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Lisbon: the abundance of wealth might be a nuisance

Lively, cultural, with a rich past, Lisbon has all it takes to attract to attract tourists, if it weren’t for its outlying geographic location. But the Portuguese capital has not yet concretized all the hope that hoteliers could offer it. The abundance of upscale properties weighs on the results of a hotel business with average daily rates well below those of other major cities. And several dynamic Portuguese groups have made Lisbon one of their areas favorite areas for development…

Happy is he who, like Ulysses, has made a long journey… and discovered the undeniable charm of Lisbon, one of the oldest capitals of Europe, loaded with history and multiple influences. Lisbon is powerfully seductive. Chic Chiado, trendy Bairro Alto, Afama the cradle of the fado, the nocturnal Alcantara and Docas on the shores of the Tagus: the neighborhoods of the City of the Seven Hills are all reasons to visit. And the region is very tourist oriented with Sintra, Caiscais and Estoril, it boasts being one of the most important golf destinations worldwide. “Lisbon is increasingly lively with the regular appearance of new artistic events and the opening of boutiques for major brands that flourish on the Avenida de Liberdade,” rejoices Alexandre Solleiro, CEO of Tivoli Hotels & Resorts.But water has since flowed under the bridge of Vasco de Gama – one of the longest in the world – since, according to legend, the Greek hero founded the city. It has preserved the sumptuous traces of its riche past, the Jeronimos Monastery and Belem Tower as figureheads of an era when Portugal left to conquer the world. If the country no longer plays the same strategic role as in the 16th century, Lisbon continues to drive a Portuguese economy that has progressed since it became a member of the European Union. But it must be observed that its dynamism has weakened in recent years and the crisis has not helped any. The year 2010 was marked by the launch of a plan of austerity to attempt to reduce a major deficit and calm important fears of markets discouraged by the Greek example.“In 2011, the economic situation remains uncertain and will partly depend on the reaction of international markets with regard to the budgetary restructuring of the Portuguese government,” explains Pierre Saby, CEO Accor Portugal. This concern is important at a time when Lisbon’s hotels are gradually making progress. “The recovery could be slower in Portugal, but the worst should be behind us,” estimates Alexandre Solleiro. “We sense a return to business since the month of May with progress by 10 to 15 points in occupancy according to hotels and 2010 should be a better year than 2009,” expects Pierre Saby.Highly dependant on international clientele which represent 70% of night stays, properties experienced budgetary constraints full force on the MICE segment, one of the principal suppliers of business to properties, just like the drop in the British tourism market. This clientele is one of the city’s primary markets along with Germany, Italy, France and neighboring Spain – the most important -, which generates 750,000 nights a year versus a volume of 340,000 to 425,000 nights for the others. In 2008, the number of nights dropped beneath the 6 million benchmark. Bur, fortunately, hoteliers are gradually regaining a smile. In recent months the good news has been adding up. For the first semester 2010, several markets post good growth: +2.8% for the British Isles, + 5.0% for Germany, +6.5% for Spain. This significantly makes up for the drop in clientele from France and Belgium. The two primary long-haul markets also regained the road to the Portuguese capital. The American market posts 16.2% growth and, better yet, Brazilians have generated a volume of nights 48.8% higher than the same period in 2009. “It is a very interesting market because of its cultural and linguistic proximity and because it uses Lisbon as a point of entry for Europe,” explains Pierre Saby. Nonetheless, despite these promising figures, hoteliers are affected by the saudade, Portuguese languor, when it comes to analyzing the market overall. Turismo de Lisboa has been observing its change since 1996 and its index shows that the city’s hotel business has dropped back down to its pre ‘98 level, meaning the dawn of the destination’s growth thanks to popularity generated by Expo 98 that as followed by three years of growth. The year 2004 was very productive thanks to the European football championships and the multiplication of low-cost destinations. The latter helped open up the westernmost capital of Europe, but despite that Lisbon remained a market in proportion to that of a peripheral country with just 10 million inhabitants. A disappointing subject for hoteliers: the average daily rate is one of the lowest of all major European cities, at an average of 85.2 euros over the last twelve months. Almost all the best hotels in the city range between 100 and 200 euros on Expedia. This price limit forced the Orient Express to sell Lapa Palace in June 2009 for 30 million euros. “Although Lisbon is one of the key capitals in Europe, it is not a major leisure destination and it does not have enough appeal for our clientele. The city’s RevPAR was pressured by the slack-off of Corporate and Convention travel, which is not our primary market,” explained Paul White, CEO of the luxury group.“The Portuguese hotel industry is traditionally less expensive and Lisbon will always remain an affordable city,” predicts Alexandre Solleiro, “today, we have ORs that are acceptable for continuing to invest in our products. But it is important to be aware that opening new hotels may be risky. All the more so since the city has already been affected by the curse of overcapacity, particularly on the 4-5* segment which represents a share holds the majority of the supply that has 90 hotels for a total of 13,800 rooms to which may be added some 2,750 rooms in 92 pousadas. “The market consists of independent hotels, and is thus not highly structured. This means the average daily rates of the different categories are close to one another – a difference of 20 to 25€ between a 2* and 4* - placing significant pressure on average daily rates, which are 30% lower than in the rest of Europe,” describes Pierre Saby.And yet, several new openings are already scheduled for Lisbon. Nine hotels are forecasted by 2012 for a capacity of 1,300 rooms. These new developments may be credited to – or debited from depending on how you look at it – very active Portuguese groups that incessantly expand their networks. These dynamic players combine with the great names of Portugal’s hotel industry such as Pestana and its prestigious Pestana Palace or Tivoli (see our article zoom), which owns one of the oldest hotels in the city along with the Tivoli Lisboa opened in 1933 and recently renovated. Thus, with 7 properties already in its fold, Sana Hotels will open two 5* including the Sana Amoreiras Royal with 339 rooms to diversify an offer that until now had been positioned on the 3 and 4*. CS Hotels, which began a major country-wide offensive in 2010, will add two 5* with sixty or so rooms in the months to come, the CS Palace Belem and the CS Bairro Alto, to its existing hotel, the CS Vintage.Ollissippo, the buyer of the Lapa Palace whose name evokes its Ulyssean heritage, will also expand its network. In addition to the Ollissippo Rossio that is in the project stages, the group is preparing a high-capacity 347-room hotel, the Olissippo Oceanos Congress Center & Spa, in the Parque de Nações neighborhood, the legacy of Expo 98 that brought the city upscale convention installations although it is still relatively poor in hotels. Finally, the Altis group, which includes the apart-hotel Altis Suites and the design hotel Altis Belem in its supply, awaits the upcoming arrival of the Altis Prime, an urban residence with 78 apartments for business clientele.Most major groups are also present in the city - Four Seasons, Marriott, Starwood with Sheraton, Wyndham in a partnership with Corinthia and that has just gained the two Tryp Hotels by Sol Melia and NH Hoteles. But the international chains are becoming much more discrete with regard to their development. An old sea snake, Hyatt’s arrival with its Regency label remains on the radar of the tourist office, without any specific date. Among the recently announced projects, IHG forecasts the arrival in 2014 of the Hotel Indigo Lisbon Baixa on a converted former convent. This brand will join the two Holiday Inn and two Holiday Inn Express hotels already launched by the group. Particularity: IHG is one of the rare groups to have invested the lower segments of the hotel industry with Accor, which unfurled its brand portfolio with, in greater Lisbon, 6 Ibis, a Mercure, two Novotels and the luxurious Sofitel on Avenida de Liberdade.The French group, leader on the market, is full of ambition for the Portuguese capital and plans to exploit the available space between a plethora of upscale hotels and an economy segment of chains that are not very developed to continue to expand its network. “Our strategy will consist of developing the economy segment with Ibis and Etap Hotel in the long term, but also to implant other brands through the franchise. We remain attentive to eventual possibilities for taking over existing unities. We think there is still potential for Ibis because we have no direct competition on this segment and the brand benefits from its good reputation on the sector. As for Etap Hotel, it is a very well positioned product that should allow us to offer a solution for quality accommodations at a price ranging from 30 to 40€ for a portion of the population for whom more traditional hotels are not necessarily accessible,” insists Pierre Saby. It remains to be understood how the city will absorb this new growth phase. A fine tourism product, Lisbon lacks promotions and the volume of congress activity necessary to play in with the big boys.

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