Welcome news for Madrid.

30th June 2007 (Last Updated June 30th, 2007 18:30)

Hotels in Madrid are thriving. Deloitte's Nina Bruun explains why hoteliers in the Spanish capital are all smiles.

Welcome news for Madrid.

Good things are said to come in threes, and this is certainly the case for hoteliers in Madrid. Firstly, the city is flourishing as a venue for international conferences; secondly, the country’s economy is outpacing the rest of the EU; and thirdly, Madrid-Barajas Airport’s new terminal has doubled passenger capacity.

This combination of factors is good news for Madrid hoteliers, with solid revenue per available room (revPAR) growth over the last year – up 7% to €80 according to the latest data from the HotelBenchmark™ Survey by Deloitte and nearly double the rise over the same period in 2005.

This is in stark contrast to the revPAR declines of 2003 and 2004. Occupancy dropped as low as 64% in the 12 months to March 2005, but is now up to 70%. One of the main reasons for this has been improved business performance, with a number of organisations choosing to locate major conferences and events in the city.

Comparing the seven cities tracked by the Spanish edition of the HotelBenchmark™ Survey, Madrid is only surpassed by Barcelona in terms of absolute revPAR.

Although occupancy levels of both cities are nearly the same, Madrid still achieves lower average room rates than Barcelona. Valencia has seen the highest revPAR growth, benefiting from the lead up to the America’s Cup in June and July. This has helped hoteliers push up average room rates from €65 to €73 in the last year.

CONFERENCE CHOICE

Madrid is now the 19th most popular worldwide conference destination, according to the International Congress and Convention Association (ICCA), and several major events have been held in the city over the last year.

June 2006 was particularly busy, with more than one million people attending the ten-day biennial Madrid International Motor Show.

In the same month there were several medical conferences, as well as the biennial TEM International Municipal Services and Equipment Trade Fair. As a result, Madrid’s hoteliers saw the highest average room rate of the year, €124.

Other key events that boosted numbers during the year included Construtec (construction), Expodental (dentistry) and Veteco (windows). 2007 has already seen a number of trade fairs, including Climatización (air conditioning), Genera (international energy and the environment) and Intersicop (bakery).

While hotel operators are delighted with these new visitors, Madrid’s Tourist Board has plans to widen the city’s appeal still further, focusing on nightlife and cultural attractions to target leisure travellers.

ECONOMIC BOOST

In addition to attracting events to the city, Madrid is benefiting from the strength of the Spanish economy, which grew by 3.9% in 2006 according to the Economist Intelligence Unit (EIU). This was above the EU average of 2.8% and boosted Madrid’s performance as the centre of the country’s commercial activities.

Hotels like the Westin palace Madrid can look forward to even higher profit margins.

However, the EIU expects the pace of Spain’s economic growth to slow to 3% in 2007 and 2.2% in 2008, due to more moderate domestic demand.

Certainly, there are concerns that the 14-year property boom that has put Spain near the top of the euro zone’s growth league (house prices have climbed 180% in the past decade – more than doubling in real terms) is coming to an end.

Inflation rates above the euro area average have also had a negative impact. This is compounded by high levels of personal borrowing, which, according to the Bank of Spain, have climbed to more than 110% of income and left more than half of Spain’s population with difficulties meeting their monthly loan repayments.

Further obstacles may lie ahead, and economists believe that Spain must diversify its economy to avoid over reliance on the construction industry and prevent further slowdown.

Meanwhile, several hotels have opened during the last year, confirming Madrid’s continuing popularity with investors. These include the 158-room Hesperia Emperatriz, the 260-room Husa Paseo del Arte and the 108-room Barcelo Torre Arias, among others.

Several more will open in 2007, including the Express by Holiday Inn Barajas, the Hilton Madrid Airport, the AC Mostoles and the NH Fuenlabrada. This new supply will add more than 600 additional hotel rooms to the market.

A MAJOR HUB

Madrid also has one of the world’s most sophisticated modern airports, with a new €670m terminal having opened at Madrid Barajas in February 2006. This has doubled passenger capacity to 70 million a year, making the airport a major hub for flights between Europe and Latin America.

The new fourth terminal boasts two buildings, two runways and extra shopping and leisure facilities. The airport can now handle 120 aircraft movements an hour, contrasting with 78 previously.

Its design also attracted the attention of the Royal Institute of British Architects, which – in association with the Architects’ Journal – presented the airport with its annual Stirling Prize in October 2006.

Spain’s economy is expected to grow by 3% – ahead of the rest of Europe.

Comparing Madrid’s passenger arrivals with its revPAR growth, it is clear that until mid-2002, the two were evenly matched. However, passenger numbers soon began to recover much quicker than revPAR. With passenger numbers improving, revPAR continued to fall as the city struggled to accommodate the growing influx.

Between 2000 and 2003 some 40 hotels opened in the city, putting pressure on both average room rates and occupancy. This decline was exacerbated not only by the weak global economy at the time but also by visitors using Madrid as a hub on route to other destinations.

Overall, the last year has been a good one for hoteliers in Madrid and the outlook for the rest of 2007 looks promising. Spain’s economy is expected to grow by 3% – ahead of the rest of Europe – and, despite gloomy predictions about house prices, early findings from the HotelBenchmark™ Survey show revPAR to be up almost 10% in the first quarter of 2007.

Even though extra hotel rooms are coming onto the market, expectations are that domestic and international demand for accommodation is to remain strong – reason enough for Madrid’s hoteliers to remain cheerful.