Iberian briefing: hotel sector booming as tourists return

The return of international tourists is galvanising the hotel and hospitality sector in Spain and Portugal, delegates heard at the Why Iberia? Iberian Investment briefing, organised by Real Asset Media and Iberian Property, which took place this week at Nuveen’s headquarters in the City of London.

Javier Mallo de Vargas, IR, Corporate Development & Strategy Director, Azora

“Summer 2022 has broken all records and tourism is a megatrend that is here to stay”, said Javier Mallo de Vargas, IR, Corporate Development & Strategy Director, Azora. “Global travel spend is on the rise and we’re seeing a strong recovery of leisure destinations after Covid-19, with both beach and city destinations ahead of pre-pandemic levels. Constrained supply in the Iberian market is leading to significant RevPAR growth”.

Sun & beach destinations have performed particularly well, but also cities with a strong leisure tourism attraction have recovered more quickly than business destinations.

“Spain is the second tourist destination in the world and is seeing a strong recovery of consolidated destinations”, said Paloma Relinque, Head of Capital Markets, CBRE Spain. “Hotel operators are seeking liquidity and the hospitality sector offers higher returns”.

Portugal has also seen a strong recovery in tourism driven by foreign visitors.

“If I had to pick one sector set for growth in Portugal I would choose hotels”, said João Torroaes Valente, Partner, Morais Leitão. “There will be a lot of activity”.

The Iberian hospitality market is still fragmented and presents opportunities, especially at a time of economic weakness and uncertainty.

“There will be some stress but we don’t expect any distress”, said Mallo de Vargas. “Theres’s still a lack of professionalism with respect to revenues, asset management and capex initiatives. If low-conviction owners exit the market, there could be good investments to be had at attractive prices”.

It is time for professional investors with the skills to redevelop and reposition assets and a dedicated asset management team to find the opportunities in the market.

“A conservative approach to underwriting opportunities and capex plans, such as during Covid, is key to de-risking transactions”, he said. “Given the risk of recession, higher interest rates and inflationary pressures, it is essential to follow three steps”.

The first is a careful and rigorous underwriting, the second is prudence with 2023 forecasts, and the third is differentiating types of risks for generating returns.

Prospects are bright, said Mallo de Vargas: “The increase in revenue will compensate for rising inflation and higher energy costs”.