Spain is back on the map for hotel investors. The level of transactions will remain strong and in the mid-term, Spain is positioned to become one of Europe's hottest transaction markets in 2006.

"The resort market remains the most liquid segment and we do not anticipate any reason for this to change in the future", said Jordi Frigola, Head of the Spanish office for Jones Lang LaSalle Hotels. "Last year resorts remained the most active area with 36 out of the 41 transactions registered, representing 88% of the total single assets sold. 

There were only five city hotel deals.  The coastal destinations like the Balearics, Canary Islands and the Costa del Sol, which were struggling in the last few years, are now showing signs of recovery. The Costa del Sol still attracts investment into the sector – mainly between Marbella and Sotogrande.

He continued: "The other coastal destinations such as Murcia and Almeria are driven by golf developments which are built to boost the value of the resorts, and given that there are around 150 courses currently under development, we expect considerable growth in this sector."

In Spain, the majority of transactions take place between local and national operators who remain more aggressive and active than international investors. International hotel chains are keen to buy assets in Madrid or Barcelona to expand their presence.

Jordi Frigola, commented: "International players prefer to invest in city markets in prime locations, generally suited for the international hotel chains.  This type of property is scarce and is often sold off market and at a premium price in Spain."

Supply in Madrid and Barcelona has increased over the last few years but growth is currently slowing down as many development projects are delayed or converted into residential stock which offers higher returns.  Secondary and tertiary cities such as Seville, Valencia and Malaga have been experiencing new development for the last three years and some are starting to suffer from over-supply.

Barcelona and Madrid – a tale of two cities

Hotel investors traditionally opt for Barcelona over Madrid but international operators are now looking at the Spanish capital to gain a foothold in the market.  Both of Spain's principal cities are undergoing infrastructure development and appeal to visitors in different ways. 

Madrid has been seen primarily as a business destination but with competitive room rates and promotional efforts - there has been a 13% increase in arrivals, particularly by leisure visitors. The increasing demand and the slowing of new supply has meant that hotel trading results are set to recover this year.

Barcelona still remains one of the most popular destinations in Europe however there was a small decrease in bed nights last year owing to steep hotel prices.  Nevertheless Barcelona remains one of the better performers in the European hotel market and continues to achieve strong room yields.  Conference and exhibition demand may be boosted further by the construction of additional convention facilities in the city.