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Lisbon, the White City regains color

After experiencing a few dark years, Portugal’s economy is rising back up, driven by the country’s tourism industry. Lisbon is at the core of this phenomenon and has been seducing more and more foreign travelers each year who are drawn to the city'sattractive rates and tourism assets. Gradually, as international arrivals continue to rise at the destination, the hotel industry is improving and continues to change.

As the country’s political and economic center, the city of Lisbon fits its title as Portugal’s capital well. The biggest city in the country is also the richest with a GDP higher than the European average. Lisbon contributes to 45% of the GDP. And yet, Portugal’s economy is making a powerful comeback, after being hit hard by the financial crisis in Europe in 2008. Excluded from the financial markets, the country was subject to severe austerity measures within the framework of its financial assistance programme of 78 billion euros designed in 2011 by the International Monetary Fund (FMI) and the European Union. After adopting reforms to improve Portugal’s public finances and two years of recession, Portugal’s economy regained a growth track in the second quarter of 2013. The situation has improved since then, with a drop in unemployment and growth in household consumption. Today, Portugal has officially exited the rescue plan of the IMF and the European Union and after 1% growth in its GDP in 2014, aims for 1.5% in 2015. Nonetheless, the country still has challenges it must face regarding its reform programs and debt burden.
As the engine driving this advancement towards growth, Lisbon has all it takes to continue the trajectory of its growth indicators. While its economy has long been driven by fishing, the services sector is now bigger, with tourism in the lead. Representing 5.8% of the GDP, it was one of the motors behind the economic recovery, with Portugal affirming itself as an attractive destination for travelers from neighboring European countries in recent years.   
Tourism as an anti-crisis remedy

The importance of tourism for Portugal’s economy was particularly evident in 2013, when the sector’s indicators surpassed forecasts. “2013 was a record year in terms of number of tourists and nights in our hotels. It was decisive for Portugal’s economic recovery. Tourism is the sector that has given the most support to the trade balance sheet. Occupancy figures from 2013 are historic, especially since we achieved them within a particularly difficult context,” declared the Minister of the Economy of Portugal, Antonio Pires de Lima, upon the publication of annual results. In particular the sector contributed to reducing the unemployment rate in the country by creating 26,000 jobs.

In this context of economic and touristic recovery, Lisbon is a precursor for Portugal overall. After surpassing the 10 million nights benchmark for the first time in 2013, the destination continued along the same trajectory in 2014. Results from January to October suffice to blow away the previous year’s record. Close to 4.2 million visitors entered the capital on the period, including 2.9 million from abroad, representing 13.2% growth by the total number of tourists at the destination compared to the first ten months of 2013. This growth was driven by 13.5% growth in foreign demand and 12.3% growth in domestic demand The weight of international visitors for tourism in Lisbon is not negligible and represents close to 70% of the city’s occupancy rate, with Spain, France, Brazil, Germany and the United Kingdom’s occupancy rates as the first source markets. Growth in the number of travelers to the city naturally generated increased tourism spending in the capital, which climbed to 594 million euros on the period, or 15% more than during the same period in 2013.

Business and events tourism also holds an important position in the capital’s tourism sector as Lisbon ranks 10th among the European cities for events organization. It has all the necessary equipment with three convention centers: the MEO Arena with a capacity of 12,500, the Centro Culturel de Belèm Conference Center with its 14,000 person capacity, and the Lisbon Congress Center for 2,500. Events equipment and general infrastructures in the city were upgraded when it hosted the 1998 World Exposition.

Lisbon is an attractive destination for both leisure and business travelers where cultural tourism meets beach resort tourism. It is particularly attractive because of its room rates, which dropped significantly due to the economic crisis and are now below those applied in other European capitals. The city is also served by several low-cost airlines such as EasyJet, Vueling, Transavia and Ryanair. Since January 1, 2015, travelers to the Portuguese capital have to add another tourist tax to their travel budget: one euro per person for visitors arriving by plane or boat. Those entering Lisbon by car, bus or train are not subject to it. Government authorities estimate that this new tax should make it possible to reach 7 million euros in financial revenues for the city. To this may be added an additional tax on nights from January 1, 2016, of one euro per day with a maximum of 7 euros per person, excluding children. The two taxes should remain in force until at least 2019 and generate 19 million euros in revenues to cover close to 70% of the city’s tourism expenditures. They could, however, affect the price competitiveness of the destination.
The city of Lisbon plans to allocate the revenue as follows: 7.2 million euros to improve public spaces, 3.1 million to culture, 6 million to urban services and 4.1 million to promote the  destination.

A changing hotel market

At the forefront of tourism development, Lisbon’s hoteliers fully benefit from the growth of arrivals at the destination. Data published by MKG Hospitality clearly shows the rise of sector indicators over the first 11 months of 2014. From January to November, the occupancy rate at properties increased by 4.1 points over the same period in 2013. It settled at 76.2%, enabling 2.4% improvement in the average daily rate to 80.8 euros excluding taxes.  This increase in the two indicators naturally affected the Revenue per available room (RevPAR), which increased by 8.1% to reach 61.4 euros. The region of Lisbon follows the same growth curve with 4.4 points improvement in its occupancy rate (74.1%) and 1.9% growth in its average daily rate (78.8 euros), for 8.3% growth in its RevPAR (58.4 euros).

Backed by these strong indicators and encouraged by growth in tourist arrivals, a change in the city’s hotelscape was undertaken in recent years in order to meet the growing demand. According to data from the Lisbon Convention Bureau, at the end of 2013 Lisbon intramuros had 147 hotels and 16,710 rooms, 22 of which are positioned on the five-star segment (4,319 rooms), 63 on four-star (8,014 rooms), 37 on three-star (3,121 rooms), 22 on two-star (1,177 rooms) and 3 on the one-star (79 rooms). Throughout the region, the supply reached 378 hotels for 32,039 rooms: 39 five-star (5,941 rooms), 114 four-star (13,095 rooms), 123 three-star (9,004 rooms), 92 two-stars (3,782 rooms), and 10 one-star (217 rooms).

With a goal to strengthening the existing supply, four- and five-star hotel projects and youth hostels proliferate. The new supply is taking over former palaces and old municipal buildings in the city. Thus, the Tourist office in the city recently announced the opening of ten new properties in 2014, including four five-stars, five-four stars and one two-star. It also outlined the rise in range and modernization of existing accommodations, underway since 2013 to bolster the supply and meet the increase in demand.  The transformation of the hotel supply in the Portuguese capital and its region will continue in 2015, with eleven new openings currently planned. Most of these will be in the upper categories. International hotel chains have their role in this new panorama, such as the group InterContinental which is finalizing the development of the 139-room Indigo Lisbon Hotel Old Town. The hotel group also recently opened the 70-room Holiday Inn Lisbon Old Town.

After a few bad years, Portugal’s economy is looking up like its European neighbors. Tourism plays an important role in this and strong growth in recent years is good augur for the future, particularly for hotel operators. While international demand beats all records, operators can see their results increase and developers are once again looking at the destination to strengthen the supply of commercial accommodations and absorb the increasing flow of travelers.

Also read:

  • Portugal: tourism returns in 2014 bringing 10 billion for the country's economy
  • Portugal: brooding hoteliers are picking up again

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