By Juan Garnica, head Lodging & Leisure Aguirre Newman
Despite beginning of the year doubts, old and new uncertainties, 2016 has concluded as another spectacular year for Spain’s tourism and hotel industry, with record demand, boosting profitability and consolidated liquidity, which is expected to continue in 2017 and beyond.
With over 75 million international visitors, 2016 has been another record year (five in a row) for Spain’s tourism (threatening USA as the second worldwide touristic destination) based on natural competitive advantages, socio-politic stability, existing infrastructure and product offering, regardless of the development of alternative destinations, new tourism trends and socio-economic uncertainties (including the Brexit).
While international markets have fueled market growth, the uniqueness of domestic demand strength (which has finally outperform 2008 eight years later) provides another differential value in the market, consolidating a very strong demand growth trend. This demand growth, with inventory stability, results in strengthening commercial parameters (RevPAR) in all destinations, consolidating the trend initiated in 2013 providing for double digit growth in most second tier destinations, with increasingly normalized occupation rates but still relevant ADR upside.
As anticipated by Aguirre Newman, the strengthening of commercial parameters together with slimmer cost structure derived from optimizations implemented over the crisis years after 2009 is providing for a significant boost of profitability across all destinations, provided however renewed product proposals in line with demand changing trends and adapted to new distribution structure are outperforming the market.
Concurrently, liquidity is clearly available for the market and the asset class, surpassing EUR 2.4 billion in asset transactions in 2016 (including announced transactions in execution but excluding debt portfolio transactions). This investment level, very much in line with the spectacular 2015 (EUR 2.6 billion) has also, like last year, a very relevant weight of portfolios (close to 45% in both years), and consolidates Spain as the third European market in volume (behind UK and Germany).
Key aspects to consider are the noticeable relative low volume in Barcelona as market readjusts with local legislation, increasing liquidity in second tier destinations (25% of total volume), main focus in business risk opportunities and remarkable the increase of Family Offices (still primarily focused on city hotels).
Our outlook for 2017, while not exempt of global uncertainties, continues to be very positive as growth of commercial parameters continuous, mainly based on ADR increases as current market circumstances remain, providing for a unique opportunity to adapt product proposals and commercial strategies to the new realities of demand and distribution while maintaining dynamic cost structures to ensure mid to long term profitability growth and fundamentals strengthening.
In 2017 we also expect to see a continuation of the trends in transactions foreseen in 2015-16 with increasing weight of second tier destinations transactions, diminishing yields, especially in prime markets, and price increases with growing profitability, although levels are still in most non-prime destinations below development costs. The consolidation of transaction volume will be very dependent on the success of institutional investors in platform investments, while single asset transactions will continue to grow with offer deriving from the maturing industry property structure and resolution of debt portfolio restructurings within the value added – core plus range.
The challenge and opportunity for investment to excel in this record making, demand driven market, which has now evolved officially from opportunity to value added and moving fast to core plus, will be the adequate identification and pricing of opportunities with an ample focus and reach throughout segments and destinations of mid to long term value.
More information: ESPECIAL MIPIM 2017