Unprecedented tourist numbers in Portugal are driving the country’s strongest hotel performance in two decades, but analysts warn major international brands still face investment challenges hoteliers continue to struggle with labor shortages.
REPORT FROM PORTUGAL—Portuguese tourism is booming, according to sources, due in large part to excellent year-over-year hotel performance since 2010.
“We are benefitting from Lisbon’s popularity in the last three years,” said Roderick Micallef, GM of Corinthia Hotel Lisbon and VP of development for Corinthia Hotels, who added his hotel has seen improvements in all three of the major metrics, including an approximate 20% boost in revenue per available room.
Analysts have also seen marked improvements in Portugal.
Gonçalo Garcia, director of business advisory Cushman & Wakefield’s hospitality division in Lisbon, said since the recession’s height in 2013 and 2014, Portuguese hotels have experienced double-digit revenue growth.
Garcia said Portugal will have 115 new hotels by 2019 as real estate investments reach a new record. Of the 9,500 new rooms, 71% are in the upper segments, and approximately half will open in the country’s two major cities, Lisbon and Porto.
According to Portugal’s National Institute of Statistics, hotel revenue rose approximately 18% in 2017 to €3.1 billion ($3.6 billion), with a 12.1% year-over-year increase in overnight stays by international visitors to 37.2 million.
Data from Hotel News Now’s parent company STR shows RevPAR in Portugal’s key markets well above the national average for full-year 2017. In Lisbon, RevPAR increased 21.8% to €90.14 ($104.35), which benefited from a 16.7% average-daily-rate gain to €115.93 ($134.21) and a 4.4% occupancy increase to 77.8%. In Porto, a 3% occupancy jump to 76.2% and a 15.7% increase in ADR to €93.22 ($107.92) pushed 2017 RevPAR up 19.2% to €71.08 ($82.29).
Garcia attributed this success to Portugal’s unique offering that he said goes beyond mass-market appeal, safety—with demand channeled from less secure North Africa and European countries affected by terrorism—excellent marketing and big logistical strides.
“The World Travel Awards granted 14 distinctions to hotel establishments in Portugal in 2017, and also recognized the country as Europe’s leading destination, the region of the Algarve as Europe’s leading beach destination and the region of Madeira as Europe’s leading island destination,” Garcia said.
Garcia added that such success has not gone unnoticed by international investors.
“The growth in these regions is the result of the opening of new airline routes and the willingness of feeder markets to get to know and experience Portugal,” he said. “Nowadays, it is possible to schedule short stays in Lisbon, Porto, Madeira, Azores and Algarve. And the international investment scouts are out and about seeking to deploy capital here.”
Demand and supply in Portugal are unbalanced, according to sources, with most new supply originating out of projects put on hold during the recession.
“Projects which were held on the previous economic cycle are now being concluded and released to the market,” Garcia said. “In Lisbon there are some iconic buildings being restored as hotels. Areas such as the Tróia Peninsula and Alentejo coast, both south of Lisbon, have also anchor projects under development (that) will generate scale and international recognition. But the demand has grown at a faster pace.”
Garcia also indicated global investors are facing problems finding suitable locations.
“The major international hotel brands are looking to enter in Lisbon and Porto, but they haven’t found yet the sizeable property in the required location to install the concept,” Garcia said.
This has resulted in the low presence of international brands, although Meliá Hotels International and Eurostars Hotels are two companies that are set to increase their foothold in Lisbon.
Portugal’s biggest hotel group, Pestana, is investing approximately €200 million ($232 million) in the next three years in 20 new hotels at home and abroad, starting with the May opening of the Pestana Porto.
Elsewhere, new market opportunities remain untapped.
Garcia said that to fill the supply shortfall, the industry is likely to grow in various regions in the areas of luxury hospitality and niche products serving nature, surf, sun, beach and culture.
“The need to diversify the tourism offering has begun and needs to continue. Lisbon in particular has seen the opening of new hotel concepts,” Garcia said.
Filipa Vinha, a partner at Lisbon tourism consultancy Milestones said more work needs to be done to unify the country’s tourism product.
“We must do more to sell the main cities with their regions and unique selling points,” Vinha said, “so Porto and the North, Lisbon and Alentejo, rather than just offering Portugal as a short-break destination. Buyers want a complete experience.”
Portugal no longer needs to remain in Spain’s shadow, Vinha added.
“Spain is a more mature market, and I see more and more travelers saying now they want to discover Portugal, with flights being more accessible,” she said. “The growth here is consistent, coming mainly from the European markets but backed by significant jumps in U.S. visitors who love Portuguese products like food and wine, history and culture.”
That staffing problem
Another problem facing hoteliers is a staffing crisis. Raul Martins, chair of AHP, Portugal’s principal hotel association, and CEO of Altis Hotels, puts the shortfall at 40,000 employees.
“This is felt with urgency by hoteliers of all categories and stars,” Martins said. “Tourism has been a bright star contributing decisively to the growth of the national economy, but there are justifiable concerns about the human resources scarcity and collective labor agreements that are obsolete and no longer satisfy employers or new employees in this industry.”
Portugal’s official statistics agency INE has pinpointed low wages as the crux of this crisis, although wages in the industry are higher than the national average.
Martins disagreed with that analysis, saying that while salaries remain low, they have increased a lot, which he attributed to a greater skill base emanating from local hospitality schools.
Martins said hotel-industry wages were above the Portuguese average of approximately €900 ($1,042) per month, with those in higher chain-scale hotels being approximately €1,000 ($1,158) to €1,100 ($1,274) per month as hoteliers lift wages to attract staff.
Corinthia’s Micallef said his hotel is “paying salaries way above the minimum wage in Portugal as part of our policy to attract top talent. One of the key benefits for us is high staff retention.”
He added the company has a prominent voice with Portuguese regulators.
“And we participate in any industry and government forum on hospitality when (human resources) is on the agenda, highlighting that low salary strategies in the industry can have a negative impact on attracting the best and most talented employees,” Micallef said.
Another wish of Martins’ is for Lisbon to have improved transportation.
“If we do not have an airport in 2020, there will be crisis in the hotel industry in Lisbon,” Martins said.