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 European Union (EU); and thirdly, Madrid airport's beautifully designed new terminal has doubled passenger capacity.

The combination of these three factors helped give Madrid hoteliers solid revenue per available (revPAR) growth over the last year up 7.0% to €80 according to latest data from the HotelBenchmark™ Survey by Deloitte.

Hotel performance back on track

The last twelve months have been great for hoteliers in Madrid with revPAR growth nearly doubling compared to the same period the previous year. This is a stark contrast to the two years of revPAR declines in 2003 and 2004. Occupancy dropped as low as 64% in the twelve months to March 2005 but is now back 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 beaten by Barcelona in terms of absolute revPAR as seen in the table below. Although the 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 of any market benefiting from events leading up to the America's Cup which takes place in June and July 2007. This has helped hoteliers push up average room rates from €65 to €73 in the last twelve months.

Conference choice

Madrid is now the 19th most popular worldwide conference destination, according to the International Congress & Convention Association (ICCA), and several major events have been were staged in the city over the last year. June 2006 was particularly busy, with more than one 1m 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 rates of the year, at  €124. Other key events that helped boost numbers during the year included Construtec (construction industry), Expodental (dentistry) and Veteco (windows). 2007 has already seen a number of trade fairs including Climatización (air conditioning), Genera (international energy and environment) and Intersicop (bakery).

While hotel operators are delighted with these extra business visitors, Madrid's Tourist Board has plans to widen the city's appeal still further. It is now focusing on the nightlife and cultural attractions to bring in more leisure travellers.

Economic boost for now

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 European Union average of 2.8% and boosted Madrid's performance as the centre of the country's commercial activities.

However looking ahead, the EIU expects Spain's pace of economic growth to slow to 3% in 2007 and to 2.2% in 2008 driven by more moderate domestic demand. There are concerns that the 14 year property boom that has put Spain near the top of the euro zone's growth league is coming to an end. House prices have climbed 180% in the past decade - more than doubling in real terms.

In addition, inflation rates above the euro area average have also had an impact on the country's loss of competitiveness.This is coupled with high levels of personal borrowing which have climbed to more than 110% of income and left more than half of Spain's population with difficulties meeting their monthly loan repayments - according to the Bank of Spain. With this in mind, economists believe more difficult conditions lie ahead for Spain and that the country must diversify its economy to avoid over-reliance on the construction industry and prevent a further slowdown in the years to come.

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

A major hub

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

This fourth terminal adds two buildings, two runways, extra shopping and leisure facilities. The airport can now handle 120 aircraft movements an hour, up from only 78 previously. Its design has attracted the attention of RIBA, the Royal Institute of British Architects, who – in association with the Architects' Journal – presented the airport with its annual Stirling Prize in October 2006.

Passenger arrivals to Madrid compared to revPAR 2000 - 2006
 
HotelBenchmark™ survey by Deloitte and Aeropuertos Españoles y Navegación Aérea

It is interesting to compare Madrid's passenger arrivals with revPAR growth, as shown in the graph above. Until mid-2002, the two follow the same pattern, but then passenger numbers recover much quicker than revPAR. Whilst passenger numbers recovered, revPAR continued to fall as the city struggled to absorb new supply. Between 2000 and 2003 Madrid saw the opening of some 40 hotels which put pressure on both average room rates and occupancy. This fall was further exacerbated not only by the weak global economy at the time but also by the fact that passengers used Madrid as a hub on their way to other destinations.

Que sera, sera?

Overall, the last year has been a good one for hoteliers in Madrid and the outlook for the rest of 2007 continues to look promising. Spain's economy is expected to grow 3% - ahead of the rest of Europe - and despite gloomy predictions about house prices, early findings from the HotelBenchmark™ Survey show revPAR up almost 10% in the first quarter of 2007 alone. Even though extra hotel rooms are coming onto the market, we expect domestic and international demand for accommodation to stay strong. 

Contact:

Nina Bruun
HotelBenchmark
+44 (0) 20 7007 6138
Email: nbruun@deloitte.co.uk

The HotelBenchmarkT Survey by Deloitte contains the largest independent source of hotel performance data in the world and tracks the performance of over 7,200 hotels and 1.3 million rooms every month. Monthly surveys are produced on the following areas:

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• Twelve country/sub region rate and occupancy surveys for Australia, Benelux, China, Germany, India, Italy, New Zealand, Nordic Countries, Qatar, Southern Africa, Spain and UK.
• Two city rate and occupancy surveys for London and Paris.
• Monthly profitability surveys on Germany and London.
• On an annual basis we produce profitability surveys tracking performance across all regions of the world.
• Daily HotelBenchmarkT tracks rate and occupancy everyday for a number of markets across the Asia, Europe and the Middle East.