After reaching an all-time high in 2018, hotel investment is on track to rise in 2020 following the period of stagnation experienced last year. The hotel investment fund market remains above 2 billion for the fifth consecutive year, and investors will continue to view the sector in Spain as one of their primary targets.
The 2019 figures speak for themselves. According to Colliers International’s annual report, hotel investment reached 2,518 million euros last year, a figure that is expected to increase by 21% this year, reaching 2,350 euros in investment, with the highest volume of new construction since 2015.
This marks the beginning of a new economic cycle. The decline seen in 2019 compared to the record-breaking year of 2018—when results made Spain the second-largest tourist destination in terms of funds received—can be attributed to the lack of major investment transactions. The takeover bid by Blackstone, Spain’s leading hotel investment fund (62 hotels, 18,000 rooms), accounted for, for example, 40% of total hotel investment in 2018, amounting to 4,810 million euros.
Investors have shown great interest in secondary urban and vacation markets due to their higher returns
In any case, and despite the absence of major transactions, the market has remained above 2 billion for the fifth consecutive year—a figure that exceeds the average during the crisis, when the range fluctuated between 500 million and 800 million euros.
As for hotel types, the trend continued in 2019, with investment in vacation hotels (59%) once again outpacing that in the urban segment (41%). This figure reflects the growing interest in this type of asset, driven by the sector’s increasing professionalism and the inclusion of vacation hotels in the investment strategies of a growing number of investors.
From a geographic perspective, the Colliers International report notes that the Balearic and Canary Islands were the destinations that received the most investment, with 389 and 380 million euros, respectively, accounting for 36% of the total. In urban areas, Madrid maintains its dominance, while destinations such as Valencia, Málaga, Alicante, and Santander are attracting increasing investor interest.
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The Hotel Market: Outlook for 2020
All of these market trends have set a new course for hotel investment. For the first time in five years, the pattern seen over the past five fiscal years has been broken. Domestic investors are taking center stage, accounting for nearly 60% of total recorded investment. Notable domestic players include SOCIMIs such as Atom and Millenium, Azora, and hotel chains like Barceló and Hotusa, which are expected to remain among the leading players in the investment sector.
However, the market is open. The hotel investment figures projected for 2020 are optimistic. The growth in tourism and Spain’s position on the global map of the industry are the main indicators that our country remains one of the top targets for the leading hotel investment funds, which are looking to Southern European countries to find the best returns in hotel management.
The figures are the best indication of the sector’s strong performance. According to experts, investment this year is expected to exceed initial forecasts and reach more than 2.3 billion euros. This will represent 21% growth, with new construction playing an increasingly significant role. This investment will be part of a total amount that, over the next few years, will reach 5.74 billion in hotel investment already committed.
As indicated by the findings of Colliers International’s reports, the renovation and resulting improvement in the quality of vacation properties—with industry professionals having invested more than 4.2 billion in renovations and upgrades since 2015— is one of the key factors driving growth in hotel revenue.
Hotel Management: Factors Affecting Investment in Spain
Looking at the current year, the four factors that will continue to support investment in Spain are as follows:
The growing interest in secondary markets. These markets will establish themselves as the primary focus of the leading hotel investment funds. Cities such as Córdoba, Valencia, Cádiz, and Alicante—as well as certain areas along the Spanish coast—are already generating significant interest among investors seeking higher returns.
But investor activity is not unrelated to certain external events affecting the sector. The bankruptcy of Thomas Cook last year and the uncertainty surrounding Brexit are linked to a shift in trends that will include the expansion of mixed-use and disruptive lodging formats and the development of new brands.
Added to this are low interest rates, the high degree of fragmentation that still exists in the hotel sector, and the existence of certain framework agreements recently reached between investors and hotel operators.
The Hotel Market: Why Invest in Hotels?
The lodging sector in Spain is currently experiencing favorable conditions for investors. Hotel renovations and new construction projects have led to unprecedented growth in revenue per available room, the primary indicator of a hotel company’s profitability and a major focus for large institutional investors.
If one thing is clear, it is that the growth of the tourism sector in Spain is unstoppable. A shift in customer preferences, experiential tourism, and rising purchasing power have brought about a profound change in accommodation trends and, as a result, have made it easier for people to travel.
All the data points to a growing presence of hotel investment funds. The data is encouraging, but making an investment requires specialized advice and a thorough understanding of the industry and all its stakeholders.
At IHCS, we encourage you to contact us. We’d be happy to assess your situation and answer your questions to help you find the best opportunities for hotel investment. We offer you our expertise to benefit the hotel industry, hotel management, and hotel development.
