5 KEYS VS. BARCELONA June 2020 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDHIGHLIGHTS BARCELONAHIGHLIGHTS Demand in Madrid continues to grow with 9.9 Its higher dependence on national suggests Once again, Barcelona ranks first amongst all Domestic overnights in Barcelona have been million visitors in 2019, standing out as an it will recover immediately. Nevertheless, as far as national destinations in 2019 in terms of overnight decreasing annually since 2017, foreseeably 1international destination in the MICE sector. 5the business segment is concerned, Madrid, as the 1stays, justified by its international demand which 5hampering its return to normality. In Barcelona, headquarters of main multinational companies with accounts for 88.1% of total stays in the City. similarly to Madrid, the recovery of international After years of hardly any increase in the City’s presence in , will suffer a greater impact than tourism will not only depend on the opening of hotel supply, Madrid is now considered a strategic Barcelona. The hotel supply in the City maintains the balanced our airports and borders but also on the recovery 2location for international hotel chains who are growth registered over the last years, as a result of of travellers’ confidence in Spain as a tourist starting open hotel projects signed during recent 2the measures introduced in 2005 aimed at limiting destination years and which shall bring new brands to the supply increase. Capital. Barcelona hits a second place amongst all national In 2019 the City continued its escalation in terms urban destination with the highest RevPar, reaching of RevPar, reaching 80.8€ while reducing the 3some 108.9€, despite the two difficult years of 3still significant difference with some of the main socio-political tensions experienced by the City. European cities. The hotel investment remains lower than expected Madrid remains the top Spanish destination for such a destination as Barcelona with € 245.7M for hotel investment, hitting € 454.5M in terms 4transacted in 2019. Nevertheless, the City is still a 4oftransacted volume during 2019. prime target for the sector’s main investors. 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDDEMAND BARCELONADEMAND Madrid closes 2019 as the first national destination in terms of travellers, ranking second in terms of ttotal overnights, reaching 9.9 million and 20.7 million respectively. The average length of stay in the City amounts to 2.1 days, line with the previous years.

The overnight stays in Madrid increased by +5.1% with respect to 2018, driven by the growth of international demand (+9.0% vs. 2018), with USA standing as the leading source market in 2019. Nevertheless, national overnight stays fell by -1.1% last year. Notwithstanding, Madrid continues to improve its balance between national and international demand (36.6% - 63.4% in 2019).

The most significant change experienced bydestination in 2019 has to do with the demand coming from the MICE sector. After years in which this segment was led by Barcelona, in 2018 Madrid surpassed Barcelona in the International Congress and Convention Association (ICCA) ranking, consolidating as the leading city for holding this Once again, Barcelona has positioned itself in 2019 as the first national destination in terms overnights, reaching 21.4 type of events in 2019. million, and second, just behind Madrid, in terms of travellers with 8.5 million. This, in turn, results in an average stay of 2.5 days.

FITUR, the most important tourist fair in the City has hit a record high in terms of the attendance Overnight stays in the City have increased by +5.4% with respect to 2018. As occurred in Madrid, demand has been with an increase of +6.4% in international visitors, who accounted for 56% of the total. strongly driven by international overnights that have increased by +7.5% in 2019, consolidating Barcelona as the eminently international destination where 88.1% of total overnight corresponded to foreign travellers. On the contrary, national demand has been reduced by some -5.9%, representing only 11.9% of the stays. In addition, during 2019 Madrid has had the opportunity to show its strength in organizing large events, as it held the Champions League Final and the Climate Summit which was organized just 32 days after Chile’s rejection, in which Although the City has had a good year as far as tourism is concerned, Barcelona has been losing its appeal as over 25,000 attendees from 200 countries participated. a business tourism destination in 2019, falling behind some positions in the main rankings of the most popular destinations for hosting this type of events.

TRAVELLERS 2014 - 2019 OVERNIGHTS 2014 - 2019 TRAVELLERS 2014 - 2019 OVERNIGHTS 2014 - 2019 (millions) (millions) (millions) (millions) 25.0 22.0 10.5 9.0 8.5 +26,5% 20.0 11.9% +17,7% 9.9 20.0 8.5 10.0 8.1 13.3% 9.7 14.6% 8.0 18.0 15.2% 9.4 36.6% 7.7 15.2% 9.5 39.3% 38.9% 7.5 15.0 15.4% 9.1 43.6% 41.8% 7.5 16.0 8.9 45.3% 7.1 9.0 88.1% 7.0 6.7 14.0 86.4% 10.0 84.8% 85.2% 8.4 84.8% 8.5 61.1% 63.4% 84.6% 58.2% 60.7% 6.5 12.0 54.7% 56.4% 8.0 5.0 6.0 10.0 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Average Stay 2,0 2,0 2,0 2,1 2,0 2,1 Average stay 2,6 2,6 2,6 2,6 2,5 2,5 International Domestic International Domestic Travelers Travelers Source: compiled by the author with data from the Spanish National Statistics Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Institute (INE) Source: compiled by the author with data from the Spanish National Statistics Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Institute (INE) 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDAIRPORT BARCELONAAIRPORT

Madrid Barajas Adolfo Suárez Airport has positioned PASSENGERS - ADOLFO SUÁREZ MADRID BARAJAS Barcelona – El Prat Airport has peaked in terms of PASSENGERS - BARCELONA EL PRAT AIRPORT itself as the 5th European airport, reaching the record AIRPORT (2014 -2019) passengers during 2019, reaching 52.7 million visitors, (2014 -2019) of 61.7 million passengers in 2019 (+6.6% vs. 2018). accounting for a +5.0% increase over the previous year. 2019 61.7 Looking ahead, the acquisition of by IAG in 2019 52.7 December 2019, along with all refurbishments works 2018 57.9 2018 50.2 carried out in the airport to increase its capacity from 2017 53.4 its current 70 million of passengers to 80 million, 2017 47.3 will foreseeably position Madrid as one of the main 2016 50.4 2016 44.2 European hubs directly competing with airports such 2015 46.8 as Charles de Gaulle or Heathrow. 2015 39.7 2014 41.8 2014 37.6

- 10 20 30 40 50 60 70 - 10 20 30 40 50 60 70

Source: AENA Source: AENA 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDSUPPLY BARCELONASUPPLY

Hotel supply in Madrid has increased by +1.6% in 2019 in terms of available hotel beds, reaching 89,252 units.

Madrid 2014 2015 2016 2017 2018 2019 CAGR 2014-19 # Beds 82,432 82,065 82,710 84,756 87,123 89,252 1.6% % anual var. -0.1% -0.4% 0.8% 2.5% 2.8% 2.4% - Hotel supply in Barcelona grew by +3.0% in 2019 in terms of available hotel beds, reaching some 83,849 units. # Hotels 891 836 780 827 850 922 0.7% % anual var. 0.0% -6.2% -6.7% 6.0% 2.8% 8.5% - Barcelona 2014 2015 2016 2017 2018 2019 CAGR 2014-19 # Beds 73,906 75,056 76,703 79,239 81,417 83,849 2.6% Source: compiled by the author with data from the Spanish National Statistics Institute (INE) % anual var. 1.0% 1.6% 2.2% 3.3% 2.7% 3.0% - In 2019 most hotel beds in Madrid corresponded to 4* hotels (64.7%) while the 3* segment accounted for 15.5% of # Hotels 591 652 672 673 678 708 3.7% the total. The 5* and 5* Luxury establishments in the City represented only 14.1%. Nevertheless, out of the 1,868 new % anual var. 0.3% 10.3% 3.1% 0.1% 0.7% 4.4% - rooms in pipeline for the next few years, 48.2% will belong to these last two categories. Source: compiled by the author with data from the Spanish National Statistics Institute (INE)

CATEGORIES 2019 (% beds) ONGOING PROJECTS CATEGORIES As occured in Madrid, during 2019 the majority of beds in Barcelona corresponded to 4* hotels (54.5%). The 3* (% beds) segment accounted for 21.6% of the supply and the 5* and 5* Luxury hotels reached a slightly higher market share of 16.2%. The higher availability of beds in the upper hotel categories in Barcelona, along with the 2017 Special City 1.2% Development Plan for Tourist Accommodation (Plan Especial de Urbanismo de Alojamiento Turístico, PEUAT) which 5.7% 7.0% 2.6% 13.0% 11.9% require hotels to open in areas where there is less demand for these categories, entails that the majority of the new 15.5% hotels in pipeline will fall under the 4* segment (56.4%).

CATEGORIES 2019 (% beds) ONGOING PROJECTS CATEGORIES (% beds) 36.3%

42.2% 7.7% 5.1% 11.1% 18.6% 14.8% 64.7% 21.6% 5* GL 5* 4* 3* 1* y 2* 5* GL 5* 4* 3* 1* y 2* 10.2%

Source: compiled by the author with data from the Spanish National Statistics Source: compiled by the author Institute (INE) Hotel supply in Madrid remained stable over several years, until 2017 when it began its growth phase justified by an increase in international hotel chains with no previous presence in the City. 54.4% 56.4%

This interest in Madrid will continue in 2020 and 2021 with establishments already planned for forthcoming years. 5* GL 5* 4* 3* 1* y 2* 5* GL 5* 4* 3* 1* y 2*

Nevertheless, from 2021 onwards, a reduction in the growth of hotel supply located in the City centeris expected as Fuente: elaboración propia con datos del Insituto Nacional de Estadística (INE) Fuente: elaboración propia a result of the approval of the Special Plan for the Regulation of Tertiary Services of Accommodation (PEH) in March 2019. This regulation has a double goal: on the one hand, to preserve the residential use in the central areas of City The number of hotel beds in Barcelona grew more evenly than in Madrid over the last years due to PEUAT. Likewise, and; on the other hand, to extend hotel supply to new areas within the City. The Special Plan, limits the obtention of the regulation resulted in the decentralisation of the tourist supply towards more peripheral areas, such as licenses to change the use of residential properties to tourist accomodations in the city centre. or Sant Adriá de Besós, where the new projects are being developed. 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDNEW BRANDS BARCELONANEW BRANDS 6

8 2019 Openings 2019 Openings 2020 Openings 2020 Openings Upcoming Openings Upcoming Openings 3 5

AVENIDA DIAGONAL

4 4 14 1 12

PASEO DE LA CASTELLANA GRAN VÍA 13 8 17 7 16 9 11 2 1 3 6 15 GRAN VIA DE LES5 CORTS CATALANES

18 10 2

RONDA LITORAL 7 PRADO DEL PASEO M-30

LUXURY UPPER-UPSCALE UPSCALE MIDSCALE-ECONOMY LUXURY UPPER-UPSCALE UPSCALE MIDSCALE-ECONOMY

1 5 12 18 1 2 5 7

2 6 13

3 6 8 3 7 14

4 8 15 4

9 16

10 17

11 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDKPI’S BARCELONAKPI’S

The positive trend recorded in Madrid in terms of demand, linked to the supply increase in the upper hotel categories hotels resulted in a positive evolution of the hotels’ performance and profitability indicators. In 2019 ADR reached € 103.7 (+8.4% vs. 2018) with and average occupancy of 77.9% (+1.1 p.p. vs. 2018), resulting in a RevPar of € 80.8 Similarly to Madrid, Barcelona had a very positive year in terms of hotel KPIs, showing a quick recovery after two (+9.9% vs. 2018). difficult years. Likewise, the moratorium on the construction of new hotels has contributed to improving hotel performance in the city centre over the last few years. Although ADR levels recorded in Madrid surpass the average ADR of all Spanish urban destinations (€ 98.8), it is still below the main European capital cities. In the ADR ranking of national urban destinations, the City hits 4th In 2019 ADR reached € 134.2 (+6.9% vs. 2018) with an average occupancy of 81.0% (+2.2 p.p. vs. 2018). place behind San Sebastián (€ 140.6), Barcelona (€ 134.2) and Palma de (€ 110.0). Occupancy levels have Barcelona’s ADR rankedsecond amongst all national urban destinations behind San Sebastián (€ 140.6). remained stable during recent years and in 2019, with a slight accumulated growth since 2015. Occupancy levels have risen slightly, reaching a new record after experiencing a slight decrease in 2017 and 2018. RevPar for all categories has recorded a significant increase in 2019, mainly driven by the rise in ADR. Considering the above, the growth of City’s RevPar accounted for the most positive of all Spanish cities in 2019.

160 80% 140 77.9% 76.8% 160 82% 75.6% 134.2 81.0% 120 75% 140 128.2 80% 103.7 120.8 125.5 95.8 117.6 79.4% 79.2% 72.9% 95.7 120 109.6 78.8% 108.9 100 86.8 101.5 78% 79.2 83.1 71.8% 80.8 77.5% 95.9 98.9 72.4 73.5 100 91.1 80 70% 80.7 76% 59.7 63.3 52.9 80 60 74% 66.8% 60 73.6% 40 65% 72% 40 20 20 70% 0 60% 0 68% 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

ADR RevPar Occupancy ADR RevPar Occupancy

Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Source: compiled by the author with data from the Spanish National Statistics Institute (INE)

Regarding the evolution of the main figures per categories during 2019, the 3* establishments have ended the year Focusing on the evolution of the different hotel categories’ RevPar during 2019, it is noteworthy to mention that they with a very positive performance. Their RevPar has grown by +17.9%, representing the category with the highest have all recorded a similar increase ranging between +9.2% and +9.7€, compared to 2018. Nevertheless, while 3* increase in both ADR and occupancy. establishments have been increasing their RevPar due to a strong ADR growth, in contrast to a slight occupancy decrease, the 4* and 5* hotels have performed positively given the increase of both occupancy and ADR. 4* hotels have continued with their stable growth trend in 2019, reaching a RevPar of € 82.5.

Finally, it should be noted that indicators for 5* establishments, after being somewhat negative in 2018, have re- emerged, increasing average prices and occupancies. In this sense, RevPar rose to € 194.2, resulting from new openings such as the Bless Hotel, the Hyatt Regency or the Pestana Plaza Mayor. 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDKPI’S BARCELONAKPI’S

ADR 2014 2015 2016 2017 2018 2019 CAGR 2014-19 ADR 2014 2015 2016 2017 2018 2019 CAGR 2014-19 5-star 161.2 173.9 172.7 184.8 178.6 194.2 3.8% 5-star 219.4 243.6 255.8 267.5 266.9 275.0 4.6% % annual 4.2% 7.9% -0.7% 7.0% -3.4% 8.7% % annual 2.3% 11.0% 5.0% 4.6% -0.2% 3.0% 4-star 81.3 85.4 88 96.4 98.8 105.4 5.3% 4-star 110.2 118.6 124.5 130.9 125.2 132.8 3.8% % annual var. 2.9% 5.0% 3.0% 9.5% 2.5% 6.7% % annual var. 0.5% 7.6% 5.0% 5.1% -4.4% 6.1% 3-star 64.1 68.4 73.8 84.5 87.7 96.7 8.6% 3-star 84.3 89.1 88.7 102.4 98.2 108.4 5.2% % annual var. -10.3% 6.7% 7.9% 14.5% 3.8% 10.3% % annual var. -3.2% 5.7% -0.4% 15.4% -4.1% 10.4% Average 102.2 109.2 111.5 121.9 121.7 132.1 5.3% Average 138.0 150.4 156.3 166.9 163.4 172.1 4.5% % annual var. 0.5% 6.9% 2.1% 9.3% -0.2% 8.5% % annual var. 0.7% 9.0% 3.9% 6.8% -2.1% 5.3%

Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Source: compiled by the author with data from the Spanish National Statistics Institute (INE)

Occupancy 2014 2015 2016 2017 2018 2019 CAGR 2014-19 Occupancy 2014 2015 2016 2017 2018 2019 CAGR 2014-19 5-star 66.2% 68.5% 66.4% 69.7% 69.2% 70.6% 4,4p.p. 5-star 71.9% 73.3% 72.0% 71.0% 66.0% 70.2% -1.7p.p. % annual 7.4p.p. 2.3p.p. -2.1p.p. 3.3p.p. -0.5p.p. 1.4p.p. % annual -1.6p.p. 1.4p.p. -1.3p.p. -1.0p.p. -5.0p.p. 4.2p.p. 4-star 67.8% 72.4% 74.0% 76.1% 77.2% 78.3% 10,5p.p. 4-star 75.6% 77.9% 79.8% 78.8% 79.8% 82.5% 6.9p.p. % annual var. 5.0p.p. 4.6p.p. 1.6p.p. 2.1p.p. 1.1p.p. 1.1p.p. % annual var. 0.6p.p. 2.3p.p. 1.9p.p. -1.0p.p. 1.0p.p. 2.7p.p. 3-star 72.4% 74.3% 75.1% 78.6% 76.5% 81.9% 9,5p.p. 3-star 77.0% 82.1% 83.2% 83.8% 84.4% 83.5% 6.5p.p. % annual var. 4.8p.p. 1.9p.p. 0.8p.p. 3.5p.p. -2.1p.p. 5.4p.p. % annual var. -0.1p.p. 5.1p.p. 1.1p.p. 0.6p.p. 0.6p.p. -0.9p.p. Average 68.8% 71.7% 71.8% 74.8% 74.3% 76.9% 8,1p.p. Average 74.8% 77.8% 78.3% 77.9% 76.7% 78.7% 3.9p.p. % annual var. 5.7p.p. 2.9p.p. 0.1p.p. 3.0p.p. -0.5p.p. 2.6p.p. % annual var. -0.4p.p. 2.9p.p. 0.6p.p. -0.5p.p. -1.1p.p. 2.0p.p.

Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Source: compiled by the author with data from the Spanish National Statistics Institute (INE)

RevPar 2014 2015 2016 2017 2018 2019 CAGR 2014-19 RevPar 2014 2015 2016 2017 2018 2019 CAGR 2014-19 5-star 106,7 119,1 114,7 128,7 123,6 137,2 5,2% 5-star 157.7 178.6 184.2 189.9 176.1 193.1 4.1% % annual var. 17,3% 11,6% -3,7% 12,2% -4,0% 11,0% % annual var. 0.1% 13.2% 3.1% 3.1% -7.3% 9.7% 4-star 55,1 61,9 65,2 73,4 76,3 82,5 8,4% 4-star 83.3 92.4 99.4 103.1 99.9 109.7 5.7% % annual var. 11,1% 12,3% 5,3% 12,6% 4,0% 8,1% % annual var. 1.3% 10.9% 7.5% 3.8% -3.2% 9.8% 3-star 46,4 50,8 55,4 66,4 67,1 79,1 11,3% 3-star 64.9 73.2 73.8 85.8 82.9 90.5 6.9% % annual var. -4,1% 9,5% 9,1% 19,9% 1,1% 17,9% % annual var. -3.3% 12.7% 0.9% 16.3% -3.4% 9.2% Average 69,4 77,3 78,4 89,5 89,0 99,6 7,5% Average 102.0 114.7 119.1 126.3 119.6 131.1 5.1% % annual var. 10,2% 11,3% 1,5% 14,1% -0,6% 11,9% % annual var. -0.3% 12.5% 3.8% 6.0% -5.3% 9.6%

Source: compiled by the author with data from the Spanish National Statistics Institute (INE) Source: compiled by the author with data from the Spanish National Statistics Institute (INE) 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDINVESTMENT BARCELONAINVESTMENT Madrid closed 2019 with a total investment of € 454.5M, representing 18% of national investment and exceeding by Barcelona has reached some € 246.7M in hotel investment during 2019, a very similar figure to the registered one in 85% (€ 246.7M) the figure registered in Barcelona. 2018, representing 9.8% of total investment in the sector in Spain.

Madrid 2014 2015 2016 2017 2018 2019 Barcelona 2014 2015 2016 2017 2018 2019 Investment (millions €) 224.3 637.0 573.4 636.8 632.0 454.5 Investment (millions €) 331.7 416.3 299.1 532.7 249.4 245.7 34.9% 184.1% -10.0% 11.1% -0.8% -28.1% -14.0% 25.5% -28.1% 78.1% -53.2% -1.5% Average (€/room) 128,669 202,442 103,802 300,276 227,828 224,205 Average (€/room) 202,218 211,791 89,455 157,244 231,851 158,178 -33.2% 57.3% -48.7% 189.3% -24.1% -1.6% 29.3% 4.7% -57.8% 75.8% 47.4% -31.8%

Source: compiled by the author Source: compiled by the author

Over the last years, the hotel investment in the Capital was higher than in 2019. Nevertheless, during this year the Over the last years, Barcelona has recorded lower levels of investment than Madrid, and than the one that should be amount has been reduced by -28.1% due to, amongst other, the restrictions to hotel supply growth introduced by the expected for a city with such a touristic potential as Barcelona due to the previous limitation to hotel supply growth Special Plan for the Regulation of Tertiary Services of Accommodation (PEH), and the increase of the owners’ asking as per the moratorium of 2015 and PEUAT of 2017 and to the socio-political tensions experienced in previous years. price. Notwithstanding, the continues to be a target for hotel investors.

The City concentrated 19 hotel transactions, among which stood out 1) the acquisition by the Milenium REIT of the Barcelona recorded 8 transactions in 2019, amongst which 1) the acquisition of The Gates Hotel Diagonal stands building that will house the future W Madrid for an amount of € 82M; and 2) the acquisition of the Aloft Madrid Gran out, which had been acquired less than 2 years ago by an investment consortium led by Benson Elliot, by Ennismore Vía Hotel, inaugurated in 2019, by Henderson Park for a price of € 58M. (owner of The Hoxton chain), and 2) the land acquired by ASG Sant Adrià de Besòs to develop the future 5* Hard Rock Hotel Barcelona comprising 504 rooms. Madrid (million €) 2014 2015 2016 2017 2018 2019 Barcelona (millIon €) 2014 2015 2016 2017 2018 2019 Assets 154.6 384.0 385.2 581.2 294.2 397.2 Assets 331.7 250.0 164.3 443.8 106.1 240.7 Portfolio 69.7 253.0 188.2 55.6 337.9 57.3 Portfolio - 166.2 134.8 88.9 143.3 5.0 Total 224.3 637.0 573.4 636.8 632.0 454.5 Total 331.7 416.3 299.1 532.7 249.4 245.7 % o/total assets 68.9% 60.3% 67.2% 91.3% 46.5% 87.4% % o/total assets 100.0% 60.1% 54.9% 83.3% 42.5% 98.0% %o/total portfolio 31.1% 39.7% 32.8% 8.7% 53.5% 12.6% %o/total portfolio 0.0% 39.9% 45.1% 16.7% 57.5% 2.0%

Source: compiled by the author Source: compiled by the author In contrast to previous years, when portfolio transactions were the main focus of investment activity in the Capital, during 2019 only 12.6% of the amount transacted belonged to this type of operations, while the greater part of the Similarly to Madrid, Barcelona has experienced a changing trend in terms of transaction typology with respect to investment was allocated to single assets. previous years. In 2019, only 2.0% of total hotel investment was allocated to portfolio transactions. 5 Keys: Madrid vs. Barcelona | June 2020 5 Keys: Madrid vs. Barcelona | June 2020

MADRIDINVESTMENT IN REFURBISHMENT BARCELONAINVESTMENT IN REFURBISHMENT The refurbishment trend and hotel supply increase continues in the City with an investment of € 381.6M in 2019. The After 4 years of positive evolution in hotel refurbishment investment in Barcelona, 2019 registered a decline of average amount invested per room has also increased, reaching some € 75,000. This is due to the fact that in 2019 -49.4% compared to 2018, with € 153.1M invested and a decrease in the average investment per room down to 75.7% of the investment has resulted in new construction projects and changes of use, being the most expensive € 38,500. As in Madrid, the investment in new hotel construction predominates, accumulating 70.8% of total works, vs. partial refurbishments and/or specific actions. investment. INVESTMENT IN REFURBISHMENTS (2015-2019) TYPE OF REFURBISHMENTS 2019 INVESTMENT IN REFURBISHMENTS (2015-2019) TYPE OF REFURBISHMENTS 2019 (millions) (millIons) 0.8% 3.2% 0.4% 400 381.6 350 23.8% 20.7% 302.5 350 300 300 250 215.1 250 233.5 200 4.7% 200 153.1 157.9 75.0K€/room 150 76.8K€/room 150 100 75.8 57.2K€/room 90.5 65.1K€/room 100 66.7 38.5K€/room 70.8% 42.9K€/room 75.7% 50 26.7 50 29.3K€/room 34.5K€/room 45.5K€/room - 25.9K€/room New construction Integral reform - New construction Integral reform 2015 2016 2017 2018 2019 Partial reform Punctual performance 2015 2016 2017 2018 2019 Partial reform Punctual performance Source: compiled by the author Source: compiled by the author Source: compiled by the author Source: compiled by the author OUTLOOK

2020 started as another splendid year for hotel industry in Madrid and Barcelona. Until February, the main indicators From our point of view, the main potential risk for both markets is a possible price war between hotel operators as a analysed in this report pointed out that after years of growth, 2020 would consolidate the cycle. measure to capture the maximum amount of a very limited demand that will probably exist in the forthcoming months.

Nevertheless, the outburst of the COVID-19 pandemic in March has changed the behaviour and forecasts of the sector History shows that while demand recovery is accomplished (during the last 35 years, except for2003 -SARS and the for this and, possibly, forthcoming years. Iraq War - and in 2009 - the begging of the financial crisis-, the number of international tourists has been increasing), the average price shows a much lower recovery capacity. From the perspective of investment, 2020 will be a notable Demand has been the first victim in both destinations. While Madrid, in February, evolved positively and Barcelona setback in the record investment trend of the last 5 years. suffered from a slight decrease compared to 2019, in March, with the declaration of the state of alarm and closure of the borders, the influx of tourists suffered a significant decline in both destinations that continues as of today. Though there is a lot of available liquidity in the market managed by funds and institutional investors, the extraordinary crisis impact and uncertainty about its medium – term consequences, place the majority of the As a result of the drop in demand and the different measures adopted by the Government, mainly the hotel closure, all investors and creditors in “wait & see” attitute. In this sense, it is hard to predict when the investors’ appetite will the indicators of the sector have been seriously affected. revive but it is likely it will remain lethargic during the rest of 2020.

As of the date of this report and after two months of crisis, it is still complicated to envisage the date in which Notwithstanding, we believe that the huge volatility shown by main global stock markets will reinforce the appeal of the establishments of Madrid and Barcelona will be able to recover operating performance levels similar to those real estate as shelter assets in the medium term, and within this, the urban hotel segment located in main tourism registered in 2019. capitals such Madrid and Barcelona,. The coming months will telL...

If we consider other health crisis (SARS, MERS, Zika, etc.) we can acknowledge that all of them produced relatively short declines in the sector, followed by a quick recovery. Nevertheless, as the weeks go by, it seems to be obvious that the current crisis surpasses any of the previous ones in dimensions and adopted measures (especially those that affect tourism directly such as border closures or travel restrictions within the national territory) as well as in its impact on the global economy.

Regarding Madrid and Barcelona, we anticipate the following effects:

Given the good positioning of both Cities as international tourist destinations, and more favourably for those hotels located close to the main tourist routes, they will benefit from the recovery of the individual urban tourism. However, it will depend on the of air connectivity

The recovery pace of both Cities will be different and gradual. Despite Madrid being the main national pandemic focus and one of the most affected internationally, the higher dependence on national tourism suggests it will recover immediately. On the contrary, domestic overnights in Barcelona have been decreasing annually since 2017, foreseeably hampering its return to normality.

In this sense, the recovery of international tourism will not only depend on the opening of our airports and borders but also on the recovery of traveller’s confidence in Spain as a tourist destination.

As far as the business demand is concerned, the entry in recession of literally all worldwide economies will lead to decline of this demand niche. In this sense, we consider that Madrid, due to its major focus on the business segment as the headquarters of main multinational companies with presence in Spain, will be more affected than Barcelona.

Corporate and group tourism will most likely to be the last ones to reach pre-crisis levels. This situation will affect both destinations since they are recognized as main international Cities hosting events. EXPERTS

HOTELS

Miguel Vázquez Laura Hernando Managing Director Managing Director +34 91 579 84 00 +34 91 579 84 00 [email protected] [email protected]

Gonzalo Gutiérrez Alicia Saiz Director Senior Analyst +34 91 579 84 00 +34 91 579 84 00 [email protected] [email protected]

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