Hotel Market Trends and Investment Dynamics for North American Audiences
The hospitality sector has been enjoying sweet moments. Data from the National Institute of Statistics indicates that in the first quarter there were over 18 million travelers and 55 million overnight stays, figures that mark a 25% rise compared with the first three months of the previous year. This buoyancy mirrors broader demand patterns across key tourism markets in North America and Europe, where travelers are increasingly choosing longer visits and richer experiences. (INE)
Nevertheless, investor sentiment in the hotel segment has been uneven. A recent CBRE market update shows hotel sales in the first quarter of 2023 at 400 million euros, down 59% from the same period in 2022 and 22% below the five-year quarterly average. This shift signals tighter capital appetites and a more cautious financing environment, a trend that resonates with buyers and developers in Canada and the United States considering cross-border opportunities. (CBRE)
Hotel investment through this period was dominated by institutional funds, which accounted for most of the total trading volume. French investors led the activity with a 61% share, while institutional funds represented 80% of the deal flow. The data highlight the role of large, organized capital in shaping hotel markets, a pattern seen in major gateways that attract cross-border capital. (CBRE)
Between January and March, 12 hotels comprising 1,826 rooms were sold, a far cry from the previous year when 39 properties with 5,475 rooms changed hands. The report notes that institutional funds were the main players, and that European capital played a significant role in the mix. These dynamics are important for North American buyers tracking international hotel cycles and valuation trends. (CBRE)
Why investment levels have declined
The quick response to rising interest rates, which the European Central Bank began pursuing in March 2022, has tightened financing conditions for real estate. Higher rates raise the minimum returns investors require from government bonds and private assets, leading to more conservative pricing and deal structuring. (ECB)
A practical illustration: if a 10-year government bond yields 3.5%, an asset generating around 3% annually becomes less attractive for new buyers, especially if financing costs are higher. In such a climate, a loan at 5% might not support a property with insufficient net income to cover debt service. This psychology helps explain why buyers pause when cap rates rise and property values soften. (Market commentary)
For hotels specifically, 2022 returns were around 4.25% in Madrid and Barcelona and 5.25% along the coast. Since the policy shift, yields have ticked up by about 50 basis points to 4.75% in the two largest cities and 5.75% in coastal zones. If buyers demand higher returns, asset values tend to adjust downward, a move that many North American investors monitor closely when evaluating international portfolios. (CBRE)
Owners often hesitate to cut asking prices when values fall. At the same time, a mismatch between seller price expectations and buyer appetite, compounded by macroeconomic uncertainty, can stall deals and keep capital on the sidelines. Antonio de la Fuente from Colliers notes a possible 20% gap between price hopes and buyer offers observed at industry events. (Colliers)
Major hotel transactions in 2023
In the first quarter, two deals accounted for about 60% of all quarterly hotel investment activity. The acquisition of Hotel Dolce Sitges and Hotel Sofia Barcelona stands out, with AXA Real Estate and Blasson Property Investments fronting a significant purchase by Brookfield from Canada, valued at around 180 million euros. (CBRE)
Perial Asset Management, a French fund, also participated by acquiring Dolce Sitges from Angelo Gordon for roughly 63 million euros. The 263-room complex is slated for management by Grupo Hotusa, following a renegotiation of a contract with Wyndham that delivered a new 6% yield profile. (CBRE)
Tourist demand and the outlook for 2023
Industry forecasters project continued strength in inbound tourism for the year. Braintrust suggests Spain could welcome about 85 million foreign visitors in 2023, with external travelers’ spending rising by about 12% versus 2019 and surpassing the 100 billion euro threshold. This surge supports ongoing hotel occupancy and ADR momentum, important signals for investors watching European markets from North America. (Braintrust)
The sustained tourism boost also shows up in room rates. CBRE notes that ADRs are higher than the pre-pandemic period a year prior, and RevPAR increased by roughly 35% year-over-year. Price leadership in accommodations concentrates in Madrid, Barcelona, and the Canary Islands, underscoring geographic hotspots that attract both leisure and business travelers. (CBRE)