Madrid joins race for high-spending tourists with bet on five-star hotels

Colliers International

27/06/2023 07:00

By Corina Pons
       MADRID, June 27 (Reuters) - As pandemic travel
restrictions began to ease in the spring of 2021 foreign
tourists returning to Madrid discovered the city's downtown had
undergone a makeover.
    An area better known for its budget hostels, tacky souvenir
shops and car-choked roads now had wider pavements,
pedestrianised zones, and streets that Madrid's town hall says
are safer and cleaner. 
    The facelift was part of the city's plan to attract a string
of five-star hotels as it pushes for a piece of the luxury
tourism sector until now dominated in Europe by Paris, London
and Milan.
    Deluxe hotels are cropping up all over the centre of Spain's
capital. The Four Seasons Hotels Ltd  FSHLEX.UL  opened a hotel
near the central Puerta del Sol after the refurbishment of seven
buildings including a former bank branch. The 1,500 square metre
complex includes a shopping mall for luxury brands including
Dior and Hermes.
    Marriott International  MAR.O  reopened the Santo Mauro
Palace after renovation work during the pandemic and in June
began to revamp the Westin Palace, adding 400 rooms. The nearby
Ritz has recently been upgraded to the luxury Mandarin Oriental
Ritz brand. Universal Music selected Madrid for the launch of
its first five-star hotel.
    "We chose Madrid because it has been underrepresented in the
luxury segment for years," said Richard Brekelmans, Marriott’s
vice president for Southern Europe, citing the city's abundance
of art museums, theatres and restaurants as its main draw.
    Madrid hopes to avoid the saturation seen in Barcelona or
the Balearic islands, while betting that the luxury sector helps
it generate the same income. Barcelona, by contrast, is
restricting the building or expansion of hotels in its centre to
address unmanageable volumes of visitors. 
    Madrid will have more than 2,700 luxury hotel rooms by the
end of 2023, up 50% from a decade ago, according to a report by
commercial real estate services company JLL. 
    The city has 33 new hotels in the pipeline, half of them in
the upscale segment, compared with 13 projects in Barcelona,
consultancy firm Colliers said in another report. Madrid's hotel
investment came to a record 802 million euros in 2022, three
times that of Barcelona, it found.
    "We saw a great potential…in the United States, Madrid was
previously unknown,” said Carlos Erburu, general director of the
first Thompson hotel in Europe for Hyatt Hotels Corp  H.N ,
which opened in Madrid in late 2022. 
    "The commitment the authorities in Madrid have shown for
hotels versus that of Barcelona is much greater."
    
    RISING ROOM RATES
    The arrival of luxury hotels has marked a new peak in room
rates.
    Antonio Catalan, a partner at the Santo Mauro Palace, said
the most expensive room rates there have risen from around 400
euros ($437) a night before the pandemic to 1,200 euros a night
now. Occupancy has remained stable even as room rates rise, half
a dozen hotel managers told Reuters.
    "We still have rates at half of Paris and below Rome,"
Catalan added. Three luxury hotel managers said they expect
prices can increase more in the coming years.
    Restaurant chains are following in their wake.
    Robuchon International, holder of 15 Michelin stars across
its venues, opened a three-floor restaurant in Madrid last year.
    Alejandro Pitashny, an Argentine investor, has opened four
restaurants in the Spanish capital since 2018. He has also
invested in luxury short-rental apartments and is seeking to buy
a hotel this year in the city.
    "I am bullish on Madrid's tourism industry," he said. 
    Wealthy Americans are joining Latin Americans in including
Madrid as part of their European travels, managers said. The
number of U.S. visitors to Spain increased 25% in April compared
with the same month in 2019, official data show. Some managers
are also noticing an increase in the number of Asian visitors.
    The bet on luxury is reflected in expenditure. Foreign
tourists in Madrid spent 336 euros per day in April - twice the
national average.
    "We're seeking to capture the highest-spending international
tourists," said Madrid's tourism director, Luis Martin.
    Airlines are also catching on. Spain's Iberia expanded its
flights to the U.S. and Latin America this summer by 15%
compared with 2019, while Air China  601111.SS  has just
increased flights to Madrid from one to four a week. China
Eastern  SASAHW.UL  will have five flights per week to Madrid
from this month.
    All of this means more jobs. Employment in Madrid's tourism
sector has grown by 15% since 2019, compared with 5.4%
nationally. Most of that growth is in four- and five-star
hotels, said Jose Maria Martinez of trade union CCOO.
    "The Spanish tourism sector has always tried to compete with
other destinations on low prices," he said. 
    "Some companies have worked out that it is better to bet on
more profitable formats."
 ($1 = 0.9160 euros)

 (Reporting by Corina Pons; Additional reporting by Belen
Carreño; Writing by Charlie Devereux; Editing by Hugh Lawson)
 ((Charlie.Devereux@thomsonreuters.com; (34) 683-307-706;))