The Iberian Peninsula is bouncing back post-pandemic and investors are keen to mine the leisure hospitality opportunities, confident in the solidity of the market and its long-term potential.
Occupancies hit the high 80s during June in Malaga (89%), Valencia (87%) and Barcelona (86.7%), according to STR, with average daily rates (ADR) from the Balearics averaging €190, €181 in Barcelona and €135 in Malaga.
“We’ve seen some really good numbers coming through, and this is June before the school holidays have really begun,” said STR Director Tom Emanuel.
“Some of that is inflation-related, we can’t escape the fact that inflation has hit 10% in Spain now, so that is impacting performance just as it is everywhere across Europe. But ultimately, it’s not solely inflation, it’s also demand and the hoteliers being able to push rate because the demand is back.”
Emanuel said city centre locations were slightly further behind – but this hadn’t negatively affected the development pipeline. Spain remains Europe’s third biggest market from a pipeline perspective, with 3,680 keys under development in Madrid and 2,509 in Barcelona.
Porto has proved to be a hot market in Portugal, with a pipeline of 3,992 keys. Lisbon, which has benefitted from significant new supply in recent years, also remains attractive, with a pipeline of 4,168 keys.
Preliminary STR data for July was positive for Malaga (84.3%), Valencia (86.7%) and Barcelona (85.3%), although slightly below July 2019 occupancies. The challenges to growth in the market, suggested Emanuel, will be the same as those being seen across Europe: staffing shortages, airlift, and the cost-of-living crisis. Emanuel and investors speaking to Hospitality Insights were particularly uneasy about the impact the latter could have from next year.
Looking long term
However, Madrid-based real estate investment manager Azora is one investor confident in the long-term opportunities of the Iberian leisure hospitality market.
The group acquired the Pestana Blue Alvor in the Algarve on behalf of its Azora European Hotel & Lodging fund in May, the fund’s fourth acquisition in Portugal, joining the Tivoli Marina Vilamoura, the Tivoli Carvoeiro and the Vilalara Thalassa. Azora EH&L has now deployed more than €1 billion and is close to 60% committed across eight transactions and 29 assets with nearly 8,000 keys.
The fund was launched in 2020 with a seed portfolio of 10 resorts and four urban hotel assets across Europe and held an oversubscribed €815 million final close, giving it an implied total investment capacity of more than €1.8 billion. Approximately 70% of the fund has so far been deployed between Spain and Portugal and it is focused on the sun and beach segment across Europe's top tourist destinations, where it is implementing a value-add strategy through repositioning, refurbishment, and asset management. It also has room for city tourism with an eye on innovative “smart urban lodging concepts”.
Senior Partner Javier Arús confirmed the group was working on further deals, which he said would reinforce the group’s presence in Portugal.
“We are quite open-minded. Our mandate is not very narrow. If there are people coming up with good ideas in the leisure segment, we are happy to support them,” he said.
Although Covid-19 has not changed Azora’s approach, he acknowledged it has made the strength of the leisure segment much more visible to the investor community.
“Many of the investors who were not present in the sector which are trying to get some exposure, they see Spain as the point of entry, because it is the larger market, it is the most liquid market,” said Arús.
Israel’s Fattal Group bought a collection of six Spanish hotels from KKR and Dunas Capital for upwards of €165 million earlier this year to strengthen its presence in Spain. Arús points out that there were other bidders in that process looking to enter or expand in this market. Meanwhile, Hyatt’s acquisition of Apple Leisure Group last year “to capture the significant and rising demand for leisure travel” is seeing AMR Collection’s 47 resorts across Spain join World of Hyatt in phases.
“It’s very good for the industry, because if you get a lot of people looking to the sector, that always improves the liquidity. It’s more competition, but I think competition is healthy for everybody,” said Arús.
Azora is also still working on its joint venture with Palladium to invest €500 million in the Mediterranean and increase its presence in the five-star luxury market across Europe.
“It involves a lot of Capex, because it’s high value-add,” explained Arús. “The challenge is you need to find an asset that will fit their brands, the five-star luxury asset market is more limited… but we’re actively looking with them.”
Azora’s performance is reflecting the trends reported by STR, with occupancy around 2-3 points below 2019 but ADR higher by approximately 10-12%. While Arús shared Emanuel’s uncertainty over the impact the economic environment may have on consumer confidence, in the mid- to long-term, he said the group was convinced the Iberian leisure market was “solid”.
Who's buying what?
Active players in the Iberian market also include Canada’s Brookfield Asset Management, which bought the Hotel Princesa Plaza complex in Madrid for a reported €175 million in June. Blackstone bought the METT Marbella Estepona in July via its Hotel Investment Partners subsidiary.
Meanwhile, IHG Hotels & Resorts signed 11 new properties across Iberia in January, while Bankinter bought a majority stake in a portfolio of eight Spanish hotels from Meliá last year, and Stoneweg’s joint venture with Bain Capital is looking to further grow its portfolio after the summer.
The JV has already acquired and relaunched properties including Hotel Los Monteros Spa and Golf Resort in Marbella, Casa Lit in Barcelona and the Hard Rock Hotel Marbella.
Miguel Casas, Managing Director of Stoneweg Hospitality, said the group’s capex plan and turnaround strategy for the Palladium Hotel Don Carlos in Ibiza would take a similar approach.
“We want to implement international brands with local management and turn around very well-located hotels with good bones,” he said.
The group’s strategic focus is on leisure hotels or properties that can be repositioned into the leisure segment in places like Mallorca, the south of Spain, the Canary Islands, Lisbon, Porto and the Algarve. The business is deploying exclusively with Bain for now and Casas said there was still “quite a lot to invest”.
Otherwise, the group’s approach is very flexible: “We can do more or less what we want in terms of contracts. That also brings a lot of work because we have a white sheet of paper, we’re starting from scratch, that takes a lot of effort, but we like it that way. We are very lucky to have the trust of our investors in doing what we think is the best thing.
“We don’t look at a definite segment… [if] everything makes sense from a pricing and repositioning point of view, then we look for the best solution to the asset.”
But Casas also stressed that leisure hotels should provide for the new breed of guest who wants to combine their holiday with remote working, as well as corporate groups.
“We’re getting a lot of leads for MICE in the next year because companies are wanting to do MICE differently – they want to go more to resorts, less to cities. They want to have more leisure-oriented MICE,” he said.
“It’s something not a lot of people are doing right now… we extend the season quite a lot if we are able to have people from all over Europe or even outside Europe coming to our hotels to do work and pleasure at the same time.”
He said the JV didn’t have a target number of hotels in mind (“I would love to double the size of what we have, if we found the right portfolio we could definitely triple or quadruple it”) and although he acknowledged the market was competitive, he felt Stoneweg’s edge was in its speed and flexibility.
“We are tremendously focused in the deals that we do and we accomplish them fast,” he said.
On the other hand, Sonae Capital is taking a more conservative approach. “We prefer not to make a deal than make a bad deal,” said Pedro Capitão, who oversees Sonae Capital’s hospitality business.
Having sold two of its hotel assets in Tróia earlier this year, for which it retained asset management, the business invested €17.5 million in uniting its eight strong portfolio under the Editory brand and plans to pursue an asset-light strategy exclusively focused on lease deals.
Sonae has a target of 1,800 rooms under management in the next five years (it currently has 1,300), meaning five more hotels in locations such as Porto, Lisbon and the Algarve, with a focus on four- to five-star resorts, and boutique hotels in city centres.
Capitão acknowledged the approach may have some limitations in terms of speed and expressed concerns about shortages in the labour market but was bullish about the “solid” growth opportunities in the market.
“I’m a little bit concerned about next year [but] we’re optimistic in Portugal as a tourism destination and we’re working on that assumption,” he said.
Interested in finding out more about the all-inclusive market? Come join us in Portugal for the Resort and Residential Hospitality Forum.
On Tuesday, October 18 at 2.00pm PDT we will be running a session entitled: Iberia: Where to Find the Next Investment Opportunities?