Barcelona / Madrid Hotel Market

Over the past decade, Spain has been one of the fastest growing economies in Western Europe.

Hotel supply in Madrid and Barcelona is focused on the 3- and 4- star segment. These categories represent almost 75% of the total room supply in both the markets.

International brands account for approximately 55% of the total supply in both (Barcelona and Madrid) cities.

Madrid is due to see the opening of 9 properties during the course of 2009 representing some 600 rooms, most of which will be positioned within the 4- star segment. Openings of note include a Selenza Hotel (45 keys) and four Quo Hotels (+200 keys).

Barcelona is expected to see the openings of 20 new properties in 2009 representing some 2,519 rooms, which like Madrid will largely be within the 4-star segment.

Some of the most notable properties scheduled to open include a Mandarin Oriental (100 keys) and a W Hotel (475 keys).

On the whole, we expect hotel development to continue in both locations, although some projects are likely to be delayed or cancelled all together due to the ongoing economic turmoil.

Trading Performance

STR Global´s figures indicate that Barcelona’s 2007 RevPAR increased by 11.5% in comparison to 2006. In line with Madrid’s performance, year to November 2008 figures also show signs of the economic crisis with occupancy dropping almost 7.9% contributing to an 8.9% decline in RevPAR compared to the same period in 2007.

The Barcelona market is evenly split between business and leisure demand, contributing to a less seasonal performance trend than Madrid. December and January are the weakest months whilst occupancy during the remainder of the year ranges between 68% and 83%.

Barcelona historically enjoyed a higher room rate than Madrid due to a larger amount of internationally branded hotels.

Outlook

Madrid and Barcelona are two of the most dynamic cities within Spain with constantly evolving hotel markets.

The current climate is likely to push developers towards introducing international brands with greater marketing strength and consider different types of ownership structures.

As global brands (especially luxury) enter the market, overall product quality will be further enhanced, which will be beneficial in achieving higher rates. It is believed that this will reduce the gap in average room rates that Barcelona wand Madrid have traditionally experienced versus other major European cities such as London, Paris and Milan.

However, the challenge for both cities in the short term will be how to deal with the current economic turmoil as well as to absorb the new supply entering the market. The latter could potentially have an adverse impact in occupancy as well as average rates in the short to medium term.

Source: Meridiana Research Department, May 2009