The Spanish capital is emerging as the smart destination for hotel investors, an influx fueled by the country’s surging tourism numbers, the city’s attractions and the recovering economy.
MADRID—Spain’s hotel industry is on a positive upswing, according to local industry analysts and hoteliers. Visitor numbers and transaction volume are setting records, and high-end hotel brands are coming into major markets.
Foreign tourists are streaming into the country, with Madrid as the gateway for many. With the country’s economic crisis behind it, sources said both the domestic leisure market and business travel market are growing.
Last year, Spain hosted 82 million foreign visitors, a 9% rise over 2016 and a new record for the country, knocking the United States off the No. 2 spot in tourism arrivals behind France, according to United Nations World Tourism rankings.
And the capital set its own record last year, welcoming an estimated 12 million tourists, with more than half of those from abroad. That number represented 15% growth over 2016 numbers.
“Madrid is growing in foreign visitors, especially in the leisure segment,” said Miguel Vázquez, managing director of hotels at Colliers International.
“The capital’s city center is changing for the better, with more (pedestrian-friendly) streets,” he said. “Services are improving, the number of new restaurants and retail outlets is increasing and the overall quality and tourism environment is better.”
Madrid vs. Barcelona
Barcelona, one of Europe’s leading city break destinations, had long topped Madrid in tourism numbers, but televised images of violence over the recent independence drive by the region of Catalonia, of which Barcelona is the capital, has spooked visitors.
Meliá Hotels International and NH Hotel Group, two of Spain’s largest hotel companies, announced they lost a combined €5 million ($6.1 million) in revenue from their properties in Catalonia because of the unrest.
At the same time, the political uncertainty in the region has sparked an exodus of companies from Catalonia. More than 3,000 companies shifted their headquarters to other Spanish cities, many to Madrid, with a positive knock-on effect expected for the capital’s hotel business.
“Events in Barcelona are harming the hotel market there,” Vázquez said. “Companies have decided to move, and Madrid will benefit as it was already the country’s financial center and the business travel segment will grow.”
Some investors also are skittish about Barcelona because of the restrictions imposed on hotel construction by municipal authorities trying to reduce the number of tourists flooding the city.
“For institutional investors turned off by the situation in Barcelona, Madrid is the natural choice,” he said.
Last year the capital was the premier destination for urban hotel investment in Spain with €637 million ($786 million) invested (including acquisitions of existing hotels and property conversions), well ahead of Barcelona at €422 million ($516 million), according to Madrid-based real estate consultancy IREA, which joined Colliers International earlier this month.
Those transactions followed the general trend in Spain, where overall sector investment set a record of €3.9 million ($4.8 million) in 2017, an increase of 79% over the previous year and well ahead of the previous record of €2.1 million ($2.6 million) set in 2015.
“Among investors, there is more interest in buying than selling, with sellers asking really high prices, but the number of transactions is rising and this will certainly continue in 2018,” Vazquez said.
Two high-profile luxury brands, W Hotels & Resorts and Four Seasons Hotels and Resorts, are slated to open hotels over the next several years across the street from one another in central Madrid near Plaza de la Puerta del Sol, and Hyatt Hotels Corporation has just opened a property under its upscale Centric flag, all of which will push other operators to enter the market.
A natural choice
The Spanish capital was a natural choice for W, said Richard Brekelmans, market VP for Spain and Portugal at Marriott International, who noted that the brand has seen success in Barcelona and now Spain will be the only European country with two W-branded hotels.
“Obviously, Madrid is one of the European capitals which should have a W,” he said. “The market there is expanding; there is lots of leeway to grow in the luxury segment and the city is definitely ready for a luxury lifestyle property.”
Brekelmans said W is expecting mainly U.S. and European guests.
“As the main foreign feeder market for Madrid, the United States leads the chart, followed by the United Kingdom and France, plus the domestic Spanish market has bounced back strongly,” he said.
“(And) the number of travelers from Asia as well as Latin America are dramatically increasing due to improved flight connections.”
Data from 2017 compiled by STR, the parent company of Hotel News Now, reflects the surge in Madrid’s hotel business with average occupancy up 2.7% from the previous year to 72.5%, average daily rate jumping almost 15% to €107.83 ($133.05) and revenue per available room climbing 18% to €78.23 ($96.52).
The Hyatt Centric Gran Via Madrid, a 159-room property located in an elegant 1920s building on Gran Via, downtown Madrid’s main artery surrounded by shops, theaters and other attractions, is also hoping to tap the U.S. market, said Felicity Black-Roberts ,VP of Hyatt acquisitions and development for Europe and North Africa.
“We’re expecting that 40% of our guests will be from the United States because we have such a huge brand awareness there and Madrid is a big destination for American visitors,” she said.
“It is becoming well known for its food and beverage scene and other features, which are attracting more and more people. The Madrid hotel market is getting very strong, the city is a great weekend destination and there is no reason to believe that any of this is going to change anytime soon,” she said.
Hyatt sees the opening as the launch of Centric in Spain.
“We’re in discussions now for opening this brand in three more Spanish cities, and we’re finding that Centric really appeals to owners and developers because it’s in the lifestyle, design-led segment,” Black-Roberts said.
Room for all?
Other major properties in the pipeline for central Madrid include the Riu Plaza de España with 650 rooms; the 214-room VP Plaza España Design; a Marriott Aloft off Gran Via with 139 rooms; and an as-yet-unbranded luxury 180-room hotel under development in an 18th century building near the Plaza de la Puerta del Sol.
All of this activity creates speculation whether Madrid will soon suffer a surfeit of high-end properties, but Vázquez said not to worry.
“From our point of view, investors see new players like W and Four Seasons helping to drive up prices,” he said. “Madrid has one of the lowest ADRs among major European cities and the entrance of branded hotels will spur growth.
“So we have all these positive elements—good supply, new players and a strong economy coming together in Madrid.”