Investment In Spanish Hotels Set To Surpass 2006 Peak
Middle East, Asian and U.S. Investors Target Buoyant Market
Hotel investment in Spain in 2015 is set to surpass the €1.6 billion recorded at the peak of the previous cycle in 2006, with global investors from the Middle East, Asia and the U.S. targeting the market, according to the latest research from global property advisor CBRE.
Investment into Spanish hotels in 2014 was the highest since the property crash of 2008, up 63.4% on the previous year and reaching €1.09 billion. The hotel share of all commercial real estate investment subsequently increased from 5.7% to 8%. Investor appetite has remained unabated into 2015, with transaction volume surpassing €700 million for Q1 2015 and up 283% on the same period of the previous year.
Domestic investment into Spanish hotels remains significant (54% of 2014 Spanish hotel transaction volume) with some capital allocated through the recently created SOCIMIs (sociedades cotizadas de inversión en el mercado inmobiliario; Spanish REITs). Additional inbound capital has included purchases by Qatari and Chinese investors; generally targeting trophy assets. This includes the recent trade of the Hotel Ritz in Madrid, purchased by Mandarin Oriental and the Saudi Arabian multinational; Olayan Group in a JV.
Traditional markets targeted by Middle Eastern and South East Asian buyers such as London and Paris have notoriously high barriers to entry and a scarcity of investable stock, particularly in the luxury segment; the key Spanish cities are currently proving much more liquid. Direct flights to Spain from the Emirates, China and Singapore heighten the country’s appeal further and those investing in real-estate are eligible to obtain residency by investment. Demand is such to own luxury hotels in Spain that there is even evidence of office and residential assets being converted into 5-star accommodation.
U.S. private equity funds are targeting value-add opportunities to benefit from cyclical upturns, favourable FOREX and generous yield premiums, in comparison to other key European markets. This is reflected in the agreed acquisition of a collection of Spanish resort hotels by a newly established joint venture between hotel operator Melia Hotels International and private investment firm Starwood Capital. CBRE Hotels completed the transaction on behalf of Melia.
Hotels in Barcelona have capitalised on strong international demand to increase gross operating profit by 10.3% in the 12 months to April and operators in Madrid have achieved a growth in total revenue of 7% due to improving domestic and corporate markets.
Despite substantial downward pressure on hotel yields, the comparison to other key Northern and Western European markets, which are further along in the economic cycle, would suggest that there remains value in Spanish hotel real estate and scope for continued yield compression. There is confidence that the economic recovery of Spain will support further growth in hotel trading performance leaving investors to consider the potential upside.
For more information on the Spanish hotels market, please download the full report here.