In Focus: Madrid, Spain

This market snapshot provides an overview of the recent performance of the lodging industry in Madrid, Spain, in terms of demand and supply and analyzes past and future tourism trends.
Ezio Poinelli This market snapshot provides an overview of the recent performance of the lodging industry in Madrid, Spain, in terms of demand and supply and analyzes past and future tourism trends. In writing these articles we utilise the expertise of HVS for each market combining our in-house data and research together with published information and interviews with opinion leaders regarding each of the examined destinations.

Spain Highlights

  • Spain is the fourth-largest economy in the euro-zone. After the 2008 world's financial crisis Spain has finally recovered from the economic stagnation and since 2013 the economy has grown strongly. In 2015 the GDP has grown by 3.2%, and in 2016 INE (Spanish National Institute of Statistics) has estimated that the GDP growth remained at the same levels (3.2%). This growth is expected to continue during 2017 (+2.50%) and 2018 (2.07%).
  • On the other hand, Spain still has some major economic issues such as the public debt that has increased steadly since 2007, reaching in August 2017 the record of 100.9% of Gross Domestic Product (GDP). Another major issue is the high unemployment rate (19%), though is decreasing compared with the peak of almost 27% registered in Spain during 2013.
  • According to the World Travel and Tourism Council, the total contribution of the Travel and Tourism (T&T) economy to the GDP of Spain was €173.1 billion (16.0% of total GDP) in 2015, and is forecasted to rise by 3.5% to €179.1 billion in 2016, and to rise by 2.0% per year to reach €219.1 billion (16.2% of GDP) in 2026. The Spanish T&T economy is currently ranked 8th to its total contribution to the country’s GDP amongst 184 countries. In terms of employment, the total contribution of the T&T was 16.2% of the total (2,901,500 jobs) in 2015. This is expected to rise by 2.4% in 2016 to 2,970,500 jobs and to reach 3,172,000 jobs in 2026.
  • With total tourist arrival in 2016 equal to 75,6 million, July 2017 has been recorded as the month with the highest number of arrivals in the history of Spain with a number of 10,5 million, outclassing the previous record of 10,02 million arrivals of August 2016. During the first 7 months of 2017 international arrivals increased by 11,3% compared with the same period of 2016, according to INE. The top source country is the United Kingdom (+8,7%) followed by Germans and French (respectively +9,4% and +4,3% compared with 2016). The areas that have contributed the most to this growth registered so far in 2017 are the region of Cataluña (8,6 millions visitors, +13,2% vs 2016) and Madrid region that has registered an increase of 21% vs 2016 reaching 3,3 millions of visitors in the first semester of 2017, according to INE.

City Overview

Madrid is the capital and the largest municipality of Spain. It is the most populous city in Spain, with approximately 3.2 million inhabitants, expanding to over 6.5 million over the greater metropolitan area. The Spanish capital is the third largest-city in the European Union.

Madrid is amongst the most important Spanish tourism hubs. The city's offer is especially wide. Madrid is the capital of Kingdom of Spain since over five centuries therefore it boasts an unique offer in terms of art, culture and architecture. The   city offers numerous museums, the Prado and the Reina Sofia are considered amongst the most important in the world. Besides, Madrid houses the headquarters of several international company and global organizations, such as World Tourism Organizationa and the United Nations.  Madrid has always been the indisputable financial capital of Spain and according to the Financial Times after the Brexit it has been identified as new possible home for the London-based institutions looking for a new headquarter in EU.

Moreover, the city is the venue of global fairs, such as FITUR, ARCO, and the Madrid Fashion Week. Indeed, a remarkable segment of the tourist arrivals are attracted for business purposes. At last, is important to mention that Madrid hosts two of the most important football clubs in the world, Real Madrid and Atletico Madrid, each year many tourists travel from all over the world to attend the games.

Tourism and Visitation

Airport Traffic

Adolfo Suárez Madrid-Barajas Airport is the international Airport of the Spanish capital. It is the first Spanish Airport in terms of passenger volume.

The historical volume of passenger traffic at Madrid Airport is summarised in the following table. The figures show that the arrivals are recovering and reaching the same levels of 2010 with more international arrivals vs domestic compared to year 2010.
 
CHART 1:  ARRIVALS BY AIR - MADRID-BARAJAS 2010-16 (000s)

 

The past 7 years have been characterized by a fluctuation in terms of arrivals at Madrid Airport.
Between 2010 and 2013 the arrivals have decreased from almost 25 million to 19,8 million (CAGR of -7.36%). This important contraction is connected with the economic recession that has hit especially southern Europe. Starting from 2013 a healthy growth has been recorded until 2016 with passengers reaching a number of  25.2 million. The CAGR between 2013 and 2016 has been 8.47%, mostly driven by the international market. Indeed, between 2010 and 2016 the domestic arrivals have registred a CAGR of -4.38% while the international arrivals have increased at CAGR of 2.61%. However, despite the growth the arrivals has not reached yet the peak of 2007 (pre-crisis level )with 26 million passengers.

It is worth mentioning that during the last 10 years, the Spanish high-speed trains have largely expanded their routes, and this development has most likely affected the domestic arrivals at Madrid Airport.

Visitation

The following table summarizes the visitations at hotels in Madrid in the last 6 years, divided amongst the domestic and international market.
 
CHART 2: VISITATION - CITY OF MADRID 2011-16 (000s)

Throughout this reporting period the visitors are equally distributed between domestic and international. After a slight contraction in 2012 and 2103 (from 8,3 milion to 7,5 with - 4.9%. CAGR), from 2013 onwards the visitations increased substantially at a CAGR of 6,3%, reaching over 9 milion visitors in 2016.

The number of accommodated bednights at hotels in Madrid is shown in the following chart.
 
CHART 3:  HOTELS BEDNIGHTS - CITY OF MADRID 2011-16 (000s)
 

Throughout the entire period total bednights have been growing, resulting in a CAGR of 1.9% driven primarily by international bednights travellers whose share has reached almost 59% of the total. Bednights trend followed the pattern of the arrivals, with a contraction in 2012 and 2013 and recovery between 2013 and 2016, (+6,6% CAGR). During 2016 the hotels' bednights exceeded 18 million (+1.15% over the previous year).
 
Considering all the types of accommodation the total cumulated bednights in Madrid in 2016 exceeded the 22 million.

Average Length of Stay

In the last 6 years the average length of stay has been relatively stable fluctuating between 1.95 and 2.00 days.
 
CHART 4:  TOTAL AVERAGE LENGTH OF STAY - MADRID 2011-16
 

The international tourists registered a longer average length of stay compared with the domestic ones. Moreover, since 2011 while the international tourists average length of stay has increased gradually the one of the domestic tourism has decreased.
 
CHART 5:  INTERNATIONAL TOURISTS AVERAGE LENGTH OF STAY - MADRID 2011-16
 
CHART 6:  DOMESTIC TOURISTS AVERAGE LENGTH OF STAY - MADRID 2011-16

Seasonality

In 2016, seasonality followed the usual pattern of the city. The lowest number of bednights is registered in January and February and August, due to extreme weather conditions and relatively lack of business travellers during holiday season.

The high season is registered between May and June, and September and October. The month with the highest number of bed nights is October, due to the conference and exhibition period.
 
CHART 7:  SEASONALITY - MADRID 2016 (000s)

International Feeder Markets

The following table shows international visitation during 2016 to Madrid from the main source countries expressed in percentage of totalt arrivals at hotels.
 
CHART 8:  VISITATION BY SOURCE COUNTRY - MADRID 2016
 


Around 40% of all international visitors to Madrid come from 5 countries and 20% come from South America. Primary international source country for visitation to the city has been the U.S.A., followed by the UK, Italy, France and Germany.

Hotel Supply

The following table summarises hotel supply in Madrid and how the city’s rooms and beds offer is distributed among the different categories.
CHART 9:  HOTEL SUPPLY, MADRID 2010-16

In 2016, Madrid offered 36,515 hotel rooms across 456 lodging facilities of every class. The development trend over the period illustrated shows that the hotel room supply grew at a significant pace at a CAGR of 4.55%. After the period of recession (2011-2013) the capital's hotels supply have balanced between an increase in  4 and 3 star hotels and a progressive decrease in properties of lower classes, while the supply of 5 star properties remained relatively stable in terms of volume but has mutated in quality.

As aforehead mentioned, between 2010 and 2016 the 4 and 3 star hotels are the category that grew the most in terms of volume. The average size of the 5-star hotels is 213 rooms, 4-star hotels is 112 rooms, while for the 3-star hotels is 51 rooms and the market is well balanced amongst branded properties and family-operated units.
 

Hotel Performance

The following charts summarizes the last five years' performance of Madrid’s 5, 4 and 3 star hotels.

Madrid's 5 star hotel category (Chart 8), has experienced 4 consecutive years (2012-15) of continuous growth in terms of Occupancy, ARR and RevPAR, while in 2016 has occured a decline in occupancy with the year ending up with an ADR of € 173 and 66,4% Occupancy. The decreased performance in 2016 is due to a remarkable increase of 5 star hotel supply compared with the previous year (+31,5% of rooms) while the demand did not keep a proportional level of growth.

In 2015 has been registered the most prominent increment, compared with the antecedent year, in terms of Occupancy (+2.7%), ARR (+9.2%) and RevPAR (+13,7%).
 
CHART 10: FIVE-STAR HOTELS PERFORMANCE – CITY OF MADRID 2012-16
 

During the same period (2012-16), the 4 star hotels of Madrid, except for 2013, have experienced an healty growth in terms of Occupancy, RevPar and ARR. As well as for the 5 star hotel category, the most prominent increment in terms of Occupancy (+4,5%), RevPAR (+12.8%) and ARR (+5,6%) has occured in 2015. During 2016 has occurred an increase in all the performances compared with the previous year, reaching an ADR of € 87 and 73,4% Occupancy. The increased performances are due to a limited growth in terms of rooms (+2% compared with the previous year) while the demand grew at higher pace.
 
CHART 11: FOUR-STAR HOTELS PERFORMANCE – CITY OF MADRID 2012-16

For the 3 star hotels the performances during the given period (2012-16) are analogous to the 4 star hotels. Indeed, the only year when it has occured a decline in terms of Occupancy, RevPAR and ARR was 2013. During 2015, also the 3 star hotels experienced the most prominent growth in terms of Occupancy (+7,2%), RevPAR (+19,1%) and ARR (+7,2%).

During 2016 the ADR increased reaching € 69,7 and the also the Occupancy grew to 72,4%. Despite the 3 star hotel’s rooms number increased of almost 6% the demand grew at higher pace.
 
CHART 12: THREE-STAR HOTELS PERFORMANCE – CITY OF MADRID 2012-16
 

As a conclusion, during the period analyzed the examined hotel categories have overall experienced a healty growth. The following chart summarizes the overall growth of Occupancy, ARR, and RevPAR between 2012 and 2016.
CHART 13:  EVOLUTION OF PERFORMANCE BY TYPE OF HOTEL 2012-16

Hotel Values

The chart below shows how the Madrid hotel’s room value has fluctuated in the last 6 years, according to Hvs’ Hotel Valuation Index report. After 2011, and for two years, the values have decreased following the economic recession, while during 2014 and 2015, the city registered the highest growth in hotel’s value in all Europe with an an increase of 14.25%. In 2016 Madrid registered another 11% rise in  hotel's rooms value and it ranked 6th for growth in all Europe.
 
CHART 14:  MADRID - HOTEL VALUE PER ROOM 2011-16 

Hotel Transactions

In the last three years the hotel transactions in Spain have increased substantially, this growth has been backed by the country's recent economic recovery. The most interested areas in the iberic peninsula are the resort locations such as Balearic Islands and the Canary Islands, but a great contribution is also given by the two most important cities, Madrid and Barcelona.

In Madrid, te high rise in visitors registered since 2013 (+20%), combined with a limited growth in supply, has led to an improve in  performances bringing more transactions and investments in the city.

The following table lists few amongst the most relevant single transactions in hotel (minimum investments registered over €7 million). Buyers are well divided amongst international and domestic investors.

Noteworthy, in the last two years two transaction overcame the value of €1 million per room, while the Ritz expected reconversion costs added to the acqusition, will add another one surpassing that level.
 
CHART 15:  MADRID - HOTEL TRANSACTIONS 2014-16 

New openings

In the following maps are shown the most recent openings (in blue) and the hotels project in the pipeline (in red), that will enrich Madrid’s hotel supply and directly testify the positive evolution of the market in terms of volume and quality towards the high categories.

Most Recent Hotel Developments - Madrid 




In detail:
 
  • Barcelò Emperatriz: 5 star hotel – 146 rooms
  • Dear Hotel Madrid Rooftop: 4 star hotel – 162 rooms
  • Double Tree Hilton : 4 star hotel – 61 rooms 
  • Exe Central Hotel: 4 star hotel – 135 rooms
  • Grand  Mèlia Palacio de Los Duques: 5 star hotel -188 rooms
  • The Principal Madrid Hotel: 5 star hotel – 76 rooms
  • Hotel Only You: 4 star hotel – 125 rooms 

Hotel Developments in the Pipeline - Madrid




In detail:
  • Barcelò Augustin de Foxa: 5 stars – 158 rooms – Estimated opening 2017
  • Hotel Development of “La Casa de la Carnicera” - developed by Pestana - 70 rooms - Estimated opening 2019
  • Four Season: 5 stars -  122 rooms – Estimated opening 2019 
  • Hyatt: 5 stars – 157 rooms – Estimated opening 2017
  • KKH Project:  4 or 5 stars (TBD) - 180 rooms – Estimated openings TBD
  • RIU Hotel: 4 stars – 650 rooms – Estimated opening 2020
  • Vergara Relais & Chateaux: 5 stars -  developed by Gabriel Garcia Alonso (owner of Hotel Orfilia) - 36 rooms - estimated opening october 2017
  • Hotel VP Plaza de Espana: 5 stars - 214 rooms - Estimated opening autumn 2017

Conclusion

  • Our review of the various tourism related data indicates that Madrid tourism and its hospitality industry growth goes hand-in-hand with the country's economy recovery, that has begun back in 2013 after a period of strong recession that has affected all the southern European countries. The growth in arrivals and overnights in Madrid is strong and there are no signals of changing trends.
  • As a "reflection" the city has registered an important rise in hotels' value. In the last three years the Spanish capital has registered one of the highest growth in Europe (+13,2% CAGR). However, this growth has still an important potential to be backed by the city's hotel fundamentals. Madrid's hotels are far in terms of performances from Barcelona or other main resort destinations in Spain (e.g. Balearic Islands). For instance, Barcelona 5 star hotels in 2016 registered an ADR of € 245, while Madrid 5 star hotels an ADR of € 173.
  • The recent and planned opening of new high end hotels will contribute to significant enhance the quality of the offer and most probably will lead to an increase in ADR. The recent moratorium imposed on building new hotels in Barcelona could be an opportunity for Madrid's hotel industry since it might be able to attract the unaccommodated demand of Barcelona.
  • Nevertheless there is another aspect that must be considered within the Madrid's hospitality offer: Airbnb. The outstanding increase of +40% in Madrid's visitors via Airbnb, experienced in 2016, compared with the previous year, it should be carefully monitorized as it could have a potential impact on the hotel market.
  • Finally, another factor that testifies Madrid excellent growth and positioning towards as a world tourism hub is the recent award that the Spanish capital won as the best MICE destination of 2016.   

ANNEX

HVS Interviews: Ana Maria Camps – Head of Studies at CEHAT, Spanish Confederation of Hotels and Tourist Accommodation

“In the last two years Madrid has finally registered a flow of inbound tourists comparable with the pre-crisis period. Although, Madrid's hotels occupancy is competitive with other European city, the Spanish capital is still not able to compete in terms of rooms' prices. Actually even in Spain, the capital's hotels are not able to challenge the room prices of other Spanish areas, such as Barcelona and the area of Marbella.
 
The tourism in the city over the last year has changed substantially. During 2016 the weekends have registered high occupancy due to an increase of domestic travelers. While during the week the high flow of business travelers contributed to the high level of hotels occupancy.

Most likely the high level of occupancy registered during the weekends are due to the diversified offer of Madrid (as cultural and fashion) and the improved accessibility to the city by car and high-speed trains, which allowed to more Spanish people to visit the city.

Moreover, Madrid has a great opportunity in developing the 5 star hotels segment, since it offers lower prices compared with most of the other European capitals (Paris, London, Rome, etc.). In addition, Madrid is considered a perfect location for new openings of 5 star luxury hotels.
New 5 star hotels openings will attract new high-class travelers to Madrid, and this will impact positively the city's image and benefit the rooms price. Madrid must focus even more on the segmentation of his offer and its promotion.”
Ezio Poinelli is Senior Director of HVS Southern Europe, head of HVS office in Milan and supervising HVS activities in Italy and Spain. He has more than 19 years experience in Hospitality, Real Estate, and Leisure Real Estate markets in Europe, Caribbean, Latin America, and South Africa. He joined HVS in 2010 having significant experience in executive positions at Northcourse Advisory Services (Wyndham Worldwide), Ernst & Young, and other companies in the hospitality and real estate field. He is a graduate in Economics and Business Administration and holds a M.Sc. in Tourism Economics from Bocconi University. Contact him at epoinelli@hvs.com or +39 02 873 43016 | +39 338 7855144 | +34 696952080
Paolo Buffa is Manager of HVS Southern Europe and Resident Manager for Spain. He has more than 13 years work experience on development, asset management, and sales & marketing solutions, combining international management and strategy consulting skills on Real Estate, Hospitality & Tourism industries in several European countries with focus on mixed-use developments with residential component and hotel. He worked for Real Estate developers and Private Equity firms in EMEA region. Prior to this, he worked for NorthCourse Advisory Services (the hospitality and real estate consulting firm of Wyndham Worldwide) in Southern Europe and for Ernst & Young, Real Estate, Hospitality & Tourism practices in Italy. He is fluent in English, Spanish, and Italian languages. He can be contacted at pbuffa@hvs.com or +34 661 905 496.
Filippo Brivio joined HVS as an intern in 2017. He recently graduated Glion Institute of Higher Education in Switzerland with a degree on hotel management. fbrivio@hvs.com

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