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Focus on holiday segment and resilience in selling prices as the main drivers of hotel investment in 2020

  • Overall, €955m was invested in the hotel sector, 62% less than in 2019 and in line with the fall experienced in the main European countries.
  • The 50% of the investment was concentrated in Q4 2020, along with a pipeline of operations already underway estimated at €1.45 billion, means that investment is expected to recover in 2021.
  • In the coming months, owners' attrition due to the cash drain experienced since the beginning of the pandemic will converge with the pressure from funds with high liquidity to be invested in hotels, narrowing the valuation gap and resulting in a more rapid closing of transactions.

 

Hotel investment in Spain reached 955 million euros in 2020 (considering operating hotels, properties for hotel conversion and land for hotel use), as per the Hotel Investment Report presented today by Colliers International at online press conference.


A total of 68 hotels and 7,228 rooms were transacted in Spain last year, compared to 99 hotels and 16,314 rooms in 2019. In addition, a further 14 assets were transacted, including land for hotel development and real estate for hotel conversion. The investment decline in the sector is due to the pandemic, which, despite its devastating effects on the tourism and hotel sector, has not been able to beat the attractiveness of our market.

 

investment volume

The holiday segment significantly surpasses the urban segment 

In terms of the type of hotels transacted, in 2020 the investment in holiday hotels again surpassed the urban segment (64% vs. 36%). 2020 was the year of the holiday property sector and highlighted the particular interest in tourism assets, driven by the positive outlook for the sector's recovery once the pandemic is over and the numerous opportunities to implement asset repositioning strategies.

This segment also accounted for almost all of the main portfolios transacted, representing 96% of the rooms. 

 

The Balearic Islands and the Canary Islands account for 50% of hotel investment

In terms of location, the Balearic and Canary Islands were the main destinations with €320 and €140 million, respectively, concentrating over 50% of the total (€460 million) and increasing their importance compared to 2019, when they accounted for 31% of the total investment. Barcelona, with €151 million of investment, surpasses Madrid's figure by +50% (€97m). Beyond the 4 main destinations, investment has been much less significant, with Cádiz, Almeria and Málaga standing out and totalling €127 million invested.


Reduced number of portfolio transactions 
In 2020 only six hotel portfolios (23 hotels and 3,390 rooms) were transacted for a total of €248 million, including Swiss Life's acquisition of a holiday hotel portfolio owned by ELAIA. This transaction marked the long-awaited entry of a Core institutional investor into the Spanish holiday sector at the beginning of the year.

 
Moderate adjustment in average acquisition prices
In 2020, the average price per room of transacted hotels was adjusted by 8.2% to €118,800/room, albeit with a wide price range among the 68 transacted hotels.

Over the last four years, average purchase prices had increased driven by the good dynamics of the sector, the compression of yields and the investment efforts made towards the repositioning of the Spanish hotel sector.


International investors' interest prevails from the buy-side
In 2020, circa 64% of investment was international, following the trend of recent years and accounting for €611 million, while domestic investors allocated €344 million to the hotel market, amounting to 36%.

In terms of domestic investment, investors such as Mazabi and Meridia Capital stand out, along with hotel chains such as Dreamplace, Catalonia and Alegría, which received the major part of the investment.

International investors of different profiles such as Emin Capital, Activum SG, LMEY and Blantyre Capital continue to be the key players.

Hotel investment market outlook for 2021

“The scenario we see from Colliers is that in the 1H 2021 we will still see most investors in a "wait & see" situation and in 2H of the year there will be extraordinary investment activity as three key elements should come together by then: a period of nearly 18 months of continuous cash drain, capable of exhausting any economic agent and motivating sales decisions, the context of economic recovery pointed out by most analysts and the pressure of fund managers to invest the high liquidity under management at this time.

Another trigger will undoubtedly be the fact that market price to be generated will favour investors' investment decisions"
. - says Miguel Vázquez, Managing Partner of Colliers Hotels. However, the key to make this perfect storm happen will be the effective reactivation of bank financing, adds Vázquez.

total investment

Laura Hernando, Managing Director of Hotels at Colliers International points out that "Investment will mainly be focused on the holiday segment sector. It is where most international investors focused on Spain will see the greatest opportunity as it combines: a major market adjustment that is strongly impacting hotel owners and will motivate them to sell, the Spanish leadership position in holiday tourism worldwide, the opportunities arising from market fragmentation and the difficulties faced by small and medium-sized groups, and the existence of a vast hotel supply with the potential for repositioning and implementing value added strategies".

“Overall, we believe that in 2021 we will not see a scenario of particularly distressed transactions,  i.e. in debt-related contexts, given that the sector's debt levels are significantly lower than at the beginning of the financial crisis, and hotel groups are, in the majority of cases, more capitalised resulting from the boom experienced in the last few years.

We also believe that there will not be a significant price adjustment, though there will be a polarisation of transactions towards good quality assets. In line with recent months, it is likely that owners seeking to sell medium and low-quality assets will face price discounts of more than 20% compared to pre-Covid levels, which will make such transactions unfeasible". - Laura Hernando concludes.

“Bearing in mind that the best assets to provide liquidity will be those of the highest quality, and that these are, in many cases, strategic for the hotel chain willing to sell, it is expected that a large number of the transactions will be structured under sale & lease, sale & lease back and sale and management schemes and the chain will have a long-term management of the hotels object of sale and purchase. We therefore anticipate a significant return of transactions under these schemes"
. – according to Colliers.

Ultimately, this new crisis could be the trigger for a long-awaited concentration in a sector as fragmented as the hotel industry. "We believe that there will be an increase in corporate transactions (M&A) in the next 3-5 years. 2021 could be the starting point, although it is likely that this type of transaction will take place as of 2022, motivated by the attrition of family groups without generational replacement, whose founders will have a special motivation to sell 100% of their business or merge with larger companies after managing this new Covid crisis and once the sector's recovery is consolidated". - concludes Laura Hernando, Managing Director of Hotels at Colliers

 

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About Colliers International

Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services and investment management company. With operations in 68 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to maximize the value of property for real estate occupiers, owners and investors. For more than 25 years, our experienced leadership, owning approximately 40% of our equity, has delivered compound annual investment returns of almost 20% for shareholders. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. 

Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers or LinkedIn.

 

 


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Laura Hernando

Managing Director

Madrid

Laura Hernando is Managing Director of the Hotels Department at Colliers International Spain. She was  partner of irea from January 2017, when she was appointed to partner after more than ten years of professional career at the firm, until March 2018 when irea joined Colliers International. She specialises in advising on hotel sales, as well as on the sale and purchase of debt portfolios secured by hotel assets and company sales. She also has experience in structuring financing for the acquisition and development of hotels, in financial restructuring for hotel and real estate groups and in strategic consultancy for companies with interests invested in the hotel sector, including the negotiation of management contracts with hotel chains.

She began her career as an analyst in the mergers and acquisitions department at Atlas Capital Close Brothers. Laura joined the irea Hotels division in 2005.

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