Several Mediterranean hotel markets have added shifting demand from North Africa and Turkey to their success story of improved performance and GDP upticks, but sources said the region still needs improvements in quality and positioning.
BERLIN—Many Mediterranean hotel markets have seen healthy gains, albeit from low bases, in the last few years, but now is not the time to gloat but to push quality, diversity, creative thinking and service, according to sources.
Several markets were discussed at a panel titled “Southern Europe and Mediterranean markets” at the International Hotel Investment Forum, but two markets stood out—Italy and Spain.
Those two countries have significantly different economies, making comparisons difficult if not impossible, but both have high gross domestic products and the ability to make positive change in the region, panelists said.
Inmaculada Ranera, managing director, Spain & Portugal, at business consultancy Christie & Co. said Spain still has high unemployment, 18.6%, but did achieve gross domestic product growth in 2015 of 3.2%. Italy had fewer unemployed (12%) but also less impressive GDP growth in 2015 (0.7%) and faces increased pressure from its banks carrying high debt levels.
Riccardo Pacini, head of research and development at Agenzia del Demanio, the Italian governmental body responsible for returning distressed debt to taxpayers, said his agency hopes to take cues from the success of the National Asset Management Agency in Ireland but that due to the industrial structure of Italy, getting debt off its books is slower.
“Italian debt it very fragmented, but that is in our DNA, not really a barrier,” Pacini said.
He added the Agenzia del Demanio sold off €6 million ($6.5 million) of debt in 2016 and is on course over the next three years to get rid of a further €7.2 million ($7.8 million), with between 60% and 70% of that being bought by direct overseas investment.
“Italian assets are often high end, and that limits the pool of buyers at the exit,” said Dominic Seely, director of acquisitions at Westmont Hospitality Group, a Canadian company.
He said Westmont’s investment strategy in Europe largely focused on cities and was opportunistic.
Seely said he was attracted by low supply in Italy but wished the country had sorted out its banks in the systematic way Spain had done.
“It will be a long workout for the banks … but we’re (in Italy), and we’d like to increase,” he said.
Ranera said other barriers in Italy were restrictions imposed on buildings of national importance and properties being weighed down by freeholds and government concessions.
Sources noted that Spain continues to see good results.
María Zarraluqui, managing director of global development at Meliá Hotels International, said Spain continued to attract business scared off by geopolitical risk in Turkey and North Africa but acknowledged that’s a temporary situation.
“We know this will not last forever,” she said. “We cannot rely on other people’s problems and need to make out own offer more attractive.”
She said the country’s hotels need an improvement in quality and service.
“We cannot keep in price, but we’re in a very healthy moment. I think much of that comes from the experience we have,” Zarraluqui added.
Other economic considerations come from the still increasing proliferation of low-cost airlines and a moratorium on new hotels in Barcelona.
Paul Pisani, SVP of hotel development at Corinthia Hotels, said cheaper airline costs for guests allowed hotels to raise average daily rate.
Revenue per available room could be raised by honing in on pent-up demand still in effect from the recessionary years in Europe, Seely said.
He said one exception to Spain’s wonderful story of late is the Canary Islands, while Pisani said former Corinthia strongholds such as Libya, Tunisia and Turkey were either now not markets for them or were very much curtailed from their peak performance.
Corinthia’s base is Malta.
“(Malta) has had seven years of consecutive growth, even double-digit growth, but I realize this is one destination benefitting from perhaps another. Everyone still needs to be creative,” Pisani said, adding Corinthia was working on a third hotel in Rome.
Now is not just the time to make home market hotels and resorts even better, panelists said, but to use that re-energized base and the knowledge gained over many decades to seek opportunities in other destinations.
“Now is the time to diversify. We’re looking closely at Morocco and Tunisia,” said Jaime Buxó Clos, chief development officer at Barceló Hotel Group.
Zarraluqui, who, like Buxó Clos, also works for a hotel chain based in Spain’s Balearic Islands, agreed.
Spanish hotels need to correctly position destinations, reposition mature markets, attract a mix of private and public investment capital and add further security measures, she said. Overall improvements are key in light of increased demand coming from China, she said.
“We have security now, but as we have seen across all Europe, we can lose it very quickly,” Zarraluqui said.
Buxó Clos said Barceló would throw its net wide.
“We’re encouraging developers in Egypt, Tunisia, Italy, Greece. When the good times return, well, we’re professional,” Buxó Clos said.
No más en Barcelona
Buxó Clos said there was a rumor that a moratorium on new hotel development, as witnessed in Barcelona, might also migrate to Madrid.
Pisani said Corinthia had been advanced in discussions for an asset in the Catalan capital before, in his words, the moratorium effectively “pulled the plug.”
“It is frustrating for firms not there, and I worry that the long-term effect there could lead to complacency,” he said.
“One challenge could be (capital expenditure) in an era of zero supply,” Pisani added.
Zarraluqui said sometimes moratoriums and other industry restrictions make sense, but she did not believe that thinking was applicable to Barcelona.
“The moratorium in Barcelona is on hotels but not (bed and breakfasts),” Zarraluqui said.
She said the moratorium was poorly planned and could have lingering negative effects on the hotel industry in Barcelona.
“This moratorium has no strategy. Airbnb will do well,” Zarraluqui added.
Seely was even more scathing, saying such policies were part of a general “dumbing down,” even if parts of Barcelona were saturated with tourists.
“Prices will rocket. If you are over-leveraged, you might lose your shirt,” he said.