Hotels, MarketView 2012 CBRE Global Research and Consulting

OVERNIGHT STAYS OCCUPANCY: 54.8% ADR: €70.50 REVPAR: €38.60 HOTEL INVESTMENT -1.9% -2.5% 1.7% -0.8% -30.6%

GENERAL SLOWDOWN IN THE HOTEL MARKET

Key indicators EXECUTIVE SUMMARY Hotel demand in Spain, measured by Hotel investment volume dropped

2011 2012 the number of total overnight stays, substantially by 30.6% to €495 fell by 1.9% in 2012. National Occupancy   million, although the number of demand was the major cause of this transactions increased in relation to ADR   decrease, since the figure of foreign the previous year. The holiday resort demand grew by 2.3%. segment saw the largest number of RevPAR  = Spanish hotel supply remained transactions, followed by the prime Room prices =  almost unchanged with respect to areas of and , 2011, with a slight increase of 0.2% where an important number of Yield = = in the total number of available hotel transactions involved buildings to be beds. Supply is expected to grow in converted into hotels. The average Key information of 2012 2013 by 1.2 % with the majority of price per room fell markedly to €82,000. • Decline in national and overall projects being planned in Madrid demand and supply stagnation. and Barcelona. Change of operator deals rose by Trading performance was very similar 55.8% compared to 2011. Although • Slight increase in ADRs but drop in the majority of contracts signed were the occupancy rate. to that of 2011 as the Revenue Per Available Room (RevPAR) slid -0.8% still lease contracts, there was a • Notable year-on-year decline of only due to a fall in occupancy rate, noticeable increase in franchise the investment volume. as the Average Daily Rate (ADR) agreements (+16.7%) with respect to • Proliferation of franchise contracts increased by 1.7% maintaining a very last year. and independent management; stable trend in comparison to 2011. 2013 is forecasted to be a relatively leases descend. Madrid’s trading results deteriorated flat year in terms of supply, demand as opposed to Barcelona’s, and there Stand out activity and trading performance growth, was an uneven performance between although the hotel investment market Villar Mir Group purchased holiday destinations. will register a greater activity as a “Manzana de Canalejas”, Madrid, consequence of an increased to be reconverted into a 5* hotel number of hotels set for sale, managed by Four Seasons. especially by banks.

Thomas Cook sold its stake of 5 Main tourist areas in Spain

Iberostar hotels purchased by Pontegadea. Holiday destinations Sale of Gran Vía, 80, Madrid, on behalf of Renta Corporación to Urban destinations Seca S.A. Operator selection for the AC Sant Cugat Hotel, owned by Catalana Occidente. 1 Sale of Banco Sabadell Building at 7-9 Rambla Cataluña, Barcelona, to H10 Hotels.

DEMAND 2012 Overnight stays in Spain Slowdown in demand growth

Overnight stays, million A total of 83.2 million people stayed in Spain during Spain, Hotels | Hotels Spain, National Foreigner Total Overnight Stays 2012, with 281.4 million overnight stays registered. 300 272 287 281 These figures represented year-on-year decreases of 269 267 251 2.6% and 1.9% respectively. Spanish hotel demand, 250 measured by the number of overnight stays, hit a

200 175 179 record in 2011 due to the “Arab Spring”

155 155 154 MarketView 141 phenomenon, which derived a great number of 150 117 113 113 tourists from North African countries to the Spanish 110 112 102 100 coasts. However, the gradual stabilization of these neighbouring countries slowed this trend in 2012,

50 although foreign demand continued to grow. On the 0 contrary, national tourism fell dramatically due to the 2007 2008 2009 2010 2011 2012 tough economic conditions faced by the country. Source: INE The fall in demand, was of approximately 2.5% Growth in overnight stays in the main areas across the majority of Spanish destinations. % var. overnight stays Overnight stays, million It is worth noting that this fall was even more acute

Madrid 15.5 in Madrid and Valencia, where overnight stays 3.1 Valencia dropped by more than 4%. At the other end of the Spain 281.4 spectrum, Bilbao reported an increase in its figure of Costa Brava 10.1 overnight stays of 6.6%. Canary Islands 57.4 The importance of foreign tourism Zaragoza 1.3 Despite the overall fall in demand, international 14.7 Costa Blanca overnight stays rose by 2.3% in 2012, with 3.6 Sevilla moderate growth figures in nearly all Spanish Barcelona 16.2 destinations. Foreign tourism in Spain has been Costa del Sol 15.4 continually increasing its share over the last few Balearic Islands 54.4 years, representing 63.7% of the total demand in Costa Dorada 9.2 2012. Bilbao 1.5 In the case of Barcelona, a city with a strong -10% -5% 0% 5% 10% international exposure thanks to the strong MICE Source: INE and leisure segments, foreign demand rose by 3.7%, Growth in overnight stays by category accounting for 83.6% of total demand. In turn,

Overnight stays, Madrid, a less consolidated destination for leisure % Annual variation Share million tourism, reported a drop of 7.2% in international Hostels 17.5 6.8% overnight stays, which represented only 55% of the total demand. 1* 5.5 2.1% At a national level, the United Kingdom and 2* 19.9 6.3% Germany continue to be the main foreign tourism providers, however the greatest increase in tourists 3* 94.7 34.2% came from Russia (+25.4%) and Norway (+21.2% ).

5* 15.8 5.5% 2 2 4* 131.0 45.2%

-12% -10% -8% -6% -4% -2% 0% 2%

Source: INE 2012 2012 SUPPLY Estimated number of rooms in Spain Slowdown in supply growth

Spain, Hotels | Hotels Spain, For the first time in 15 years, growth in hotel supply, 1.460.000 measured by the number of beds available, was 1.440.000 1.2% less than 1%, in fact as low as 0.2% in 2012. The 1.420.000 2,6 % 0.2 % total supply in Spain closed the year with a total of 2.1 % 1.400.000 1.4 million hotel beds in Spain. 2.6 %

1.380.000

MarketView CBRE Hotels registered 74 hotel openings in 2012, 1.360.000 18 of them occurring in Barcelona, which saw its 1.8 % supply grow by 4.7%, way above the national 1.340.000 average. In Madrid, hotel supply raised a lesser 1.320.000

0.5% with only 5 new hotels opened in 2012 and 3 1.300.000 closings of unprofitable assets. 1.280.000 According to data gathered by CBRE Hotels, 43.2% 2008 2009 2010 2011 2012 2013* of the new hotels that opened in 2012 were 2013*: Forecasted future supply according to the information registered by CBRE Hotels independently run, a significantly higher figure than Source: INE that of 31% in 2011. Leased, managed and Distribution of current and future hotel supply by category franchised hotels accounted for 23.0%, 6.8% and (number of rooms) 4.1% of all newly opened hotels respectively. National hotel supply in 2013 is expected to grow Spain 2012 Projects in Spain for 2013

by 1.2%, with a total of 81 hotels developments 1* 5* 1* 2* 5* 2* forecasted across the country. Barcelona will 4% 7% 2% 9% 17% 14% presumably account for 17 of those, while in Madrid 20 new openings could take place. 3* The 4* category will capture 56% of potential new 11% openings in 2013, followed by the 5* category with 4* 17% of the total. 3* 47% 33%

Further seasonal closings 4* Since the beginning of the crisis, a large number of 56%

hotel closings have been registered in seasonal Source: INE & CBRE destinations, particularly along mainland Spain’s coast. In correlation with this trend, the number of rooms available in 2012’s low season (October – February) was 30.4% lower than during the high Variation of number of rooms in low season season in Spain. Rooms 2009 2010 2011 2012 The Costa Dorada was the destination with the 80.000 largest negative variation in 2012, with 9.2% fewer 70.000 beds during winter months. However, Costa del Sol has been the area with the highest decrease on 60.000 aggregated levels, showing a CARG of -3,7% since 50.000 -3.7 % -1.0 % 2009. 40.000

3 30.000 20.000 +0.1 % 10.000 - 3.1 % 0 Costa del Sol Costa Brava Costa Dorada Costa Blanca

Source: INE KPIs in Spain TRADING PERFORMANCE 2012 Higher average rates, less occupancy RevPAR / ADR Occupancy The decrease in demand registered in 2012 across | Hotels Spain, 80 € 60% the country was directly reflected in the average 70 € occupancy rate which closed the year at 54.8%, 50% 60 € 2.5% below the same indicator in 2011. On the 40% other hand, the average daily rate (ADR) rose slightly 50 €

by 1.7% to €70.50, the highest figure for the last

40 € 30% four years. Both indicators caused the revenue per MarketView 30 € 20% available room (RevPAR) to remain relatively stable 20 € with respect to 2011, registering a y-o-y fall of 0.8% 10% to €38.6. 10 € In Madrid, hotel trading performance reflected a 0 € 0% 2009 2010 2011 2012 sharp fall in demand. The average occupancy rate fell by 3.6% to 63.9%, while ADR also plunged 2.1% ADR RevPAR Occupancy to €86.50, accumulating four years of downward Source: INE trend. As a result, RevPAR for Madrid fell by 5.6% to €55.30. Trading performance in Madrid & Barcelona On the other hand Barcelona benefited from an MADRID BARCELONA increase in foreign demand and registered a 1.1% increase in the average occupancy rate to 71.4%, 140 2009 2010 2011 2012 which together with a 1.7% increase in ADR 120 (€116.10) allowed for a surge of 2.8% in the city’s RevPAR (€83). 100 Trading performance in Spanish holiday destinations 80 was uneven. For instance, the Canary and Balearic 60 Islands registered RevPAR increases of 1.1% and 8.5% respectively, whereas the Community of 40 Valencia reported a year-on-year decrease of 1.9%. 20 Better results in Europe There was a general improvement in trading figures 0 in the main European hotel markets in 2012, with Occ % ADR (€) RevPAR (€) Occ % ADR (€) RevPAR (€) Source: STR Global the main capital cities showing an average growth in their RevPAR figures of circa 4.5%. However, while in RevPAR in some European cities 2011 was the only European city with negative Anual variation (%) RevPAR trading performance, in 2012 there were three cities Dublin 65.9 with lower RevPARs than the preceding year: Praga 51.1 Amsterdam, Brussels and Madrid, which were at the 139.4 Paris bottom of the list in terms of y-o-y RevPAR behaviour. Berlin 63.8 Dublin led the ranking with a RevPAR increase of Budapest 36.0 13.8%, followed by Prague with +10.5%. London on Dusseldorf 72.5 the other hand showed lower than expected growth Bucarest 42.5 during the Olympic year, with a moderate 4.5% Londres 160.4 increase in its RevPAR figure. Viena 70.6 4 4 Barcelona 83.0 Roma 97.6 Amsterdam 92.9 Bruselas 73.3 Madrid 55.3 -10% -5% 0% 5% 10% 15%

Source: STR Global

TRANSACTIONS 2012 2012 Less volume, same activity Volume of hotel transactions In 2012 CBRE Hotels registered a total of 56 hotel €, millions Spain, Hotels | Hotels Spain, transactions in Spain, 18 more than in 2011. 1.400 1,163 However, the investment volume dropped by a 1.200 significant 30.6% to 495 million euros. 1.000 8 different transactions took place in the city of 713

Madrid, where a great number of buildings were 800

MarketView sold to be reconverted into hotels. In Barcelona, the 600 469 500 495 number of transactions amounted to 6 and the majority of those involved new developments. 400

The percentage of transactions occurring in prime 200

areas of the two aforementioned cities decreased 0 from 21.6% in 2011 to 19.6% in 2012. On the 2008 2009 2010 2011 2012 other hand, holiday destination hotels gained *Volume of transaction registered by CBRE Hotels share, representing 64.3% of the total against 51% Source: CBRE Hotels in 2011. Number of transactions in 2012 by region The most significant transaction in terms of volume Other urban Prime urban was Pontegadea’s purchase of Thomas Cook’s locations Mad & Bcn share in a portfolio of five holiday hotels managed 3.6% 19.6% by Iberostar, which amounted to €94 million. Secondary Mad & Bcn Regarding single assets, the most representative 5.4% transaction was the purchase of Banco Santander’s Prime Holiday “Manzana de Canalejas”, Madrid, by Grupo Villar secondary cities destinations Mir, an historic building in the city centre where a 5 7.1% 64.3% star Fours Seasons hotel will be developed. In spite of transactions such as the above, it is worth Source: CBRE Hotels highlighting that the average price per room fell by 50% to €85,000, which shows the more Number of transactions in 2012 by type of investor opportunistic profile of active investors. In relation to the yields, 2012 has been a year with few market comparable and lack of transparency in 3.6% them. However, for the Barcelona and Madrid 14.3% Hotel Chain markets the return demanded by investors is around Private Investor 7%, and may adjust depending on the location of 46.4% the asset, quality and type of operator managing Intitutional Investor the establishment. The return required for the 35.7% Tour Operador leisure market stands in the region of 9%.

The reappearance of institutional and Source: CBRE Hotels private investors Average price per room 2007-2012 Although hotel chains led the transaction list by type of investors, their share dropped substantially from Price/room (thousand of €) 200 62.0% of the total in 2011 to 46.4% in 2012. In contrast, the number of transactions directed by 5 150 private and institutional investors rose to 35.7% and 14.3% respectively, having represented 27.0% and 100 9,0% in 2011. 50

0 2007 2008 2009 2010 2011 2012

Source: CBRE Hotels 2012 2012 Main hotel transactions, Spain Increase in operator changes In 2012 the number of hotels that changed

management companies rose by 55.8% compared | Hotels Spain, Price €MM Hotel Location Rat. Rooms Buyer Seller (Aprox.) to the previous year, with more than 175 contracts

Innside (portfolio) Madrid 4* 2 buildings 25.0 Maydon Investments Various signed across Spain. From the above, 36.9% of the Iberostar (portfolio) Spain 4* 5 hotels 94.0 Pontegadea Thomas Cook contracts were leases, 21.9% lower than in 2011, Don Miguel Golf & Sport Marbella 4* 502 26.0 Magma Invest Sipsa 27.8% were management contracts (25.4% below

Gran Vía Building Madrid - - 20.6 Seca S.A. Renta Corporación 2011), and 8.5% were franchises, (+16.7% wit

MarketView Bergara Building Barcelona - - 20.0 Home Hostels Ballester/Bankia respect to 2011). Hotel Suecia Madrid 4* 127 20.0 Maydon Investments Banesto Tryp Bellver Mallorca 4* 384 30.0 N/A Meliá Hotels The number of handovers in which the owner Manzana de Canalejas Madrid 5* 194 60.2 Villar Mir Group Santander Bank assumed the management of the hotel without a

Source: CBRE Hotels brand rose by a significant 218.7%. In terms of location, the majority of operator changes took place in the provinces of Barcelona, Las Palmas and the Balearic Islands (10.8%, 9.7% and 9.1% respectively), followed by Madrid with 8.5% of the deals. Nature of signed contracts in 2012 With regards to the origin of the operators, 86.9% of the contracts signed were led by domestic hotel Management chains, while the remaining 11% involved Lease 27.8% international hotel operators, 13.1% less than in 36.9% 2011. Of those deals signed by international chains, 61.1% were under franchise agreements, while the remaining were either variable leases or Franchise management contracts. 8.5% Increase in refurbishments Concession CBRE Hotels registered 55 hotel reopening's after 0.6% major refurbishment in 2012, whilst 48 more will do Owner-run 26.1% the same during 2013. Source: CBRE Hotels The increased number of both completed and undergoing hotel refurbishments shows that hotel chains as well as investors are making the most of Who signed contracts in 2012 this low cycle period to carry out improvements in their hotels in order to increase competitiveness International Chains 13% once the market starts to recover.

6 6 National Chains 87%

Source: CBRE Hotels

OUTLOOK FOR 2013 2012 2012

 In general terms, we expect the Spanish hotel market to behave similarly to 2012 in 2013. Given the

Spain, Hotels | Hotels Spain, current economic outlook, domestic demand will continue to be weighed down, while foreign tourism will continue to increase smoothly and to become more diverse. Supply growth will remain very limited, although in cities such as Madrid and Barcelona it will continue to rise, especially due to the lack of activity in the residential and office sectors. With regards to trading performance, we also

expect a similar year to 2012, with scarce variation in RevPAR figures.

MarketView  On the other hand, the change of operators is forecasted to be just as intense in 2013, contract maturities and renegotiations being the main causes of this activity. Many hotel owners will disaffiliate from former brands and the market will also witness a greater increase in franchise agreements. Lease contracts will continue to include variable elements, and the growth of

management contracts will depend largely on the flexibility of hotel operators, especially the international ones.  Hotel investment in Spain will remain weak in 2013 due to the credit restrictions. However, relevant flow of hotel assets will come into the market as a consequence of refinancing agreements with disposal commitments, bankruptcy proceedings and the sale of hotels by financial institutions. These will contribute to a greater adjustment in sale prices, which could derive an increase in total investment volume. Finally, we expect SAREB (Spain’s bad bank) to introduce limited changes in the hotel market due to its recent creation.

For more information, please contact CBRE Hotels Spain: Jorge Ruíz Andrés Miguel Casas Albandor Patricio Palomar Murillo National Director National Director Director CBRE Research & Investment Strategy CBRE Hotels Spain CBRE Hotels Spain

Avda. Diagonal 605,8º 1ª Pº de la Castellana 202, 8ª Pº de la Castellana 202, 8ª 08028 Barcelona, Spain 28046 Madrid, Spain 28046 Madrid, Spain t: +34 93 444 7700 t: +34 91 598 1900 t: +34 91 598 1900 e: [email protected] e: [email protected] e: [email protected]

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Global Research and Consulting This report was prepared by the CBRE Spain Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

7 Disclaimer CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.