Investors Throng Spain’s Hospitality Sector in 2023

Spain has emerged as the new destination for individuals and companies planning to invest in hospitality industry following a series of deals in South European country this year overtaking the UK, according to Colliers, which offers real estate commercial services globally said.

In its annual report for 2023, Colliers said that with investments of $4.53 billion, hotels were the most sought-after real estate assets in Spain and the Spanish hotel market was at the top of the European ranking for hotel investment.

“It thus overtook Germany, the UK, and France, which usually occupy the top positions. Globally, it also overtook the usual leaders, such as Japan, Australia and Canada, and came second only to the US,” the report said.

Hotels were, in fact, the most sought-after assets in the national real estate market, accounting for 38% of investments. 171 transactions were carried out in total, which amounted to 21,748 rooms. There were also 34 transactions relating to land for hotel development and real estate to be converted into hotels.

Role of FDI

Foreign capital accounted for 75% of the investments and was the main player in the industry’s most important sales and purchases. The strategic transaction by sovereign wealth funds of Singapore and Abu Dhabi – GIC and Abu Dhabi Investment Authority (ADIA) respectively were noteworthy.

While GIC acquired a stake 35% from the Blackstone managed Hotel Investment Partners (HIP), ADIA has bought 17 hotels from Equity Inmuebles Fund. Both are included in portfolio transactions which accounted for 62% of investments and amounted to $2.79 billion.

Laura Hernando, Managing Director of Colliers’ Hotel Division, said that Spain has entered a virtuous circle for hotel investment, backed by distinctive factors and strong tourism fundamentals. It is clear that Spain remains attractive for institutional and international investment in the hotel industry.

Islands Grab Maximum

The Canary Islands and the Balearic Islands shared 65% of the hotel investment volume in 2023, putting the holiday industry in the lead. The two major transactions by GIC and ADIA played a major role in this milestone. Of the 39 transactions in each archipelago, almost half are linked to the Singapore investor.

Hotel investment in the Canary Islands reached $1.25 billion, 28% of the total. Of these, 75% went to four-star hotels, and a further 15% to five-star hotels. In the Balearic Islands, investment stood at $847.88 million, 19% of the Spanish total. In this case, 61% went to four-star hotels and 32% to five-star hotels.

Luring investors

Laura Hernando stressed that the investment attractiveness of Spain’s archipelagos was undeniable.

“Since 2016, the Spanish islands have cornered $10.95 billion through purchases of over 50 hotels – nearly 86,700 rooms – to which we must add billions more deployed to refurbish and reposition these assets,” she added.

International investors accounted for 82% of investments in the Canary Islands and 78% in the Balearic Islands. Nationally, average purchase prices reached a new record high of 182,900 euros per room, despite the macroeconomic situation and the increase in interest rates to the highest level in 20 years, the annual report from Colliers added.

CBRE Survey

Meanwhile, another survey by CBRE, global real estate commercial services firm, said that the UK, which was the most attractive destination for these investors in 2017 and 2018 in the surveys held in the past, is now ranked after Spain and it is followed by Italy, France and Greece respectively.

Kennet Hatton, Head of Hotels for Europe, CBRE, said that Spain has been flourishing due to record tourism numbers and robust operational performance from the hotel operators and the investors were seeing an opportunity in Spain, both coastal and urban.

The CBRE survey, which highlighted the positive hope among the investors in hospital sector in the post pandemic era, said that over two-thirds of the participants have plans to allocate more capital to the industry due to good returns and improvement in lending conditions as the interest rates are likely to come down this year.

According to the survey, the investments in Spain’s hotel sector was $4.37 billion in 2023, which was 30% higher compared with 2022 and 70% in 2019. Acquisitions too formed part of the investments during the year.

Coming to the number of visitors, as many as 85.1 million tourists visited Spain in 2023, 19% more than in 2022 and up 2% from 2019 before the pandemic.

The survey also said that hotel investments accounted for the largest proportion of 36% of total commercial real estate investment volumes in Spain, compared with 18% in 2022. On the other hand, investments in the UK’s hospital sector declined by 38% to $2.34 billion, contracting nearly 70% from pre-pandemic levels.

Interest rate volatility because of inflation made investors nervous in deal making, as properties were held back from being put on sale pending more stability. Buyers, fearing the rise in borrowing costs, were also cautious.

“The long-term projections for tourism numbers in Europe suggest that projected supply levels in the region will be inadequate to satisfy this demand,” Hatton added.

Spurt in Demand

In Europe, the hotel and tourism sector continues its journey to full recovery, primarily driven by domestic and intra-regional leisure travel.

International leisure travel is expected to stage a meaningful recovery in 2024 and the addback of long-haul flights from Asia Pacific should help support the improvement in international leisure demand.

Business travel, particularly international long-haul, is expected to show meaningful year-over-year growth, but is likely to lag leisure due to the delay in returning to the office in some markets and the ongoing prevalence of virtual meetings.

Several major sporting and entertainment events are expected to further operators’ ability to increase room rates and raise occupancy in the hosting cities. These include the 2024 Paris Summer Olympics and UEFA Euro 2024 in Germany, as well as major music tours by artists such as Coldplay and Taylor Swift, CBRE said in its real estate market outlook report.