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Madrid, a bullish stand to the crisis

As many cities in Spain, Madrid had to cope with the severe economic and financial crisis, mainly due to excessive speculation in real estate. However, the city of Movida didn’t give up its fighting spirit and is counting on its popularity as a cultural centre and a business travel destination to move the trend back up. The choice of Las Vegas Sands to develop its EuroVegas concept next to Madrid is a good sign of its attractiveness.

Key figures

-* Population: 3.3 million -* Surface Area: 604.3 sq. km -* Number of Hotels: 881 -* Number of Rooms: 34.934 -* Tourism statistics 2011: 8.3 million tourist arrivals and 16.4 million overnight stays -* Primary supply markets: United States, Italy, United Kingdom, France, Germany, Portugal, Japan, NetherlandsSpain’s economic and political capital, Madrid is the largest city on the Iberian Peninsula with a surface area covering over 600 kilometres squared. With 3.3 million inhabitants, it is home to twice as many people as Barcelona and within the European Union is the most populated city second only to Berlin. Situated within the Comunidad de Madrid, Europe’s third biggest agglomeration (behind Greater London and Ile-de-France), the city of Madrid represents almost 12% of Spain’s GDP. Its services sector accounts for almost 85% of all its economic activity and it hosts numerous insurance companies, banks and private equity firms. 24 of the 35 companies listed on Spain’s stock market (IBEX) have their headquarters here and so do many international corporations including the World Tourism Organisation (WTO). Business creation in the Comunidad de Madrid in 2010 was up 8.2%, four times the national average, making it the autonomous community with the most companies created. The agglomeration receives more than 65% of all Spain’s FDI, this increasing by 4.7% in 2010 following a 37% fall in 2009. FDI is not alone to bounce back; Madrid’s tourism industry has been showing signs of recovery since the summer of 2009.Madrid’s tourism industry is fuelled by its sites of interest, which include the Plaza Mayor, Palacio Real, Retiro Park and Cibeles Fountain, as well as Madrid’s international reputation as a cultural hub. With around 350 museums, art galleries, exhibitions and fairs, amongst which are the renowned Prado, Reina Sofía and Thyssen-Bornemisza Museums, the city’s permanent art collection includes Picasso’s Guernica, Velazquez’s Las Meninas, and, Dalí’s Dream Caused by the Flight of a Bee. Madrid’s nightlife, tapas bars and architecture also attract leisure visitors throughout the year. The city’s capacity for hosting business events makes it a popular business destination. Around 4,000 meetings, conventions, incentive trips, trade fairs and other events take place each year in Madrid, attracting hundred thousands of foreign visitors. For these, Madrid has many dedicated facilities including the Feria de Madrid (IFEMA) - one of the largest business venues in Europe with 200,000 square metres of covered exhibition space over 12 pavilions. Last year, 884,260 people attended the 9 congresses, 33 fairs and 442 events that took place here. In the first six months of 2012, 266 events took place, including 12 fairs organised by external bodies and 7 congresses. The Palacio de Congresos in the heart of the city, the Municipal Conference Centre, Campo de las Naciones, and Madrid Arena also provide an excellent venue for congresses, meetings and exhibitions all year around.Madrid’s transport network also makes the city an attractive destination for both business and leisure visitors. It has an extensive public transport network: Madrid’s 293km Metro network system is the world’s sixthand Europe’s second-largest after London’s, having undergone a 22% expansion over the past three years. Madrid is accessible to other major Spanish cities via the seven high-speed train lines (AVE) which connect it to Seville, Barcelona and Valencia amongst others. Madrid’s unique airport, Barajas, last year alone registered 50 million passenger movements. A recent expansion project saw the introduction of a fourth terminal, raising its capacity to 70 million a year and making it Europe’s second largest airport in terms of capacity with direct links to 34 Spanish destinations and 155 around the world. With an average length of stay of 1.96 days, Madrid is still more of a short stay destination, not benefitting, as its rival Barcelona (with an average stay of 2.32 days) does, of a coastline.The general outlook is positive for Ignacio Fernández, Managing Director of the Madrid Visitors & Convention Bureau, who said, “In recent years we have managed to work on breaking with seasonality, increasing the average length of stay and finding the right balance between the number of national and international visitors, as well the proportion of leisure to business travellers”.Madrid experienced a record number of visitors in 2011 2011 saw a record number of people visiting Madrid: 8.3 million, according to Spain’s National Statistics Institute (INE). This is largest in its history and represents a rise of 5.8% relative to the previous year, making it Spain’s fastest-growing city. This reflects in particular an 8% rise in the number of foreign visitors, which reached 4.2, half the total. The number of overnight stays in 2011 reached 16.4 million. In December 2011, at a time when the country as a whole and many other destinations saw a fall in visitor numbers, Madrid welcomed 670,000 tourists or 0.9% more than the same month the previous year. A record number of overnight stays (1.3 million) was observed, representing a rise of 4.4%. The agglomeration of Madrid as a whole showed strong performance in 2011, with 10 million visits to the region and overnight stays almost doubling to 20 million. This could be partly explained by the large number of events - 11,300 in total according to the Madrid Convention Bureau - that took place in the city last year. In particular the triennial Christian event World Youth Day, which took place between the 16th and 21st August, reportedly attracted around 1.5 million visitors. A phenomenon not uninfluenced by the presence of the Pope at the event, which resulted in a rise in RevPAR during this period. According to MKG statistics, RevPAR in August 2011 as a whole was up 41.8% compared with the same period the previous year. Other examples include the EHRA Eurospace Madrid 2011 which attracted a record-breaking 5,600 participants and the Aviation Week MRO Europe Conference and Exhibition which saw the attendance of 3,600 professionals; both of these took place at Ifema. In January this year Ifema also hosted the global travel and tourism trade fair Fitur, which organisers report attracted nearly 211,000 people from all over the world, an increase of two per cent with regards to last year and in particular a 4% rise in the number of foreign visitors. Data from MKG Hospitality nonetheless showed disappointing results for the hotel industry during this period, occupancy rates from the 18th to 23th January 2012 averaging at 63.5%, almost identical to the previous year. A lack of strong demand resulted in fierce competition between hoteliers and consequently a 9.3% drop in average daily rates to 104.40 euros (incl. VAT). As a result, RevPAR was also down by 9.2% to 66.30 euros.A strategic market for the international hotel industryLatest figures from the INE show that in June 2012 the city of Madrid counted with a total of 881 open hotel establishments, that is, 16 more than the same period last year. In total, the number of rooms in Madrid in 2011 according to the INE was 41,600, of which a majority (35,000) are within hotels, aparthotels, and hotel residences. In total the four-star segment offered 22,400 rooms, making it the largest segment in Madrid’s hotel market.International hotel groups have a significant presence in the agglomeration of Madrid, most notably Accor with 23 hotels under its Ibis, Ibis Budget, Ibis Styles, Mercure, Novotel and Pullman brands; IHG with 12 hotels in operation under its Holiday Inn, Holiday Inn Express, and Crowne Plaza brands; Wyndham with 14 Tryp by Wyndham hotels in the Comunidad de Madrid; and Starwood Hotels which recently opened two new hotels, the Sheraton Mirasierra Hotel & Spa and the Sheraton Santa María de El Paular to join its third hotel The Westin Palace, Madrid. Best Western also counts with 7 hotels in the autonomous community. Spanish hotel groups such as Meliá, NH Hotels and Husa Hoteles, leaders in the Spanish hotel industry are naturally also present in the Comunidad de Madrid. Francisco Zinser Cieslik, Chief Strategy and Development Officer for NH hotels, said: “Madrid is a strategic and important market. We have 40 hotels in Madrid representing 5,000 rooms, 25 of these hotels are located in the city centre. We expect 2012 and 2013 to be difficult years, but by 2014 we predict market growth again, and this is very important for Madrid because it is a MICE driver.” Smaller groups such as EcoHotels, which owns 3 hotels in Madrid, are expanding in the city. Hoteles Catalonia recently opened two hotels in Plaza Mayor and Atocha, increasing its portfolio of hotels in Madrid to six. However these smaller local operators suffer from a lack of international recognition and are thus at a disadvantage, US and British tourists being more familiar with the likes of IHG and Hyatt. Independent hotels, in particular, are at a disadvantage, and the further away from the city centre, the more difficult the situation is.Challenges aheadChallenges ahead for Madrid, according to Mr Zinser, include increasing Average Daily Rates, as this plays an important role in hotel performance. MKG statistics in July showed that year-to-date ADR was respectively 47.0, 63.8, and 91.7 euros (excl. VAT) for the Economy, Midscale, and Upscale categories, and 81.1 euros globally. It actually represents a drop of 2.7% with regards to last year. Another issue the city faces is the problem of unregulated travel accommodation. According to the Association Empresarial Hotelera de Madrid (AEHM), this has largely been sparked by the real estate crisis and the existence of empty residences. Based on their estimates, the number of unregulated units of accommodation in Madrid could reach between 2,000 and 3,000, located mainly close to the city centre. Unlike legally-registered tourist apartments, these are residences both compromising consumer safety and welfare and providing unfair competition for the official hotel sector that has to comply with strict regulations and pay fiscal and staff costs. To remedy this, the government is proposing reviewing its Urban Leases Act (Ley de Arrendamientos Urbanos) to include these types of short-term occasional leases. The slump in global business activity resulting from the crisis has to some extent re-established the gap between demand and supply that seemed to be disappearing in the few years leading up to 2008. This was reflected in a fall in occupancy rates from around 75% to below 60%, and the last quarter of 2008 saw a decrease in room revenue of 6.8%. Since, the price war resulted in a fall in average daily rates of 16%. Hotel closures have not been uncommon in the last few years; most recently the three-star Hotel Inglés, Madrid’s oldest hotel having been inaugurated in 1886, closed its doors earlier this year after falling victim of this price war. Madrid finds itself at the heart of a country in which the crisis is far from over, and as part of the new austerity measures the Spanish government has recently introduced a rise in VAT, hoping in this way to increase tax receipts.The reduced rate, which hotel industry benefits from, is up to 10% from 8% and standard rate up to 21% from 18%. Luckily, unpopular plans to change the type of VAT applicable to the industry were not carried out, but nonetheless the increase has made Spain the country with the highest VAT in the tourism industry in the European Union and the Mediterranean, other countries having lowered or kept theirs at around 6%. For these reasons what Madrid needs to focus on doing, according to the Visitors and Convention Bureau, is “reinforcing itself in the eyes of growing international markets such as the US, Germany, Russia, the Middle East and emerging Latin American countries.”A gateway for EuropeFaith seems to have been maintained in Madrid, and this is manifested in the investments that are being planned in the capital. Most remarkably is the EuroVegas hotel and casino project. Tycoon Sheldon Adelson of Las Vegas Sands recently announced the city as his choice location over Barcelona for the €16bn investment, which is expected to be half the size of the famous Las Vegas strip in Nevada. Construction will begin within 6 months and be completed in phases over the next ten years. As part of the development, 12 hotels representing 36,000 rooms and 6 casinos will be built. The project is expected to generate up to 200,000 permanent jobs, and attract a large new wave of European visitors. Commenting on this, Mr Zinser said, “This is very important for Madrid because the city is surrounded by art, culture, and strong roots, very strong traditions; the new project will turn Madrid into a Gateway for Europe.” With regards to hotel developments, the city’s first hotel under IHG’s boutique hotel brand Indigo which is expected to open later this year; Travelodge is to expand its presence in the city with the Travelodge Julián Camarillo, currently under construction and set to open by April 2013, to join the other two hotels the chain operates in the agglomeration, Travelodge Torrelaguna and Travelodge Las Rozas; Accor will inaugurate the Suite Novotel Madrid Valdebebas in 2013; and Camper has stated its intentions to introduce its boutique design hotel brand Casa Camper in the city of Madrid, having already established a hotel in Barcelona.Demand to absorb the new wave of supply will hopefully be generated by the city’s upcoming events. The Mercedes-Benz Fashion Week Madrid, previously known as the Pasarela Cibeles, is a twice-yearly event organised by and taking place at Ifema. In February 2012, 50,263 visitors were present at the event, which hopes to see the same success in 2013. Madrid has also just successfully submitted its bid to host the 2020 Olympic Games which would give Madrid´s hotel industry a boost and increase the city’s global exposure, much like the Olympic Games in 1992 did for Barcelona. Having submitted its candidacy to host the event in 2012 and 2016, 78% of the infrastructures necessary for the Games have already completed or are under construction, making it a strong candidate against Tokyo and Istanbul.

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