Hvs Market Intelligence Report Lisbon 2011 Market Projections For 4 And 5 Star Segments

HVS Global Hospitality Services| Calle Velázquez 119, 5A Madrid 28006 Spainwww.hvs.com

MARKET INTELLIGENCE REPORT LISBON 2011 MARKET PROJECTIONS FOR 4 AND 5 STAR SEGMENTS

AUGUST 2011

Giuliano Gasparini, MRICS Senior Associate

LISBON 2011 – MARKET PROJECTIONS FOR 4 AND 5 STAR SEGMENTS | PAGE 2

Market Intelligence Lisbon This article presents a picture of the Lisbon hotel market up to May 2011 and our view on current tourism and hospitality trends and tendencies for the city.

Summary

The Portuguese economy is forecast to recover slowly in the next three years. 2011 has so far been a difficult year, not helped by a general rate of VAT at 21% from July 2010. Hotels have not escaped from this and faced an increase in VAT for rooms from 5% to 6% and for food and beverage from 12% to 13%.New president elect Pedro Passos Coelho committed to a €78 billion bailout and seems to be willing to pursue all austerity measures necessary to meet the objectives of the pact with the EU.

After two years of decline in visitation following a peak in 2007 of over 2.8 million, figures for 2010 are finally showing an increase in total visitation of 6.1%.

Airport arrivals have increased in 2010 and preliminary figures for May 2011 show this increase is continuing. Cruise ship arrivals have also increased, growing from 212,000 passengers in 2003 to 448,000 in 2010. Preliminary data for May 2011 show cruise movements further increasing both in number of ships and in total passengers;

With few exceptions, 2010 monthly hotel occupancy figures for the three, four and five star segments were above 2009 levels, resulting in average annual increases of 2.3% for the three star, 7.7% for the four star and 27.8% for the five star segment in 2010. February and August registered notable double digit growth rates in the five star segment;

ADR growth in 2007 and 2008 in all segments was halted by economic recession and reduced activity in business and leisure travel. Rates fell once again from 2008 and have not stopped falling since. Figures for 2010 show average rates of €119 for the five star segment, and €66 and €52 for four and three star hotels respectively.

In 2010 the Portuguese capital saw seven new hotel openings, equivalent to 412 additional rooms. 2011 will see the opening of four additional hotels

increasing room inventory by 753 rooms. With the majority of new establishments in the four and the five star categories, problems of over‐supply are imminent in the short term, especially for five star properties;

Our projections for hotel occupancy and ADR levels for the next few years show RevPAR for five star hotels continuing to fall in 2011. Healthier increases are expected starting from 2013 when the impact of over‐supply is expected to have been absorbed and pricing strategies should be more effective. The four star segment appears to be recovering faster driven by expected increases in ADR as occupancy is forecast to remain almost stable in the same period due to the limited introduction of new supply.

Portuguese Economic Overview

According to the Economist Intelligence Unit real GDP growth will be negative starting from 2011, slightly improving to 0.4% in 2014 and reaching a 0.7% in 2015.

Inflation, which averaged 1.4% in 2010, is forecast to increase to 3.6% in 2011 and slowly decrease to 1.4% in 2012 and 1.2% in 2013 and to increase again reaching 1.3% in 2014 and 1.5% in 2015.

2011 has so far been a difficult year for the Portuguese economy, not helped by a general rate of VAT of 21% from July 2010 and the impact of the current government’s measures to repair the unhealthy public deficit through an austerity package that includes a reduction of up to 10% in public employees’ salaries amongst other things aimed at gradually reducing the deficit to 3% of GDP by 2013.

Hotels have not escaped from this situation and faced an increase in VAT for room rates from 5% to 6% and for food and beverage from 12% to 13%.

The race to the 2011 elections in Portugal ended on 5 June 2011 with the Social Democratic party lead by Pedro Passos Coelho gaining approximately 39% of votes and 105 seats in the National Assembly followed by the Socialist party headed by the former Prime Minister José Sócrates with 28% of the vote and 73 seats in the National Assembly. Amongst the most important commitments of the new president will be meeting the conditions of a €78 billion EU bailout through several austerity measures.


FIGURE 1 : ECONOMIC INDICATORS FOR PORTUGAL

Source: EIU, June 2011

2007 2008 2009 2010 2011 2012 2013 2014 2015Real GDP growth (%) 1.9 0.4 ‐2.7 1.3 ‐1.6 ‐1.8 ‐0.6 0.4 0.7Consumer price inflation (%) 2.4 2.9 ‐0.8 1.4 3.6 1.4 1.2 1.3 1.5Budget balance (% of GDP) ‐2.7 ‐2.4 ‐9.4 ‐9.2 ‐6.5 ‐5.1 ‐4.3 ‐3.5 ‐2.6Curr. acc.balance (% of GDP) ‐9.9 ‐9.7 ‐10.3 ‐9.9 ‐6.5 ‐5.1 ‐4.3 ‐3.5 ‐2.6Short‐term interest rate (av; %) 4.3 4.8 1.2 0.8 1.3 1.9 2.8 3.5 3.5Exchange rate US$:€ (av) 1.37 1.49 1.43 1.33 1.36 1.3 1.23 1.23 1.28

Historical Forecast

FIGURE 2: DOMESTIC AND INTERNATIONAL ARRIVALS 2000‐2010

Source: Observatório do Turismo de Lisboa, June 2011

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Visitation

Millions Domestic International

Tourist Arrivals and Demand

As illustrated in Figure 2, total visitation to Lisbon increased drastically in the period from 2004 to 2007 reaching a total of over 2.8 million arrivals. This increase was generated by both the domestic and the international market with increases over this period of 29% and 20% respectively.

From a peak in 2007 of 2.8 million arrivals, numbers have consistently declined, first in domestic arrivals (‐4.2% in 2008) with international visitors still showing moderate growth. In 2009 both the domestic and the international markets fell, generating total arrivals of approximately 2.7 million. Figures for 2010 show an increase of 6.1% in total visitors. This is mostly driven by a significant recuperation in the international market (7.7%) accompanied by an increase in domestic visitors (3.1%). Data for 2011 for the City of Lisbon were not available at the time of writing.

The ratio of domestic to international visitors has remained relatively stable and in 2010 it was 32%/68%. This may be explained by the fact that the country’s total population is relatively small (approximately 10.6 million including the Azores and Madeira) and its growth rates have not been able to compete with volume of international arrivals.

As illustrated in Figure 3, in 2010 Spain was the largest international feeder market (in terms of arrivals), followed by Brazil, France, Germany, Italy, USA and United Kingdom. The geographical proximity with Spain and the cultural proximity with Brazil explain why these countries alone are able to cover more than 20% of total arrivals. Major nationalities within the “other” category are Netherlands, Belgium, Switzerland and other countries from Asia.


FIGURE 3: LISBON VISITATION NATIONALITY MIX


Portugal33%

Spain14%

Brazil7%

France6%

Germany5%

Italy5%

United States5%

United Kingdom

4%

Other 21%

FIGURE 4: AIRPORT PASSENGER AND CRUISE SHIP MOVEMENTS IN LISBON2004‐2010

Source: ANA Aeroportos, Porto de Lisboa (2011)

200

250

300

350

400

450

500

5

6

7

8

9

10

11

12

13

14

15

2004 2005 2006 2007 2008 2009 2010

Cruise Traffic (in Tho

usands)

Air Traffic (Millions)

Air Traffic

Cruise Traffic

Airport and Cruise ship Arrivals

The number of arrivals at Lisbon International Airport was approximately 12.3 million in 2009, decreasing from approximately 13.6 million in 2008, which had been reached after several years of steady growth. The decline registered in 2009 was due to the general reduction in activity of both corporate and leisure travellers in Europe and the consequent reduction in air travel. Figures for 2010 show a total number of passengers exceeding 14 million, 14.9% higher than that achieved in 2009 and representing a record volume in the history of the airport.

Preliminary data for May 2011 year‐to‐date indicate an accumulated total passenger volume of 5.4 million passengers, 39% higher than the volume registered for the same period of the previous year.

A growing trend has also been registered in the cruise ship sector with the number of ships stopping at Lisbon increasing from 265 in 2003 to 308 in 2008. This number felt slightly in 2009 to 295 and recovered in 2010 to 299. Despite the decrease in the number of ships, total passenger traffic grew from 212,000 passengers in 2003 to 407,000 in 2008 and continues to increase reaching 416,000 in 2009 and 448,000 in 2010.

Preliminary data for May 2011 year‐to‐date shows accumulated total traffic of 121 ships (18.6% higher

than the traffic registered for the same period of the previous year) and the impressive figure of 181,500 passengers, a 51% increase over the previous year.

The main scheduled airlines connect Lisbon to the majority of European capitals as well as Portugal’s former colonies (Brazil, Angola, Cape Verde, Guinea‐Bissau, Mozambique and Sao Tomé e Principe). In addition, there are several low‐cost options offering cheap travel mostly from and to European cities (Barcelona, Berlin, London, Madrid, Milan, Rome, etc).

Plans exist to give Lisbon and its metropolitan region a newer and more avant‐garde airport infrastructure to be constructed in an area known today as “Campo de Tiro de Alcochete”. The new airport will be located 45 kilometres from the city and it is estimated will be able to handle total annual passenger traffic of approximately 22 million, equivalent to approximately 55‐60 aircraft per hour during peak periods.

The new airport is expected to open in 2017. Due to the size of the investment (more than 3 billion euro) and the fact that 50% of this was supposed to be financed by private investors, the project was suspended in March 2010. At the same time, it has


FIGURE 5: SEASONALITY OF HOTEL OCCUPANCY IN LISBON 2009‐2010


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Occup

ancy (in %

)

2010

5‐star 3‐star 4‐star

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Occup

ancy (in %

)

2009


been also planned to enlarge the current airport infrastructure at Portela in order to accommodate the recent increase in passenger volume. The new President has mentioned the possibility of reassessing the building of the new airport infrastructure but so far no binding decision has been taken.

Hotel Occupancy

The market segment which has suffered most from the last few years of economic recession all over Europe has been corporate business travel. With companies increasingly focused on reducing staff and cutting unnecessary expenses, the number of business travellers has diminished drastically all around Europe and Lisbon has not been an exception.

Figure 5 shows the seasonality of hotel occupancy in the city of Lisbon for 2009 and 2010 divided per category. With the exception of a few months for the three star segment and the month of November for the four star segment, all 2010 figures are above 2009 levels with an average increase of 2.3% for three star, 7.7% for four star and 27.8% for five star hotels. From the graphs presented the seasonality pattern can be seen to have altered slightly, especially in the three and four star category, now characterised by three peaks rather than the traditional two corresponding to spring and autumn.

In certain months five star segment occupancy growth rates reached double figures, occasionally achieving exceptionally high levels such as those seen in February (+73.0% for the five star segment) and August (+56.6% for the five star segment). This may be explained by a combination of factors. On the one hand local hotel management was not able to respond rapidly to the crisis in 2008 and the effect of the strategies eventually put in place was only felt in 2010. On

the other hand, the MICE segment, which traditionally books in the sunny shoulder months of May, June and September, became more price‐conscious and shifted its activity to lower priced months such as January and February. The month of August, typically devoted to leisure travellers, also registered an increase in arrivals. Travellers constricted by reductions in their budgets, appear to have opted to travel to cheaper destinations and Lisbon represented a good value destination of choice for the European cultural traveller. Overall the five star segment increased 27.8% compared to 2009.

Four star hotels registered a lower increase compared to five star properties but it is important to mention that this trend has been positive throughout the entire year. This resulted in a total annual increase of approximately 7.7% when comparing 2010 to 2009.


FIGURE 6: OCCUPANCY VARIATION 2009/2010


‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

70%

80%


Occup

ancy Variation

(in %

)

2009 /105‐star 3‐star 4‐star

FIGURE 7: OCCUPANCY VARIATION 2010/2011


‐30%

‐20%

‐10%

0%

10%

20%

30%

40%


Occup

ancy Variation

(in %

)

2010 / 11


Three star hotels are recovering more modestly, with occupancy in some months falling below 2009 levels and only recovering slightly in other months. This resulted in a total annual increase of approximately 2.3%.

These signs of recovery are certainly welcome as both 2008 and 2009 registered a decline in occupancy for the majority of each year. All this leads to hope for continuing recovery in 2011 especially in the five star segment. In conducting our research and interviews with those involved in the hotel sector in Lisbon, we have identified a number of factors which have influenced market performance so far:

Slightly improved economic conditions in Portugal’s major international source markets;

Increasing appeal of Lisbon as an international city‐break destination throughout the year due to the temperate climate conditions and the variety of cultural and eno‐gastronomic attractions.

Preliminary figures for May 2011 year‐to‐date show that the five star segment seems to be recovering more quickly with double digit growth rates for almost all months (except for February). On the other

hand, both four star and three star hotels are so far seeing a decrease in occupancy.

As presented in Figure 8, when comparing overall annual occupancy figures by hotel category, it is clear that those hit the hardest have been the five star properties with a decrease that started in 2005 and a recovery noted only in 2010. This is mostly due to the increase in supply registered since 2005 worsened by the decline in visitation in 2008‐2009.

The three and four star segments have registered a different pattern with an increase in 2006 and 2007 followed by a decrease in 2008 and 2009. Figures for 2010 confirm the change in the trend showing occupancy levels on the rise for both market segments.

As in all markets, some hotels have been more able to adapt to the recession than others. Those hotels relying primarily on large corporate clients suffered the most as they have been penalised both in terms of occupancy and rate. However, those properties with a healthy mix of business and leisure (city breaks, short breaks, fly and drive, etc) have been able to diversify their strategy and leverage prices in order to keep occupancy (almost) stable.


FIGURE 8: OCCUPANCY BY CATEGORY 2005‐2010


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2005 2006 2007 2008 2009 2010

Occup

ancy (in %

)


FIGURE 9: ADR BY CATEGORY 2005‐2010


0

20

40

60

80

100

120

140

160

180

2005 2006 2007 2008 2009 2010

ADR (in

€)


May 2011 year‐to‐date figures show that occupancy rates are still weak with both three and four star hotels registering a lower occupancy when compared to the same period of the previous year (‐8.0% and ‐2.9% respectively). The five star segment however is showing a significant increase in occupancy (8.9%).

Hotel ADR

ADR levels (see Figure 9) registered their peaks in 2004 and started falling in 2005 and 2006 for all segments of the market. Recovery was seen in 2007 and 2008 with rates increasing for the entire market. Due to the economic recession and the reduced activities in business and leisure travelling, rates fell once again in 2009 and have not stopped falling since.

It is interesting to note that the five star segment is able to achieve ADR levels significantly higher than those registered by the four star segment. This is evidence of the large difference in quality levels between these properties, combined with the tendency for many four star hotels to adopt a heavier discounting strategy in order to overcome

the decrease in occupancy.

Notwithstanding the signs of recovery in terms of occupancy, ADRs have failed to follow suit. Lisbon hoteliers will need to focus on increasing rates through creative, value added marketing and diversification into new market segments.

May 2011 year‐to‐date figures for ADR show a similar pattern to those for occupancy. Both the three

and the four star segments are registering lower rates than those of the same period of the previous year (‐3.8% and ‐2.5% respectively) while the five star segment is experiencing a marginal increase in rate of approximately 3.2%.


FIGURE 10: SUPPLY MARKET SHARE – LISBON 2010


5‐star15%

4‐star45%

3‐star28%

2‐star 12%

N. of Hotels

5‐star24%

4‐star50%

3‐star20%

2‐star 6%

N. of Rooms

Supply

In 2010 the Lisbon city hotel market included 119 hotel properties (excluding one‐star establishments). A breakdown of these properties by category is shown in Figure 10.

As in previous years the four star segment represents about 45% of hotel establishments and approximately 50% of the city’s room inventory. Supply trends showed an increase in hotels in recent years, growing from 94 properties in 2005 to 119 in 2010, a 27% increase in supply in the number of hotels and a corresponding 15% increase in room inventory.

The five star segment has experienced a boom in new supply since 2006 with the opening of six additional properties in the last four years (equivalent to 50% of total five star supply of 2006) and equivalent to 721 additional rooms (24% of 2006 room inventory). Similar growth has also been registered for the four star segment with 13 additional new properties since 2005 (+32%) for a room inventory equivalent of 1,407 units (+23%). This has been possible through new openings and refurbishment of existing hotels previously of a lower category.

New Supply

There were seven new hotel openings in 2010, equivalent to an additional 412 rooms. With the majority of hotel developments either officially or unofficially on hold, it is difficult to say how much supply will come on stream in the near future. Figure

11 presents recent and future openings expected in the capital as well as other hotels currently expected to open in the coming years.

We have included the recently announced new hotel at Lisbon airport. ANA‐Aeroportos announced that hotel

construction will start at Portugal’s three main airports (Lisbon, Porto and Faro). The four star property foreseen for Lisbon will be branded by Tryp Hotels and managed by Hotti Hotéis. It will be located close to the Arrivals Terminal and will offer 170 rooms devoted to the corporate and MICE segments.

If we consider 2010 as a base year, the increase in five star supplies will be 14.4% in 2011 and 14.7% in 2012.

In the four star segment the situation will be slightly different with an expected increase in room inventory compared to 2010 of only 1.3% in 2011 and 5.6% in 2012.

In recent years the city has attracted the interest not only of tourists but also of international hotel chains which have been keeping an eye on the Portuguese capital in order to expand their portfolios. This trend started with the Expo in 1998 but was consolidated mostly after 2000 when, due to the media coverage of the Expo, Lisbon managed to establish its image as a significant urban short‐break destination and a port of call en route to other parts of the country (Sintra, The Algarve, Alentejo and Porto).

As happened for Berlin and other re‐born European capitals, general interest in travelling to Lisbon increased the appeal to investors and the opportunity for major international hotel chains to establish a presence in the city. This has been particularly visible in recent years with the opening of several new hotel


FIGURE 11: RECENT AND FUTURE OPENINGS – LISBON

Source: HVS Research (2011)

Property Category N. of Rooms Opening Date Brand / AffiliationAltis Avenida 5‐star 72 Mar 2010 AltisEvidencia Light Santa Catarina 2‐star 17 Mar 2010Luxe Hotel by Turim Hotéis 2‐star 50 Apr 2010 Turim HotéisInspira Santa Marta 4‐star 89 May 2010CS Vintage Lisboa Hotel 5‐star 56 Jun 2010 CS HotelsLisbon City Hotel 3‐star 50 Sept 2010Altis Prime HA 4‐star 78 Sept 2010 AltisSubtotal 412

Turim Avenida da Liberdade 4‐star 100 Mar 2011 Turim HotelsOlissippo Oceanos Congress Center & Spa 5‐star 347 Apr 2011 Hotéis OlissippoHoliday Inn Express ‐ Aeroporto 3‐star 120 Aug 2011 ICHGSana Vasco da Gama Royal Hotel 5‐star 186 Sept 2011 Sana HotelsSubtotal 753

CS Palace Bairro Alto Hotel 5‐star 56 2012 CS HotelsMemmo alfama 4‐star 44 2012 MemmoHotel Tzar (Elitte Executive Hotel) 4‐star 77 2012Sana Amoreiras Royal Hotel 5‐star 339 2012 Sana HotelsCS Palace Belém Hotel 5‐star 60 2012 CS HotelsHyatt Regency Lisbon 5‐star 88 2012 HyattLisbon Airport Tryp 4‐star 170 2013 Tryp / Hotti HotéisHotel Indigo Lisbon Old Town 4‐star 139 2014 ICHGSubtotal 973

Total 2,138

properties such as: NH Parque de Lisboa (in 2006), Eurostars Hotel das Letras (in 2008), Vincci Baixa (in 2008), and several additions by the very active chain Altis with three recent openings such as the Altis Belém Hotel & Spa in 2009, the Altis Avenida Hotel in March 2010 and the Altis Prime in September 2010 (together with the existing Hotel Altis in Rua Castilho featuring 300 rooms of which currently 100 are undergoing refurbishment and the recently completed refurbishment of Altis Park with approximately 2.5 million Euro spent on its 195 rooms and conference spaces). This trend will continue with the Hyatt Regency expected to open in 2012, the new hotel at Lisbon airport under the Tryp brand and the Indigo Old Town in 2014.

Together with the enthusiasm of new openings, many of the existing hotels also underwent refurbishment such as the Corinthia reopening in 2004 after an 18 months refurbishment closure and adding a 3,000m² Spa in 2009, the Real Palacio (from four star to five star in 2005), the Sofitel Lisbon Libertade (from four

star to five star in 2006), the Hotel Tryp Oriente (from three star to four star in 2007), the Sheraton Lisbon (in 2007), the International Design Hotel (from two star to four star in 2009), the York House (from boarding house to four star hotel in 2009) and the Hotel Olissippo Marqués da Sá (from three star to four star in 2010).

Lisbon features an unusual urban environment with a very tourism‐focused city centre, mostly devoted to leisure visitors and some other areas devoted uniquely to business travellers such as the boulevards also known as As Nova

Avenidas and Avenida José Melhoa amongst others.

The only part of the city featuring an interesting overlap of leisure and business clientele, and therefore offering the possibility for hotel business to operate effectively during the working week and at week‐ends, is probably Avenida da Libertade and the neighbouring streets e.g. Rua Castilho. This, together with the scarcity of decent‐sized buildings suitable for hotel purposes, also explains why the interest of international chains and investors has concentrated in this neighbourhood and why the few real estate opportunities in the area are well known amongst all major industry players.

PROJECTIONS

As the majority of hoteliers are interested in changes at RevPAR level, we have prepared projections of occupancy and ADR for the next three years. In order to reflect local market sentiment, we have performed at the beginning of 2011 a brief survey of six properties amongst the most relevant hotels in the


capital and asked for the budgeted increase in terms of occupancy and ADR for the next years. We have also checked how these budgeted changes compare with actual performance in the first five months of 2011.

Occupancy

In terms of occupancy, General Managers seemed to be confident about recovery as they felt the worst of the storm had already past. The only difference was in relation to the five star hotels which did not foresee major increases in occupancy due to the more exclusive nature of their properties. The reality is that the five star segment is the only one which really managed to register a significant increase in occupancy (+8.2%) while the three and four star properties both registered a decline (‐8.5% and ‐4.9% respectively). Preliminary bookings for the rest of 2011 show a returned interest from the MICE segment (especially from abroad even though more last minute and cost‐conscious than before) that was so noticeable by its absence in 2010 and therefore may lead to a conclusion that things are improving.

For the purpose of preparing some projections, we have forecast the five star segment to continue its increase with yearly average of 8.5% in 2011, 7.0% in 2012 and 5.0% in 2013. The four star segment will probably benefit from the summer season and manage to compensate for the first semester losses, therefore we have forecast zero net growth in 2011, followed by a ramp up of 3.0% in 2012 and 5.0% in 2013.

We have also taken into account the amount of additional room inventory foreseen to open in the next few years in order to calculate the impact that this will have on occupancy. Therefore for the five star segment we have considered 533 additional rooms in 2011, 543 in 2012 and estimated 100 in 2013. On the other side, for the four star segment, we have taken into consideration additional 100 rooms in 2011, 430 in 2012 and assumed an amount of 200 rooms for 2013.

Figure 12 shows the results of our analysis for the four and the five star segments in the city.

Under the above mentioned assumptions, we would expect the hotel market to feature the following changes:

• The five star segment should decline in terms of occupancy due to the large increase in room

inventory in the years to come. The situation should improve starting from 2013 when the over supply period should be over. As the development timeframe of the current projects are very difficult to monitor and are subject to changes on a daily basis, it is very difficult to give a quality judgement on these forecasts. It should anyway be stated that a risk of an over supply period for the five star segment is clearly present;

• Despite the increase in guest nights, the four star segment will slightly decrease its occupancy. It is worth mentioning that the expected increase in supply is lower in this segment and therefore occupancy is not expected to change significantly or to be put at risk as in the five star segment.

ADR

In terms of rate, the General Managers in our survey were optimistic on ADR recuperation and we have assumed the following in our projections:

• All the General Managers interviewed in the five star sector said that rate increase is the main objective on the agenda with forecast increases across market.

• This has so far been accomplished with May year‐to‐date data registering a 3.2% increase in ADR for the five star segment. However, due to the increase in the luxury supply expected for the rest of 2011, we are of the opinion that the five star establishments will very probably enter a difficult competitive period in which new entrants will be offering aggressive rates in order to penetrate the market.


FIGURE 12: HOTEL OCCUPANCY PROJECTIONS 2011‐2013

Source: HVS Projections

2007 2008 2009 2010 2011 2012 2013

5‐star 680,501 623,698 520,034 697,664 756,966 809,954 850,451growth ‐8% ‐17% 34% 9% 7% 5%

4‐star 1,950,004 1,855,915 1,765,435 1,943,252 1,943,252 2,001,550 2,101,627growth ‐5% ‐5% 10% 0% 3% 5%

5‐star 3,272 3,379 3,429 3,705 4,238 4,781 4,881growth 3% 1% 8% 14% 13% 2%

4‐star 7,246 7,397 7,485 7,645 7,745 8,175 8,375growth 2% 1% 2% 1% 6% 2%

5‐star 57.0% 50.6% 41.6% 51.6% 48.9% 46.4% 47.7%‐11% ‐18% 24% ‐5% ‐5% 3%

4‐star 73.7% 68.7% 64.6% 69.6% 68.7% 67.1% 68.8%‐7% ‐6% 8% ‐1% ‐2% 2%

Historical Projections

Room Nights

Supply

Hotel Occupancy

FIGURE 13: ADR AND REVPAR PROJECTIONS 2011‐2013

* As per Figure 12 Source: HVS Projections

2007 2008 2009 2010 2011 2012 2013

5‐star 145.12 154.62 131.36 119.22 122.80 128.94 136.67growth 7% ‐15% ‐9% 3% 5% 6%

4‐star 70.13 74.09 67.51 65.80 65.80 67.77 71.16growth 6% ‐9% ‐3% 0% 3% 5%

5‐star 57.0% 50.6% 41.6% 51.6% 48.9% 46.4% 47.7%growth ‐11% ‐18% 24% ‐5% ‐5% 3%

4‐star 73.7% 68.7% 64.6% 69.6% 68.7% 67.1% 68.8%growth ‐7% ‐6% 8% ‐1% ‐2% 2%

5‐star 82.69 78.19 54.58 61.51 60.09 59.84 65.24growth ‐5.4% ‐30.2% 12.7% ‐2.3% ‐0.4% 9.0%

4‐star 51.71 50.93 43.62 45.82 45.23 45.46 48.92growth ‐1.5% ‐14.3% 5.0% ‐1.3% 0.5% 7.6%

ADR

Hotel Occupancy*

RevPAR Calculation

Historical Projections

This will lead to a more conservative ADR increase for 2011 of approximately 3%. It is worth mentioning that as the supply of five star hotels varies considerably in terms of quality, this figure only represents a proposed city average, characterised by a significant variance between individual assets. A more notable increase (5%) is expected in 2012 when the new supply is expected to have been absorbed and pricing should have stabilised. We have also estimated a further increase (in the average of 6%) for 2013.

The four star segment will also try to increase ADRs, but General Managers were not convinced that the price war was officially over and were more prudent in their projections for 2011. It is also true that new supply will enter this segment but proportionately less than in the five star segment. For the purpose of preparing our projections, we have considered two apparently opposing trends: on one hand, GMs’ expectations in respect of an ADR increase and, on the other, the decline in ADR registered in the first half of 2011. We have therefore forecast no ADR change in 2011, followed by an increase of 3% in 2012 and 5% in 2013.

Results are presented in Figure 13.


Conclusion

Looking at the RevPAR forecasts, the five star market negative is expected to decline in 2011 followed by stabilization in 2012. An increase in RevPAR is expected from 2013 when the oversupply period should be over and rate‐driven pricing strategies should be more effective. Compared to 2010 RevPAR, the €65 forecast for 2013 represents an increase of 6.1%.

As mentioned earlier, the 5 star market in Lisbon is rather inconsistnent, especially in terms of product quality and our occupancy projections are based on an overall market average without reflecting the peculiarities and market positioning of each individual property.

Therefore, while there will be some 5 star properties that might have budgeted (and will probably achieve) occupancy figures above 50%, there will also be others that have problems on the rocky road to occupancy recovery.

The projections for the four star segment on the other hand offer more optimism in the short term, with a positive trend starting in 2012. This is driven by an expected increase in both ADR and in occupancy. Compared to the 2010 RevPAR level, the €49 forecast for 2013 represents an increase of 6.8%.

The recovery of Europe’s economies is clearly falling behind the growth of emerging economies such as the so‐called BRICs which represent a huge potential market, with rapidly‐growing, travel‐hungry middle classes, many of whom will not yet have visited Europe. So, dependency on European source markets for both business and leisure travel is a potential risk for Lisbon. However, long‐term trends are still considered positive and consumers are expected to resume their previous travel spending habits as all economies start to find their way out of the woods.

There is no doubt that Brazil offers significant potential due to the close cultural link with Portugal and the fact that, as is already happening, Lisbon represents their natural gateway to Europe. Perhaps Lisbon should also put effort into attracting new markets such as India and China (both of which have historical links with Portugal) and ensure that they include Lisbon in their tour of Europe.

A Portuguese proverb says: “He who has seen Goa needs not to see Lisbon”; certainly something for the Lisbon Tourism Authority to think about in their strategy for the future.

Note: No investment decision in this market should be based on this article. For further information or advice, please contact the authors.

HVS Global Hospitality Services | Calle Velázquez 119, 5A Madrid 28006 Spainwww.hvs.com

About HVS

HVS is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of 30 offices staffed by 300 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com.

HVS MADRID, established in 2003 provides a full range of services to clients in Spain, Portugal and worldwide. A team of multi‐lingual professionals works with developers, owners, operators and lenders across a full spectrum of hospitality sector asset classes including hotels, resorts, serviced apartments and mixed‐use developments.

About the Author

Giuliano Gasparini, MRICS is a Senior Associate at HVS Madrid where he has been working since January 2008. He graduated in Economics at Bocconi University in 2001 and achieved a Master of Science in Urban Economics and

Management at Erasmus Universiteit in Rotterdam and a Master of Science in Tourism Economics at Bocconi University. Giuliano has been working in the tourism consulting and advisory world since 2003 and has completed many market and financial feasibility studies for hotels, integrated resorts and urban mixed‐use developments as well as hotel valuations throughout Europe and especially in Portugal, Spain, Italy and the Mediterranean area.

Contact: [email protected] +34 91 781 6648

Hvs Market Intelligence Report Lisbon 2011 Market Projections For 4 And 5 Star Segments

Travel

Transcript of Hvs Market Intelligence Report Lisbon 2011 Market Projections For 4 And 5 Star Segments