Hotel investment in Spain is outperforming other European markets, including Germany and the United Kingdom for the first six months of the year according to a new analysis by Colliers.
Spain ended the first six months of the year with a total hotel investment volume of €1.094 billion, already topping the €955 million recorded in the whole of 2020.
In total 52 deals (7,333 rooms1) were closed involving purchases of existing hotels, buildings for hotel conversions and land for hotel developments.
“A number of factors have coincided in the Spanish hotel investment market which have led to the perfect storm,” said Laura Hernando, managing director of Colliers hotel division.
“Investment funds have accumulated historically large cash piles just when they are under massive pressure to invest after a fifteen-month drought, and there is a pressing need for many hotel chains to divest assets to cover their liquidity slump originated from the Covid-19 pandemic.
“This is all happening at a time when there is limited finance available to buyers, which leads us to believe that investment activity will multiply as credit begins to flow again.”
What’s behind the Spanish performance?
There are a couple of reasons for the Spanish performance. The first is that many in the industry – investors, owners and operators – believe the leisure sector will bounce back quickest. According to Colliers, 60% of investments in the first half of 2021 were in leisure hotels compared to 40% in the urban segment, with many transactions taking place in tourist areas.
The second factor is the ownership structure of hotel assets in Spain. Domestic operators have ramped-up their decisions to sell in 2021 given the huge pressures on their cash reserves, meanwhile the strategy adopted for hotels owned by entities that are not dedicated hoteliers (investment funds, private equity funds, family offices and the like) has been to renegotiate rents or recapitalise, avoiding divestments.
After an encouraging start to the year there are also reasons to be optimistic about the next six months, with ongoing transactions of around €2 billion.
In recent weeks we have seen a flurry of deals announced involving Spanish hotels, adding to the general excitement in the market.
Schroders Capital Real Estate Hotels has agreed to acquire the Grand Hotel Central in Barcelona for €93 million from Único Hotels and Bankinter has bought a majority stake in a portfolio of eight Spanish hotels from Meliá, in a deal which values the new company at more than €200 million.
Note of Caution
While the long-term fundamentals in a market like Spain remain pretty good, a separate report by Christie & Co highlighted a couple of areas to be wary of over the next year or so.
Although the vaccination roll out in many source markets across the rest of Europe has been pretty good, we are seeing a resurgence in case numbers because of the
Delta variant. And the divergence and unpredictability in mobility policies in places like the UK and Germany “may jeopardise the recovery of the sector in Spanish resort destinations,” the report said.