Euphoria over Spain’s hotel investment market

Miguel Vázquez, managing partner of Irea’s Hotels Division, has presented data and conclusions from the Spain Hotel Investment Market Report 2015, which the firm has produced annually over the past decade, at a press conference. Spain’s hotel investment has multiplied by 2.4 since 2014 and it soars to €2,614 million (taking into account existing hotels and investment in conversion properties), historic numbers which surpass by far the record high of €1,780 million registered in 2006. Last year, a total of 132 hotels and 29,081 rooms were sold while in 2014 only 50 hotels and 8,861 changed hands.  

The healthy performance of Spain’s economy in 2015 and the present momentum of tourism encourage investors to concentrate on the hotel sector, which sees rise in its annual investment volume and gains market share in the commercial real estate investment. The hotel sector is estimated to have bulked up its market share to 20% in 2015, compared to 11% in the previous year. 

The profile of investors has evolved and the role of Socimis (Spanish REITs) as the main market driver is remarkable. These trusts have made a huge bet on the hotel sector in 2015 and their investment amounts to €984 million (40% of the total). Two of the largest purchasers last year were Hispania and Merlin Properties. Hispania purchased a total of 26 hotels and 8,753 rooms in eight separate transactions –primarily portfolio operations– while Merlin Properties acquired a portfolio of 11 hotels and 2,157 rooms as part of Testa Inmuebles acquisition.

Portfolio transactions have noticeably increased in 2015, multiplying last year’s figures by 13 and revealing institutional investors’ intention to chase after top hotel deals in Spain. The ten largest transactions this year represent 42% of the investment, individually exceeding €40 million. 

Single-assets continue to be in the spotlight of investors. Of particular note in 2015 is the acquisition of Madrid’s Ritz Hotel by Mandarin Oriental and Olayan Group. The investment amounted to €130 million (€778,443 per room), without including the additional investment required for the hotel conversion. This deal also sets a benchmark for the high luxury hotel market in Madrid.

The holiday segment leads the investment for the second year running, representing 54% of the total investment volume. With regard to destinations, this year has seen a hive of investment activity in the Canary Islands, with a total of €683 million invested (a €547 million increase), which multiply 2014’s figures by five, and the Balearic Islands, with a total of €418 million invested (a €231 million increase).

Respecting city destinations, Madrid and Barcelona continue to lead the market and gain momentum, although Madrid registered a spectacular growth reaching a €582 million investment volume compared to the €383 million investment in Barcelona. The vibrant market of Malaga also stands out, registering 9 hotel transactions in 2015 and a total investment volume of €173 million. 
However, the investment on properties to be converted into hotels amounted to €144 million, registering a drop compared to the last two years. This type of investment was muted in Barcelona as a result of the hotel moratorium imposed on the city. In Madrid these operations, which were particularly common over recent years with major transactions such as Canalejas, have also receded. However, investment in conversion properties stays afloat in Madrid and smaller projects remain attractive to investment funds such as Platinum Estates or Activum, which are highly active in the capital. Land purchases for the development of new hotels make their appearance for the first time since before the crisis, so far limited to prime coastal locations.

International investment continues to grow in Spain (€807 million in 2015, a 37% increase compared to 2014). International investment from U.S. and Asia (namely from Hong Kong, China and Singapore), which have invested €159 million and €198 million respectively, is raising its bet on the Spanish hotel sector. Middle Eastern investment stays constant at €138 million compared to 2014’s figures. One of the largest recent purchases was by Oman government’s sovereign fund, which acquired Barcelona’s Hilton Hotel last December for €60 million.

Finally, debt portfolio deals stay highly active. The total transaction volume encompasses a total of €466 million in 2015, which represents a decrease compared to the previous year when these types of transactions boomed, registering over €1,000 million. 

These data show evidence of a substantial improvement in Spain’s hotel investment market. The market is entering a more stable phase in which, as it was announced in 2015, opportunistic investors withdraw and leave room for new investors with a long-term view. 

Hotel investment outlook 2016
Based on the abundant liquidity in capital markets, whether equity or debt markets, and Spain’s consolidation as preferred investment destination in Europe and in the rest of the world, we can expect 2016 to be a good year for hotel investment. The political panorama is the main uncertainty for investors, who hold on to wait-and-see mode.

With reference to urban destinations, Madrid is expected to continue the high investment activity. Single-assets may play a leading role in the capital if current pending transactions are finally closed. Barcelona will remain frozen to investment in conversion properties. However, existing hotels will continue to attract strong interest from investors, but investment, as a result of the political climate in Catalonia, is likely to decrease.  

Institutional investors will continue to play an important role and new hospitality Socimis are expected to be established. This should continue to be a good year for portfolio deals, some of which are currently in play.

Debt portfolios secured by hotels are expected to have a significant impact on the hotel market in 2016, although a gradual drop in sales is expected towards 2017 and beyond.        

 

Source: Property Magazine