Spain and Portugal are powerhouses of leisure hospitality investment, but prime opportunities for new development are scarce, and properties ripe for institutionalisation and consolidation are in high demand. Where can investors look to find the next growth segment? Is it time to move away from the beach and explore the inland markets?
A return to 2019 levels
Luís Araújo, president of Turismo de Portugal, says 2019 was Portugal’s “best year ever”, having seen 60% revenue growth over four years and a record 27 million guests. Following the pandemic, the market’s performance so far this year has seen a return to those numbers.
He explains that although between January and August the country has been 5% down in overnight stays, high rates have ensured a 12% increase in revenues on 2019. “This will be the best year ever in Portugal,” he says.
In terms of segment performance, Alejandro Scholtz, development manager, Iberia for hotel franchise giant Wyndham Hotels & Resorts, says corporate and MICE business continue to lag, although appear to be making a comeback.
“Long-haul travel is still yet to get where we want it to be,” he adds. “Properties that were MICE-centric that don’t have open-air space, are not a resort or in a city, they really have to get creative on how they bring people back”.
João Madeira, head of real estate at Sonae Capital, meanwhile, says he is “cautious but positive”, and while “the fundamentals are there”, there’s no getting away from the rising interest rates and construction costs.
“The appetite is big, but investors are being paralysed by the circumstances,” points out Milan Arandelovic, head of hospitality and managing director at Cerberus Global Investments. “If you’re looking for a distressed asset, you will not find it.”
Scholtz agrees: “If an investor wants to make money now, it won’t be like in the great financial crisis where you just bought something cheap and expected it five years down the road to be sold for a lot more. Now you have to be very creative, you have to think how you’re going to drive value, whether through operations or investment.”
Portugal ‘a great place to invest’
However, investors are bullish about the opportunities the Iberian Peninsula continues to offer, particularly Portugal. “Portugal makes it easy for people to try new things and get creative,” says Scholtz.
“Portugal is a great place to invest,” echoes Madeira. “We have everything – value for money, safety, different segments… There are some regions in Portugal that are probably overlooked. I believe the Douro region is a place that investors could look at. Also, Alentejo, not only the coast, which is now booming and we expect to change a lot in the next two to three years, but also inland Alentejo there are some very good opportunities.”
He adds, “There are still a lot of opportunities in Portugal for investors to bring new clients, new customers, new second home buyers.”
Having sold two of its hotel assets in Tróia earlier this year, for which it retained asset management, Sonae 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.
“It is a region that’s going to have a big change in the next three to five years,” says Madeira. “We believe it’s time now to develop new services in Tróia, not just targeting our current clients but also looking at the future clients.”
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.
“It’s very difficult now to find the assets, we are looking in prime locations – Lisbon and Oporto – but it’s tough in the market to match the buyers and sellers,” acknowledges Madeira. “But we are always looking for new opportunities. We believe they will come.”
Cerberus, meanwhile, sees opportunity in resorts locations such as Menorca, Mallorca and the Canary Islands, as well as continental Spain, in the next 15 months.
Opportunities in all-inclusives
In terms of segments, Scholtz suggests the biggest winner has so far been branded residences: “Portugal is doing a tremendous job in aiding that segment, which is bringing a lot of money to the country, and it’s creating a new source of income, of jobs and investment funnel,” he says.
“One area that I think is going to be great for Iberia – Portugal and Spain – is the all-inclusive segment. It’s already very prevalent in the Caribbean, it’s already very established, but it was born in Europe, and I think the brands and lots of investors are realising it’s a very different way to do business. Considering the uncertainties of the future, as a guest, I absolutely love it that I know what I’m going to spend. There’s a lot of growth for all brands and all types of investments in that segment.”
Wyndham launched its dedicated all-inclusive resort brand Alltra in 2021 and earlier this year, the group’s head of EMEA Dimitris Manikis told Hospitality Insights the business was looking for a European expansion opportunity in the Mediterranean, Spain, Portugal, Greece and Turkey.
IHG Hotels & Resorts has similarly launched itself into the all-inclusive space, just last month announcing a long-term commercial agreement for resort and all-inclusive hotels with Palma de Mallorca-based Iberostar.
However, Arandelovic had two warnings for investors: to prioritise sustainability, and to not lose the ‘mid-level’. “If you want to attract investors and you buy or build or transform in a non-sustainable way, you will not find investors in five years,” he warns.
As for the all-inclusive segment, he says it is “not as affordable for so many as it used to be”.
“We need to find a way to not cut out that mid-level part, which is extremely important for the industry, which at the moment is suffering a lot,” he adds.
All those quoted in the article appeared on stage at the Resort & Residential Hospitality Forum held in Portugal between October 17 and 19, in a session called: Iberia: Where to Find the Next Investment Opportunities?