Tag: investment ranking

9 June 2018 – Expansión

The tourist boom and interest in the real estate sector have boosted the hotel segment. So far this year, operations amounting to €2.4 billion have been closed and an acceleration is forecast for the coming months.

Spanish hotels are standing out as one of the most sought-after assets for investors in the real estate market. The tourism boom in Spain, which recorded its fifth consecutive record year in 2017 with the arrival of 82 million international visitors, coupled with the property boom, caused hotel investment to reach maximums in 2017 of almost €3.1 billion. Moreover, the commitment from investors to these assets will allow that figure to double this year.

According to data from the Hotel Property Handbook, compiled by Deloitte, to which Expansión has had access, €3.1 billion was transacted in the segment last year, which represents an increase of 44% YoY and accounts for 22% of all the investment activity undertaken in Europe, placing Spain at the head of the investment ranking behind only the United Kingdom, which accounted for 29%.

During the first five months of this year, more than €2.4 billion has been invested, which will be added to operations currently under negotiation amounting to around €4.2 billion, which are expected to close over the coming months, according to the study.

“So far this year, we have transacted an investment volume almost as high as that signed during the whole of last year. The private equity funds are proving to be the main stars of the activity, which may even double the figure recorded in 2017”, said Javier García-Mateo, Partner at Deloitte Financial Advisory.

Loans

That is in addition to the strong appetite from traditional Spanish credit institutions to finance hotel properties, due to the momentum of the sector. Their financing spans projects under development, including remodellings, repositionings and developments. In this sense, the most active banks in terms of senior lines of credit for these assets are CaixaBank, Santander and Sabadell.

Investors are betting on mega-operations and the creation of large portfolios, which will allow them to have a diversified business and gain bargaining power over tour operators.

This trend comes in addition to the interest from Asian players in hoisting their flags in Spain. For example, the emergence of the Thai group Minor in NH Hotel Group, which has reached an agreement to purchase HNA’s stake in the Spanish hotel chain and is studying a takeover bid for 100% of the company.

In this context, the large hotel groups have taken advantage of the boom years to invest in improvements in their asset portfolios although there is still a long way to go. The opening and renovation of hotels consolidated itself in 2017, with activity involving 74 hotels and 12,500 rooms, reaching cruising speed following a significant recovery in 2015 and 2016, with projects in 120 hotels and almost 17,300 rooms.

Over the next five years, investment in work to adapt the hotel stock is expected to amount to €2.2 billion.

According to the report, 65% of the hotel stock in Spain is obsolete, with an average age of more than nine years, which makes investment in capex the main priority if operators are to handle the competitive pressures and achieve better margins.

“The strong growth in tourism in Spain contrasts with average rates that are still excessively low in the holiday segment. The renovation of obsolete projects, combined with the arrival of international operators, will allow the repositioning of an offer that ought to compete on quality rather than quantity”, explains Viviana Otero, from Deloitte Financial Advisory.

By region, the Canarian archipelago, Andalucía and the Balearic Islands are the regions that require the greatest capex spending, accounting for almost 68% of the total.

This effort has contributed to an improvement in the main performance ratios of hotels. According to Deloitte, revenues per available room (RevPAR), one of the main profitability indicators, grew by 10% last year.

New openings

The strong performance of the sector also accounts for the new promotions and project renovations underway. Over the next four years, 173 hotels are expected to be opened in Spain containing almost 30,000 rooms. “53% of those will be new projects and 47% will be renovations. It is worth highlighting the importance that rebranding is gaining as a defensive strategy against the alternative destinations of Greece, Turkey and Croatia, said Patricia Plana from Deloitte Financial Advisory.

In terms of challenges facing the sector, the report highlights the saturation of certain destinations in the summer and the problems of co-existence alongside local residents in those regions, as well as the recovery of competitor countries in Southern Europe and the rise of holiday rentals boosted by collaborative economy platforms such as Airbnb.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake