below the 753 million euros for 18 operations in 2021.
“Barcelona has traditionally enjoyed a major mix of both leisure and business travel but perhaps the city is attracting lower interest now because hotel owners there are overvaluing their properties,” the Colliers executive said.
Another record set in 2022 was the average price per room of the purchased hotels, reaching 168,000 euros, or 7 per cent above the previous record set last year, according to the report.
High-end is happening
Much of the increase was fueled by the sale of luxury assets with Hernando saying Colliers noticed an upward trend in sale prices largely because more than a third of the total investment was for five-star or five-star-plus properties.
“Investors have preferred to allocate their liquidity in a market which is marked by uncertainty towards the purchase and sale of prime assets especially in Madrid which had the knock-on effect of lifting average asset prices,” she explained.
“And there is a lot of activity in the city center where with some exceptions in the past those neighborhoods were largely avoided by those investing in high-end hotels.”
Ivar Yuste, partner at Madrid-based hotel consulting firm PHG Hotels and Resorts, echoed Hernando’s remarks, saying the capital has become the focus for luxury investment.
“Madrid is going up another level with lots of luxury brands landing in the center with brands like JW Marriott, Nobu and Thompson Hyatt coming to the capital,” he told Hospitality Insights.
“Madrid has long had a deficit in luxury properties compared to Barcelona but it is now overtaking Barcelona and some of that is because of the cap on hotel construction there;” Yuste said, while Hernando argued that another drag on transactions was that some owners in Barcelona were asking more than what their properties are truly worth.
Yuste says PHG foresees Madrid also overtaking Barcelona in RevPar in 2024 and 2025 when these new projects open their doors.
Hernando predicted a wave of new deals going forward in 2023, saying she was positive about the prospects for the new year but cautioned that “uncertainly will continue to accompany us.”
“Rises in interest rates are impacting the cost of financing and widening the gap separating the price asked by owners and the price offered by purchasers,” she added.
Business at PHG is booming, Yuste said, with the consultancy “experiencing a peak in demand for advisory on development and acquisition projects over the next few months to where we have been forced to postpone some requests.”
“We’ve not seen this kind of volume before and there is activity in all hotel segments,” he added. “Demand is healthy but what happens in 2023 remains to be seen because with interest rates still growing and inflation still high, there is a danger of debt repayment compression for hotel owners.”
Yuste also warned that there was not much supply out there except for the odd portfolio, and a lot of rebranding and franchising activity.
“Some hotel companies were on the brink of closing down because of Covid-19 but they pulled through thanks to financial help from the Spanish government so you don’t see stressed owners wanting to sell,” he said.