28 November 2017 – Expansión
Spain is going set a new record in terms of hotel investment this year, with a forecast figure of more than €3 billion. Moreover, one quarter of that investment is going to be concentrated in the Canary Islands (almost €0.8 billion).
In Las Palmas, this week, Deloitte presented the white book on the sector, together with the Association for Progress and Management, led by Francisco Torres (Renta 4). Javier García and Ignacio Medina, Partners at Deloitte, highlighted the competitive strength of the Spanish tourism sector – the country receives 80 million visitors per year and has a legal and climatological environment that “make it unique”. “We are not able to be a destination for those with the highest purchasing power because the hotel stock is very obsolete. We need to invest just a little, if at all, to meet the requirements of tour operators”.
Nevertheless, Deloitte remains optimistic ahead of the upcoming challenges. “We are facing an exciting cycle because the map of players is changing, with new roles in terms of investors, financiers and hoteliers”.
Average daily rates are experiencing increases of 30%, with occupancy rates of 87%, but Deloitte warns that the “favourable wind is not going to last forever”. “We cannot resign ourselves to being such a cheap place”.
The incidence of falling prices is especially significant in the Canary Islands. The autonomous region has a supply of 350,000 beds, but, with the exception of a few establishments, such as Carlton Ritz Abama (Tenerife), the market is a long way from luxury tourism; its average tariffs range between €60 and €90. “They don’t even come close to the €300 or €700 per night that guests pay for certain hotels on the Costa del Sol”.
Deloitte proposes six axes for the investment challenge over the next few years: innovation, sustainability, digital transformation, renovation, brand enhancement and tailor-made experiences (…).
Javier García places particular emphasis on the role of financing, where entities are boosting hotel activity. Guarantees from the banks are conditioned by the presence of an international operator, the business plans and the ownership of the land.
Deloitte revealed that international operators such as the fund Blackstone have become some of the most capable in terms of proving that a renovation process can result in tariff improvements of up to 40%.
In October, Blackstone acquired the hotel division of Sabadell in Spain (HI Partners) and, in the case of the Canary Islands, it is not the only player. Private equity firms such as KKR and Hispania are very active at participating in the “substitution effects”, as Deloitte defines them. “As Don Emilio Botín always used to say, the best business involves being the first to enter and the first to leave”.
Original story: Expansión (by José Mujica)
Translation: Carmel Drake