Although Spain was unable to escape the economic and financial crisis in 2013, the first results for 2014 are encouraging and herald a future recovery. Tourism and the hotel industry are thus positioned as the undeniable growth engines, while the sector’s results recently shifted back into the green. The trend is all the more evident in the Canary Islands, since growth in tourism figures in the archipelago are among the best recorded recently in Spain’s autonomous regions. The renewed arrivals in the Canaries are strengthened by other economic and institutional factors that are favorable to launching new hotels in the destination.
- Population: 2,025,951
- Area: 7,492 km²
- Number of hotels: 625 (including 196 corporate chains)
- Number de rooms: 241,052
- Tourist arrivals: 12 million tourists in 2013 (10.5 million foreigners; 1.5 million Spanish)
- Primary supply markets: United Kingdom (30.4%), Germany (21.5%), Nordic Countries (13.9%), Spanish peninsula (12.3%)
Off the coast of Morocco, in the Atlantic Ocean, the Canaries form an archipelago of seven primary islands (Lanzarote, Fuerteventura, Tenerife, Grande Canarie, La Gomera, La Palma and El Hierro) and account for close to 4.6% of Spain's total population. The economy of the autonomous region, which produces 3.9% of the kingdom' GDP (figures from 2013), was strongly impacted by the financial crisis that hit the country in 2008, and then by the sovereign debt crisis that followed. Nationally, the unemployment rate exploded to reach 25.9% in December 2013 and the GDP has been shrinking for several years (-1 .3% in 2013). The austerity measures taken by the government, such as the decrease in civil service salaries or the freeze on retirement pensions, dealt a major blow to household consumption, due to an increased VAT rate, which rose from 18% to 21% in 2012. Their impact was all the stronger in the Canaries, where the average salary is the lowest in Spain (1,395€) and well below the average salary in the country (1,636€). Since the beginning of the crisis in 2008, the GDP in the archipelago shrank by 6% and the unemployment rate is currently higher than 30%.
As the country continues to struggle to recover from the consequences of the crisis on its economy, Mariano Rajoy's government tries to be optimistic about the year to come, while Spain's economy showed 0.4% growth on the first quarter 2014. Across the year, authorities expect to see 1.5% growth and are particularly counting on tourism to support the economic recovery.
Tourism: a pillar of the economic recovery?
Spain is one of the favorite destinations of travelers worldwide. In 2013, the United Kingdom welcomed some 60.6 million international tourists, or 5.6% more than in 2012. Moreover, this fine growth continued in the first quarter 2014, when occupancy rates at the destination grew by 9.6% over the previous year on the same period. These figures make Spain the 3rd most visited destination worldwide. The autonomous regions do not all benefit from these arrivals the same way and the Canaries are the third most visited region in the country, having welcomed close to 10.5 million tourists in 2013, after Catalonia and the Balearic Islands. In terms of spending, the archipelago sticks to the second step on the podium, with a total of 11.6 million euros in tourist revenues on the period, after Catalonia and its 14 million euros. Better still, the archipelago is the destination where tourists spent the most during the first quarter 2014, to reach 3.5 million euros. The sector thus plays an essential role in the economy of the Canaries, representing some 255,000 jobs and 29.6% of the GDP. The weight of tourism increased in recent years due to the drop in productivity of the building and real estate sectors.
Nonetheless, the economic crisis also impacted by the sector. Arrivals to the Canary Islands dropped in 2008, but rebounded since then to regain its levels from the 2000s (11 million arrivals). One of the primary factors of this recovery is linked to the political-social instability of the Maghreb and Near East, following the recent Arab Spring revolution. The situation in Egypt and Tunisia caused many regular tourists to these destinations to head to the Spanish archipelago, where the climate is comparable and the supply is well positioned on the "beach and leisure" market.
While the recovery concerns the entire archipelago, the spread from one island to the next is important. With 3.2 million visitors (or 28% of all visitors to the autonomous region) and 4.4 million visitors (38%), respectively, Gran Canaria and Tenerife have the most arrivals. Lanzarote and Fuerteventura follow with 2 million visitors (17%) and 1.7 million tourists (15%), while the other islands in the archipelago are much less popular with travelers. Coming from around the world, these travelers are also very diverse although the archipelago appears to have its favorites. In fact, the most important share of arrivals is European, with the United Kingdom, Germany, continental Spain and Nordic Countries representing 78% of all visitors according to data from Promotur, a promotional tourism agency in the Canaries that is associated with the local government. According to the agency, the primary assets of the Canary Islands for tourists are the climate/sun (90% of respondents mentioned this factor), tranquility (39%), followed by the beaches (34.1%), and landscapes (20.4%), and the preferred travel packages are flight + all-inclusive hotel (30% of those interviewed) and the flight package + half-board (19.8%). Tourists are generally faithful to the archipelago, and the quota of returning tourists (those traveling to the destination for at least the second time) is 76.1%.
Considering this positive data, the tourism outlook for the Canaries is generally positive for the coming years, as is Spain's outlook overall. While arrivals are up in the summer of 2013, professionals on the sector are expecting new progress for the next season's indicators, and the first figures of the year 2014 are already optimistic for the industry. For the current year, Exceltur thus expects a 1.8% increase in the tourism GDP for Spain and the minister of industry, energy and tourism, José Manuel Soria hopes to see 5% growth in arrivals by the end of the year.
The hotel industry in deep consideration
To meet the strong tourism demand, the supply of commercial accommodations in the Canaries is already well developed. It is important to observe that non-hotel accommodations are gaining ground in the archipelago. Close to 75% (1,176 accommodations according to the local government) of the tourist accommodations supply on the island is considered non-hotel. This supply is concentrated on the economy and midscale segments, and not well represented on the upscale, which concerns only six properties in the entire archipelago.
In terms of tourist accommodations overall, the upscale segment thus mostly consists of hotel properties, which benefit from a certain monopoly on the sector. According to data published by Promotur, the tourism agency for the Canaries, the hotel supply in the archipelago has a total of 625 properties, including 273 positioned on the four and five star segments. On the whole of the hotel supply in the Canaries, corporate chains represent 196 hotels (in 2013) for a total of 56,017 rooms, according to MKG Hospitality's database. The autonomous region thus has the second largest supply in Spain in terms of number of rooms, just after the Baleares. This may be explained by the trend towards major hotel complexes, opened by chains on the different islands in the archipelago, while the Canaries represent only the fifth largest hotel supply in Spain in terms of number of properties. Contrary to other commercial accommodations, the branded hotel industry is better represented on the upscale segment, with 130 properties and more than 40,000 rooms, or 72% of the total supply on the islands. The midscale represents around 25% of the supply with more than 14,000 rooms. Chains are nonetheless not well represented on the economy segment, with just 9 hotels. The market in the Canary Islands naturally draws the attention of Spanish chains, such as Meliá, NH Hotels and Barceló. Nine of the ten biggest Spanish brands (in terms of number of rooms) have at least one hotel at the destination. The major European groups are also well represented there, with five of the ten biggest players on the Old Continent present in the Canaries.
As far as occupancy rates at these hotels is concerned, they are the highest in the Spanish kingdom, with an average of 76.8% on the year 2013, or a 5.4% increase over 2012, far ahead of Catalonia and the Baleares (respectively 69.5% and 66.1%). Nonetheless, despite a developed upscale sector, average daily rates remain among the lowest in Spain, at 53.49€ TTC, which nonetheless represents a 4.2% increase in comparison to 2012. Driven by these two figures, the RevPAR grew by 12.1% to 41.1€, the strongest growth among Spain's autonomous regions in 2013.
Driven by the chain hotel industry, the upscale played an important role in hotel development in the Canaries during the last decade. Between 2000 and 2014, it grew by 162%, with an additional 211,000 rooms during the period, corresponding in particular to the archipelago's desire to improve its range to steer away from its image as a destination for mass tourism. Carlson Rezidor opened its first Radisson Blu in the destination in 2012, while RIU strengthened its presence on the segment in 2013 with the opening of the ClubHotel Riu Gran Canaria. The midscale also follows a growth curve on the period with a 9.6% increase in its supply, for close to 18,000 new rooms. On the other hand, economy categories stagnated or even shrank due to a strong drop in the independent supply and the weak presence of chains on the segment.
After several years of growth, the race for development in the Canaries has nonetheless slowed in the past two years or so. On the period, the offer positioned on the midscale segment fell by 3.8%, with the exit of 10,000 rooms since 2012. This drop was brought followed the entry into force of the Law for the Modernization and Renovation of Hotels in the Canaries, adopted in May 2013. This law limited the building of new properties to the five-star segment, explaining its current importance in the destination's hotelscape, allowing a market upgrade. Any operation concerning categories with four stars or less could only involve the renovation of existing hotels. Nonetheless, last March, the Constitutional Court temporarily suspended this law, making it possible to establish new hotels, across all categories, for a undetermined period. The decision thus represents a new lever for hotel development in the Canary Islands. But recently, the court changed its mind and reinstated the Law for the Modernization and Renovation of hotels in the Canaries. Rehabilitation and upgrade of hotels less than 5 stars is always possible, but new buildings are no longer allowed, except for 5 stars hotels and more. Nevertheless, the subject seems to drive many debates, and new twists could be expected.
Moreover, Spain and the Canaries are experiencing a strong drop in real estate prices since the crisis. In the Canary Islands archipelago, so the price per square meter thus fell below 1,400€ for the first time since 2008. Hotel development is thus less expensive for investors... for now. According to forecasts by experts, the economy of the autonomous region should experience the strongest growth in the country in 2014, by around 1.5% thanks to international tourism, which could rapidly contribute to the rise in real estate prices.
Conditions appear ripe for the launch of new hotel developments in the Canaries, wich will ultimately be favorable to the luxury sector, with the renovation of existing hotels and the ability to build new 5 stars hotels. The Law for the Modernization and Renovation of the Sector helped the luxury segment to make its mark in the destination in recent years and its suspension would represent an opportunity for other hotel segments, particularly the midscale and economy segments where national and international hotel chains are not well represented. The first attempt to suspend this law has failed, but hospitality actors should pay close attention to the proceedings of Canarian Institutions to catch the opportunities for development. Real estate prices are also to be taken into consideration as a factor that encourages new development, whereas tourist arrivals in the archipelago are up and should benefit for a while from the defection of tourists who usually travel to the Near East and the Maghreb. In Spain and the Canaries, more than ever, tourism and the hotel industry can be a lever for economic growth, constituting a welcome remedy in light of the crisis.
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