A rollercoaster few years for the hospitality industry in Europe has seen the sector almost become a victim of its own success, according to recent reports.
After the black swan of Covid emptied hotels and threatened distress, record figures for 2023 put the asset class at the top of investor hit lists and boosted the GDP of nations. Yet now some towns and cities are revolting against the tourism success story, asking for greater limits on its growth, amid resource and residential shortages.
City leaders are promising change, but with locations like Barcelona saying it will only cease issuing new licences to short-term rental properties from November 2028, communities fear improvements will be slow in coming.
That in turn has created an opportunity for the private sector to double-down on environmental, social and governance (ESG) goals, with a particular focus on social impact as they seek to expand sustainably.
Eyes on Iberian Peninsula
Arrow Global has enjoyed a successful few years of growth in the Iberian Peninsula, consolidating its holdings in the Portuguese resort of Vilamoura while eyeing value-add opportunities in Spain and Italy.
However, fund principal, John Calvao, underlines that making a positive contribution to local communities is part of the investment blueprint. “First, we employ local teams and leverage local expertise wherever we operate, which strengthens our connection to the community. For example, in Portugal, we've addressed housing shortages for our employees by converting small hotels into affordable apartments, which helps us attract and retain the best talent,” he says.
Calvao adds that sustainability initiatives also consider potential resource issues, such as “creating solar communities, reducing water consumption with modern irrigation systems, and using treated wastewater for golf courses”. He notes: “We also make it a priority to integrate our projects with local culture and preserve the unique characteristics of each location, all while elevating the guest experience. Our goal is to create long-term value that benefits both our investors and the local communities."
Arrow Global’s schemes on the Algarve, he adds, further “mitigate the effects of seasonality” with year-round amenities such as equestrian centres, marinas, and golf courses.
Preserving residential units
One of the chief battlegrounds of protestors against overtourism is the use of residential homes for short stays. In cities already facing huge pressures on housing availability and therefore rents, market players such as AirBnb are sometimes seen as the last straw.
However, some hospitality investors are able to alleviate the pressure on residential stock with their development initiatives, particularly with the provision of flexible apartment units.
For example, Ascott, the lodging arm of Singapore’s CapitaLand, has seen its serviced residences in cities including London serve to augment housing stock. Properties like Citadines Holborn-Covent Garden London, where all units have kitchenettes and some rooms include private washing machines, have inspired some guests to stay long-term – one resident remained in the property for seven years.
Another business exploring the potential of purpose-built units is the recently formed Curate Ventures, an investment platform launched by former Crown Estate director Alexander Kim and ex-Chelsfield senior leaders Rebeca Guzman Vidal and Darius Divwalla. Curate recently announced that its first platform venture will be a hospitality investment in partnership with Spanish hotelier Juan Ceña, to scale his group in the UK and Europe.
The joint venture will expand Cena’s hospitality brand Bastardo into the UK, repurposing and retrofitting stranded office assets into contemporary CoStay hotels. The venture’s model is targeting millennials and gen-z, who represent the largest cohort of international travellers, and its most environmentally conscious segment.
Bastardo’s original hotel in Madrid has a capacity of 250 beds across private suites, family rooms and shared dorms with private bunks. The model will be replicated in the UK, beginning in London followed by other regional cities, and seek to work with social enterprises to drive local skills and employment growth.
According to co-founders Kim and Vidal, supporting local communities is “one of the reasons” they are backing the expansion of CoStay. They say: “Housing stock is being swallowed by marketplaces who then drive up long-stay rental prices. CoStay can alleviate that, providing affordable short-stay stock by increasing the density of a building when compared to a traditional hotel.
Sustainable alternative
“By its very nature, it can be a far more sustainable alternative to traditional hotels given that some rooms are shared and housekeeping is more eco-conscious.” There is also evidence that the product has had a positive effect in Madrid, the co-founders add. “One of the key things that drew us to the Bastardo model was the way the Madrid outpost is so embedded in its neighbourhood: the ground floor space regularly plays host to events such as yoga and live music, put on by the local community. It’s a new model for hospitality spaces that invite locals in as much as visitors.”
They say that in addition to CoStay hotels increasing building density, their intention is to further deepen the platform’s urban utility by “retrofitting underutilised, unused or vacant office stock. This stock often isn’t suitable for conversion into permanent residential units due to reasons such as building depth and room sizes but is great for short stay solutions such as CoStay hotels.”
The founders say that they more broadly see “hospitality as urban infrastructure” which in turn can “free up residential stock for homes”. They add: “By repurposing existing buildings into high quality affordable product, CoStay hotels democratise travel for younger generations and are inherently sustainable.”
Finally, hospitality funds eyeing cities which have proposed to halt the issuing of new hotel licenses should also be conscious of the investment upside where supply is limited. Earlier this year, Amsterdam officials effectively banned the construction of new hotels within the city as well as slashing the number of annual river cruise moorings permitted from 2,300 to 1,150 over the next five years. The city council said in a statement: “We want to make and keep the city liveable for residents and visitors. This means: no overtourism, no new hotels, and no more than 20 million hotel nights by tourists per year.”
One investor, who recently struck in Amsterdam and preferred to remain unnamed, told Hospitality Investor that this was something they considered before buying in the Dutch capital. “We were aware that any investments in the city would only become more valuable in the light of future supply restrictions,” they said.