Spain's crackdown on holiday rentals bodes well for luxury hotels

Spain's crackdown on holiday rentals bodes well for luxury hotels

By Joan Faus and Corina Pons

Spanish authorities are encouraging the expansion of luxury hotels as they crack down on a surge in holiday rentals that has triggered anti-tourism protests in places like Barcelona or the Canary Islands.

The hotel sector has faced local restrictions on expanding but is now seen as a beacon for the high-end tourism officials seek to lure.

Spain is the world's second-most visited country after France and estimates point to a record of around 95 million visitors this year, or double Spain's population.

Local people have staged protests this summer blaming booming short-term holiday lets for soaring costs of housing and overcrammed city streets, prompting a thorny debate about how to limit one of the economy's main drivers.

Barcelona - the Spanish city most visited by foreigners - and Tenerife in the Canary Islands announced earlier this year a ban and stricter rules on tourist apartments, respectively, aiming to sharply reduce supply.

Although Barcelona will keep its ban on building new hotels downtown, existing establishments can upgrade their classification, and it will support a plan to open 5,000 new hotel beds in other areas while it shuts all of its 10,000 tourist apartments by 2028, Mayor Jaume Collboni told Reuters.

"We can do little about demand, but we can act on supply," he said.

To better attract "quality tourism", he wants to reduce overcrowding and prioritise culture-and gastronomy-driven visitors, and international conferences.

Collboni said hotels can guarantee quality and labour rights better than short lets, which have curtailed local people's access to housing. Rents rose 68% and house prices 38% in the past decade.

In Tenerife, authorities plan to add 1,000 beds in new luxury hotels near an area in the island's busy southeast that already has the largest concentration of five-star hotels in Europe.

"We want to compete not as a low-price destination, but as a quality destination," said local tourism chief Lope Alfonso.

INVESTMENT HOTS UP

Timing appears favourable. Spain has surpassed Britain as Europe's top market for hotel investment, particularly upscale, a recent survey by real estate group CBRE showed. Madrid ranked second and Barcelona sixth among the top 10 European cities.

Investors are also buying old hotels to convert them into luxury hotels, with four- and five-star establishments up 4.5% and 2.5% year-on-year to July in Spain. Hotel prices rose 7.18% year-on-year in June, outpacing inflation and last year's increase.

"The luxury and lifestyle segments have great potential for growth in Spain," said Manuel Melenchon, managing director of Hyatt Hotels for Europe, Africa and the Middle East.

The U.S.-based group aims to have "many more" than its current 50 hotels in Spain, he said, at a time of increasing arrivals of American tourists.

A five-star Grand Hyatt opened in Barcelona this year and two hotels will open in Mallorca and Tenerife later this year.

"The commitment to quality is a positive and necessary step to change (Spain's) tourism model," said Gabriel Escarrer, chief executive of Melia, Spain's largest hotel group, adding that Melia will continue betting on the high-end segment, which represents 63% of its portfolio and has boosted revenues.

In recent years, Madrid has positioned itself as a luxury destination thanks to new five-star hotels, and the approach appears to be paying off: in July, tourists spent a daily average of 317 euros ($350), well above the national average of 195 euros and higher than Catalonia's 220 euros.

Barcelona's new push to attract high spenders is also making inroads. It ranked second in hotel investments, worth 285 million euros, in Spain in January-June, behind the Balearic Islands, according to CBRE. Barcelona's five-star hotels received 36% of the funds, above Spain's average of 30%.

RISKY BET?

Still, the bet could be risky because most tourists usually seek affordable holidays in Spain, partly fuelled by a vast offer of low-cost flights. And while demand for hotels rose 9.5% in January-July, for tourist apartments it did by 27%.

Perception matters too. Protesters spraying tourists in Barcelona with water guns in July and making global headlines "do not help at all in promoting a city of quality," complained Mateu Hernandez, head of Barcelona's tourism consortium.

As the America's Cup sailing competition kicked off in Barcelona on Aug. 22, his firm ran full-page ads in newspapers abroad describing Barcelona as "welcoming by nature". The event represents the "high-quality offer" the city seeks rather than being a popular destination for drunken stag parties, he said.

But many people question the benefits of high-end tourism that tends to drive up prices. A rally against the "Cup of the rich" and its impact on the city is scheduled for Sept. 7.

In Tenerife, Alfonso Boullon, who leads a protest against a beachside hotel project, said incomes remain low in towns with luxury hotels: "Tourism is not benefiting residents".