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

AUGUST 2011

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

Giuliano Gasparini, MRICS
Senior Associate

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

increasing room inventory by 753 rooms. With the
Market Intelligence Lisbon majority of new establishments in the four and the five
star categories, problems of over‐supply are imminent
This article presents a picture of the Lisbon hotel
in the short term, especially for five star properties;
market up to May 2011 and our view on current
tourism and hospitality trends and tendencies for Our projections for hotel occupancy and ADR levels for
the city. the next few years show RevPAR for five star hotels
continuing to fall in 2011. Healthier increases are
Summary expected starting from 2013 when the impact of over‐
The Portuguese economy is forecast to recover slowly supply is expected to have been absorbed and pricing
in the next three years. 2011 has so far been a difficult strategies should be more effective. The four star
year, not helped by a general rate of VAT at 21% from segment appears to be recovering faster driven by
July 2010. Hotels have not escaped from this and faced expected increases in ADR as occupancy is forecast to
an increase in VAT for rooms from 5% to 6% and for remain almost stable in the same period due to the
food and beverage from 12% to 13%.New president limited introduction of new supply.
elect Pedro Passos Coelho committed to a €78 billion
Portuguese Economic Overview
bailout and seems to be willing to pursue all austerity
measures necessary to meet the objectives of the pact According to the Economist Intelligence Unit real GDP
with the EU. growth will be negative starting from 2011, slightly
improving to 0.4% in 2014 and reaching a 0.7% in
After two years of decline in visitation following a peak 2015.
in 2007 of over 2.8 million, figures for 2010 are finally
showing an increase in total visitation of 6.1%.   Inflation, which averaged 1.4% in 2010, is forecast to
increase to 3.6% in 2011 and slowly decrease to 1.4%
Airport arrivals have increased in 2010 and in 2012 and 1.2% in 2013 and to increase again
preliminary figures for May 2011 show this increase is reaching 1.3% in 2014 and 1.5% in 2015.
continuing. Cruise ship arrivals have also increased,
2011 has so far been a difficult year for the Portuguese
growing from 212,000 passengers in 2003 to 448,000 economy, not helped by a general rate of VAT of 21%
in 2010. Preliminary data for May 2011 show cruise from July 2010 and the impact of the current
movements further increasing both in number of ships government’s measures to repair the unhealthy public
and in total passengers;   deficit through an austerity package that includes a
reduction of up to 10% in public employees’ salaries
With few exceptions, 2010 monthly hotel occupancy amongst other things aimed at gradually reducing the
figures for the three, four and five star segments were deficit to 3% of GDP by 2013.
above 2009 levels, resulting in average annual
Hotels have not escaped from this situation and faced
increases of 2.3% for the three star, 7.7% for the four
an increase in VAT for room rates from 5% to 6% and
star and 27.8% for the five star segment in 2010. for food and beverage from 12% to 13%.
February and August registered notable double digit
growth rates in the five star segment; The race to the 2011 elections in Portugal ended on 5
June 2011 with the Social Democratic party lead by
ADR growth in 2007 and 2008 in all segments was Pedro Passos Coelho gaining approximately 39% of
halted by economic recession and reduced activity in votes and 105 seats in the National Assembly followed
business and leisure travel. Rates fell once again from by the Socialist party headed by the former Prime
2008 and have not stopped falling since. Figures for Minister José Sócrates with 28% of the vote and 73
seats in the National Assembly. Amongst the most
2010 show average rates of €119 for the five star
important commitments of the new president will be
segment, and €66 and €52 for four and three star meeting the conditions of a €78 billion EU bailout
hotels respectively. through several austerity measures.

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

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

FIGURE 1 : ECONOMIC INDICATORS FOR PORTUGAL

Historical Forecast
2007 2008 2009 2010 2011 2012 2013 2014 2015
Real GDP growth (%) 1.9 0.4 ‐2.7 1.3 ‐1.6 ‐1.8 ‐0.6 0.4 0.7
Consumer price inflation (%) 2.4 2.9 ‐0.8 1.4 3.6 1.4 1.2 1.3 1.5

Budget balance (% of GDP) ‐2.7 ‐2.4 ‐9.4 ‐9.2 ‐6.5 ‐5.1 ‐4.3 ‐3.5 ‐2.6
Curr. acc.balance (% of GDP) ‐9.9 ‐9.7 ‐10.3 ‐9.9 ‐6.5 ‐5.1 ‐4.3 ‐3.5 ‐2.6

Short‐term interest rate (av; %) 4.3 4.8 1.2 0.8 1.3 1.9 2.8 3.5 3.5
Exchange rate US$:€ (av) 1.37 1.49 1.43 1.33 1.36 1.3 1.23 1.23 1.28
Source: EIU, June 2011

Tourist Arrivals and Demand The ratio of domestic to international visitors has
remained relatively stable and in 2010 it was
As illustrated in Figure 2, total visitation to Lisbon 32%/68%. This may be explained by the fact that the
increased drastically in the period from 2004 to 2007 country’s total population is relatively small
reaching a total of over 2.8 million arrivals. This (approximately 10.6 million including the Azores and
increase was generated by both the domestic and the Madeira) and its growth rates have not been able to
international market with increases over this period of compete with volume of international arrivals.
29% and 20% respectively.
As illustrated in Figure 3, in 2010 Spain was the largest
From a peak in 2007 of 2.8 million arrivals, numbers international feeder market (in terms of arrivals),
have consistently declined, first in domestic arrivals (‐ followed by Brazil, France, Germany, Italy, USA and
4.2% in 2008) with international visitors still showing United Kingdom. The geographical proximity with
moderate growth. In 2009 both the domestic and the Spain and the cultural proximity with Brazil explain
international markets fell, generating total arrivals of why these countries alone are able to cover more than
approximately 2.7 million. Figures for 2010 show an 20% of total arrivals. Major nationalities within the
increase of 6.1% in total visitors. This is mostly driven “other” category are Netherlands, Belgium,
by a significant recuperation in the international Switzerland and other countries from Asia.
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.

FIGURE 2: DOMESTIC AND INTERNATIONAL ARRIVALS 2000‐2010
3.00
Millions

Domestic International
2.50

2.00
Visitation

1.50

1.00

0.50

0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Observatório do Turismo de Lisboa, June 2011


FIGURE 3: LISBON VISITATION NATIONALITY MIX 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.

Other   The main scheduled airlines connect Lisbon to the
21% majority of European capitals as well as Portugal’s
Portugal
33% former colonies (Brazil, Angola, Cape Verde, Guinea‐
Bissau, Mozambique and Sao Tomé e Principe). In
United addition, there are several low‐cost options offering
Kingdom
4% cheap travel mostly from and to European cities
United States (Barcelona, Berlin, London, Madrid, Milan, Rome, etc).
5%

Italy FIGURE 4: AIRPORT PASSENGER AND CRUISE SHIP MOVEMENTS IN LISBON
5% 2004‐2010
Germany
Spain 15 500
5% France
14%

Cruise Traffic (in Thousands)
6% Brazil Air Traffic (Millions) 14
7% 450
13

Source: Observatório do Turismo de Lisboa, June 2011 12
400
11
Airport and Cruise ship Arrivals 10 350
9
The number of arrivals at Lisbon International Airport 300
8
was approximately 12.3 million in 2009, decreasing Air Traffic
from approximately 13.6 million in 2008, which had 7
250
Cruise Traffic
been reached after several years of steady growth. The 6
decline registered in 2009 was due to the general 5 200
reduction in activity of both corporate and leisure 2004 2005 2006 2007 2008 2009 2010
travellers in Europe and the consequent reduction in
Source: ANA Aeroportos, Porto de Lisboa (2011)
air travel. Figures for 2010 show a total number of
passengers exceeding 14 million, 14.9% higher than Plans exist to give Lisbon and its metropolitan region a
that achieved in 2009 and representing a record newer and more avant‐garde airport infrastructure to
volume in the history of the airport.   be constructed in an area known today as “Campo de
Tiro de Alcochete”. The new airport will be located 45
Preliminary data for May 2011 year‐to‐date indicate an
kilometres from the city and it is estimated will be able
accumulated total passenger volume of 5.4 million
to handle total annual passenger traffic of
passengers, 39% higher than the volume registered for
approximately 22 million, equivalent to approximately
the same period of the previous year.
55‐60 aircraft per hour during peak periods.
A growing trend has also been registered in the cruise
The new airport is expected to open in 2017. Due to
ship sector with the number of ships stopping at
the size of the investment (more than 3 billion euro)
Lisbon increasing from 265 in 2003 to 308 in 2008.
and the fact that 50% of this was supposed to be
This number felt slightly in 2009 to 295 and recovered
financed by private investors, the project was
in 2010 to 299. Despite the decrease in the number of
suspended in March 2010. At the same time, it has
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


been also planned to enlarge the current airport the other hand, the MICE segment, which traditionally
infrastructure at Portela in order to accommodate the books in the sunny shoulder months of May, June and
recent increase in passenger volume.  The new September, became more price‐conscious and shifted
President has mentioned the possibility of reassessing its activity to lower priced months such as January and
the building of the new airport infrastructure but so February. The month of August, typically devoted to
far no binding decision has been taken.   leisure travellers, also registered an increase in
arrivals. Travellers constricted by reductions in their
Hotel Occupancy   budgets, appear to have opted to travel to cheaper
destinations and Lisbon represented a good value
The market segment which has suffered most from the
destination of choice for the European cultural
last few years of economic recession all over Europe
traveller. Overall the five star segment increased
has been corporate business travel. With companies
27.8% compared to 2009.
increasingly focused on reducing staff and cutting
unnecessary expenses, the number of business Four star hotels registered a lower increase compared
travellers has diminished drastically all around Europe to five star properties but it is important to mention
and Lisbon has not been an exception.   that this trend has been positive throughout the entire
year. This resulted in a total annual increase of
Figure 5 shows the seasonality of hotel occupancy in
approximately 7.7% when comparing 2010 to 2009.
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 FIGURE 5: SEASONALITY OF HOTEL OCCUPANCY IN LISBON 2009‐2010
four star and 27.8% for five star
100%
hotels. From the graphs 2010
90%
presented the seasonality
80%
pattern can be seen to have
70%
altered slightly, especially in the
Occupancy (in %)

60%
three and four star category,
50%
now characterised by three
peaks rather than the 40%

traditional two corresponding 30%

to spring and autumn. 20%
5‐star 3‐star 4‐star
10%
In certain months five star 0%
segment occupancy growth Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
rates reached double figures,
100%
occasionally achieving 2009
90%
exceptionally high levels such as
80%
those seen in February (+73.0%
70%
for the five star segment) and
Occupancy (in %)

60%
August (+56.6% for the five star
50%
segment). This may be
40%
explained by a combination of
30%
factors. On the one hand local
hotel management was not able 20%
to respond rapidly to the crisis 10%

in 2008 and the effect of the 0%

strategies eventually put in Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

place was only felt in 2010. On Source: Observatório do Turismo de Lisboa, June 2011


hand, both four star and three
FIGURE 6: OCCUPANCY VARIATION 2009/2010
star hotels are so far seeing a
80%
decrease in occupancy.
70%
2009 /10
60%
As presented in Figure 8, when
comparing overall annual
Occupancy Variation (in %)

50%
occupancy figures by hotel
40% category, it is clear that those
30% hit the hardest have been the
20% five star properties with a
decrease that started in 2005
10%
and a recovery noted only in
0%
2010. This is mostly due to the
‐10% increase in supply registered
‐20% since 2005 worsened by the
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec decline in visitation in 2008‐

Source: Observatório do Turismo de Lisboa, June 2011   2009.
Three star hotels are recovering more modestly, with The three and four star segments have registered a
occupancy in some months falling below 2009 levels different pattern with an increase in 2006 and 2007
and only recovering slightly in other months. This followed by a decrease in 2008 and 2009. Figures for
resulted in a total annual increase of approximately 2010 confirm the change in the trend showing
2.3%. occupancy levels on the rise for both market segments.
These signs of recovery are certainly welcome as both As in all markets, some hotels have been more able to
2008 and 2009 registered a decline in occupancy for adapt to the recession than others. Those hotels
the majority of each year. All this leads to hope for relying primarily on large corporate clients suffered
continuing recovery in 2011 especially in the five star the most as they have been penalised both in terms of
segment. In conducting our research and interviews occupancy and rate. However, those properties with a
with those involved in the hotel sector in Lisbon, we healthy mix of business and leisure (city breaks, short
have identified a number of factors which have breaks, fly and drive, etc) have been able to diversify
influenced market performance so far: their strategy and leverage prices in order to keep
occupancy (almost) stable.
Slightly improved economic conditions in
Portugal’s major international source markets;
FIGURE 7: OCCUPANCY VARIATION 2010/2011
Increasing appeal of Lisbon
as an international city‐ 40%

break destination 2010 / 11
30%
throughout the year due to
the temperate climate
Occupancy Variation (in %)

20%
conditions and the variety
of cultural and eno‐ 10%
gastronomic attractions.
0%
Preliminary figures for May
2011 year‐to‐date show that ‐10%
the five star segment seems to 5‐star 3‐star 4‐star
be recovering more quickly ‐20%
with double digit growth rates Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
for almost all months (except ‐30%

for February). On the other Source: Observatório do Turismo de Lisboa, June 2011


FIGURE 8: OCCUPANCY BY CATEGORY 2005‐2010
the decrease in occupancy.

90% Notwithstanding the signs
80% of recovery in terms of
70%
occupancy, ADRs have
failed to follow suit. Lisbon
Occupancy (in %)

60%
hoteliers will need to focus
50% on increasing rates
40% through creative, value
30% added marketing and
diversification into new
20%
market segments.
10%

0% May 2011 year‐to‐date
2005 2006 2007 2008 2009 2010 figures for ADR show a
Source: Observatório do Turismo de Lisboa, June 2011   similar pattern to those for
occupancy. Both the three
May 2011 year‐to‐date figures show that occupancy and the four star segments are registering lower rates
rates are still weak with both three and four star hotels than those of the same period of the previous year (‐
registering a lower occupancy when compared to the 3.8% and ‐2.5% respectively) while the five star
same period of the previous year (‐8.0% and ‐2.9% segment is experiencing a marginal increase in rate of
respectively). The five star segment however is approximately 3.2%.
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 FIGURE 9: ADR BY CATEGORY 2005‐2010
higher than those 180
registered by the 160
four star segment.
140
This is evidence of
the large difference 120
ADR (in €)

in quality levels 100
between these 80
properties, 60
combined with the
40
tendency for many
four star hotels to 20

adopt a heavier 0
discounting strategy 2005 2006 2007 2008 2009 2010

in order to overcome Source: Observatório do Turismo de Lisboa, June 2011


Supply 11 presents recent and future openings expected in the
capital as well as other hotels currently expected to
In 2010 the Lisbon city hotel market included 119 open in the coming years.
hotel properties (excluding one‐star establishments). A
breakdown of these properties by category is shown in We have included the recently announced new hotel at
Figure 10. Lisbon airport. ANA‐Aeroportos announced that hotel
construction will
FIGURE 10: SUPPLY MARKET SHARE – LISBON 2010 start at Portugal’s
three main
N. of Hotels N. of Rooms airports (Lisbon,
2‐star 5‐star 2‐star Porto and Faro).
12% 15% 6% The four star
5‐star
3‐star 24% property foreseen
20% for Lisbon will be
branded by Tryp
3‐star Hotels and
28%
managed by Hotti
Hotéis. It will be
located close to
4‐star
the Arrivals
45%
4‐star Terminal and will
50%
offer 170 rooms
devoted to the
Source: Observatório do Turismo de Lisboa, June 2011 corporate and
As in previous years the four star segment represents MICE segments.
about 45% of hotel establishments and approximately
If we consider 2010 as a base year, the increase in five
50% of the city’s room inventory. Supply trends
star supplies will be 14.4% in 2011 and 14.7% in 2012.
showed an increase in hotels in recent years, growing
from 94 properties in 2005 to 119 in 2010, a 27% In the four star segment the situation will be slightly
increase in supply in the number of hotels and a different with an expected increase in room inventory
corresponding 15% increase in room inventory. compared to 2010 of only 1.3% in 2011 and 5.6% in
2012.
The five star segment has experienced a boom in new
supply since 2006 with the opening of six additional In recent years the city has attracted the interest not
properties in the last four years (equivalent to 50% of only of tourists but also of international hotel chains
total five star supply of 2006) and equivalent to 721 which have been keeping an eye on the Portuguese
additional rooms (24% of 2006 room inventory). capital in order to expand their portfolios. This trend
Similar growth has also been registered for the four started with the Expo in 1998 but was consolidated
star segment with 13 additional new properties since mostly after 2000 when, due to the media coverage of
2005 (+32%) for a room inventory equivalent of 1,407 the Expo, Lisbon managed to establish its image as a
units (+23%). This has been possible through new significant urban short‐break destination and a port of
openings and refurbishment of existing hotels call en route to other parts of the country (Sintra, The
previously of a lower category. Algarve, Alentejo and Porto).

New Supply As happened for Berlin and other re‐born European
capitals, general interest in travelling to Lisbon
There were seven new hotel openings in 2010,
increased the appeal to investors and the opportunity
equivalent to an additional 412 rooms. With the
for major international hotel chains to establish a
majority of hotel developments either officially or
presence in the city. This has been particularly visible
unofficially on hold, it is difficult to say how much
in recent years with the opening of several new hotel
supply will come on stream in the near future. Figure


FIGURE 11: RECENT AND FUTURE OPENINGS – LISBON
star to five star in
Property Category N. of Rooms Opening Date Brand / Affiliation
2006), the Hotel Tryp
Altis Avenida 5‐star 72 Mar 2010 Altis
Oriente (from three
Evidencia Light Santa Catarina 2‐star 17 Mar 2010
Luxe Hotel by Turim Hotéis 2‐star 50 Apr 2010 Turim Hotéis
star to four star in
Inspira Santa Marta 4‐star 89 May 2010 2007), the Sheraton
CS Vintage Lisboa Hotel 5‐star 56 Jun 2010 CS Hotels Lisbon (in 2007), the
Lisbon City Hotel 3‐star 50 Sept 2010 International Design
Altis Prime HA 4‐star 78 Sept 2010 Altis Hotel (from two star to
Subtotal 412 four star in 2009), the
York House (from
Turim Avenida da Liberdade 4‐star 100 Mar 2011 Turim Hotels
boarding house to four
Olissippo Oceanos Congress Center & Spa 5‐star 347 Apr 2011 Hotéis Olissippo
star hotel in 2009) and
Holiday Inn Express ‐ Aeroporto 3‐star 120 Aug 2011 ICHG
Sana Vasco da Gama Royal Hotel 5‐star 186 Sept 2011 Sana Hotels
the Hotel Olissippo
Subtotal 753 Marqués da Sá (from
three star to four star
CS Palace Bairro Alto Hotel 5‐star 56 2012 CS Hotels in 2010).
Memmo alfama 4‐star 44 2012 Memmo
Hotel Tzar (Elitte Executive Hotel) 4‐star 77 2012 Lisbon features an
Sana Amoreiras Royal Hotel 5‐star 339 2012 Sana Hotels unusual urban
CS Palace Belém Hotel 5‐star 60 2012 CS Hotels environment with a
Hyatt Regency Lisbon 5‐star 88 2012 Hyatt very tourism‐focused
Lisbon Airport Tryp 4‐star 170 2013 Tryp / Hotti Hotéis
city centre, mostly
Hotel Indigo Lisbon Old Town 4‐star 139 2014 ICHG
devoted to leisure
Subtotal 973
visitors and some other
areas devoted uniquely
Total 2,138
to business travellers
Source: HVS Research (2011)
such as the boulevards
also known as As Nova
properties such as: NH Parque de Lisboa (in 2006), Avenidas and Avenida José Melhoa amongst others.
Eurostars Hotel das Letras (in 2008), Vincci Baixa (in
2008), and several additions by the very active chain The only part of the city featuring an interesting
Altis with three recent openings such as the Altis overlap of leisure and business clientele, and therefore
Belém Hotel & Spa in 2009, the Altis Avenida Hotel in offering the possibility for hotel business to operate
March 2010 and the Altis Prime in September 2010 effectively during the working week and at week‐ends,
(together with the existing Hotel Altis in Rua Castilho is probably Avenida da Libertade and the neighbouring
featuring 300 rooms of which currently 100 are streets e.g. Rua Castilho. This, together with the
undergoing refurbishment and the recently completed scarcity of decent‐sized buildings suitable for hotel
refurbishment of Altis Park with approximately 2.5 purposes, also explains why the interest of
million Euro spent on its 195 rooms and conference international chains and investors has concentrated in
spaces). This trend will continue with the Hyatt this neighbourhood and why the few real estate
Regency expected to open in 2012, the new hotel at opportunities in the area are well known amongst all
Lisbon airport under the Tryp brand and the Indigo major industry players.
Old Town in 2014.
PROJECTIONS
Together with the enthusiasm of new openings, many
As the majority of hoteliers are interested in changes
of the existing hotels also underwent refurbishment
at RevPAR level, we have prepared projections of
such as the Corinthia reopening in 2004 after an 18
occupancy and ADR for the next three years. In order
months refurbishment closure and adding a 3,000m²
to reflect local market sentiment, we have performed
Spa in 2009, the Real Palacio (from four star to five
at the beginning of 2011 a brief survey of six
star in 2005), the Sofitel Lisbon Libertade (from four
properties amongst the most relevant hotels in the


capital and asked for the budgeted increase in terms of inventory in the years to come. The situation
occupancy and ADR for the next years. We have also should improve starting from 2013 when the over
checked how these budgeted changes compare with supply period should be over. As the development
actual performance in the first five months of 2011. timeframe of the current projects are very difficult
to monitor and are subject to changes on a daily
Occupancy basis, it is very difficult to give a quality judgement
on these forecasts. It should anyway be stated that
In terms of occupancy, General Managers seemed to be
a risk of an over supply period for the five star
confident about recovery as they felt the worst of the
segment is clearly present;
storm had already past. The only difference was in
relation to the five star hotels which did not foresee • Despite the increase in guest nights, the four star
major increases in occupancy due to the more segment will slightly decrease its occupancy. It is
exclusive nature of their properties. The reality is that worth mentioning that the expected increase in
the five star segment is the only one which really supply is lower in this segment and therefore
managed to register a significant increase in occupancy occupancy is not expected to change significantly or
(+8.2%) while the three and four star properties both to be put at risk as in the five star segment.
registered a decline (‐8.5% and ‐4.9% respectively).
Preliminary bookings for the rest of 2011 show a ADR
returned interest from the MICE segment (especially
from abroad even though more last minute and cost‐ In terms of rate, the General Managers in our survey
conscious than before) that was so noticeable by its were optimistic on ADR recuperation and we have
absence in 2010 and therefore may lead to a assumed the following in our projections:
conclusion that things are improving.
• All the General Managers interviewed in the five
For the purpose of preparing some projections, we star sector said that rate increase is the main
have forecast the five star segment to continue its objective on the agenda with forecast increases
increase with yearly average of 8.5% in 2011, 7.0% in across market.
2012 and 5.0% in 2013. The four star segment will
• This has so far been accomplished with May year‐
probably benefit from the summer season and manage
to‐date data registering a 3.2% increase in ADR for
to compensate for the first semester losses, therefore
the five star segment. However, due to the increase
we have forecast zero net growth in 2011, followed by
in the luxury supply expected for the rest of 2011,
a ramp up of 3.0% in 2012 and 5.0% in 2013.
we are of the opinion that the five star
We have also taken into account the amount of establishments will very probably enter a difficult
additional room inventory foreseen to open in the next competitive period in which new entrants will be
few years in order to calculate the impact that this will offering aggressive rates in order to penetrate the
have on occupancy. Therefore for the five star segment market.
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


This will lead to a more FIGURE 12: HOTEL OCCUPANCY PROJECTIONS 2011‐2013
conservative ADR increase for Historical Projections
2011 of approximately 3%. It is 2007 2008 2009 2010 2011 2012 2013
worth mentioning that as the
Room Nights
supply of five star hotels varies
5‐star 680,501 623,698 520,034 697,664 756,966 809,954 850,451
considerably in terms of quality,
growth ‐8% ‐17% 34% 9% 7% 5%
this figure only represents a
4‐star 1,950,004 1,855,915 1,765,435 1,943,252 1,943,252 2,001,550 2,101,627
proposed city average,
growth ‐5% ‐5% 10% 0% 3% 5%
characterised by a significant
variance between individual Supply
assets. A more notable increase 5‐star 3,272 3,379 3,429 3,705 4,238 4,781 4,881
(5%) is expected in 2012 when growth 3% 1% 8% 14% 13% 2%
the new supply is expected to have 4‐star 7,246 7,397 7,485 7,645 7,745 8,175 8,375
been absorbed and pricing should growth 2% 1% 2% 1% 6% 2%
have stabilised. We have also Hotel Occupancy
estimated a further increase (in 5‐star 57.0% 50.6% 41.6% 51.6% 48.9% 46.4% 47.7%
the average of 6%) for 2013. ‐11% ‐18% 24% ‐5% ‐5% 3%
4‐star 73.7% 68.7% 64.6% 69.6% 68.7% 67.1% 68.8%
The four star segment will also try ‐7% ‐6% 8% ‐1% ‐2% 2%
to increase ADRs, but General

Managers were not convinced that
Source: HVS Projections
the price war was officially over
and were more prudent in their
projections for 2011. It is also true
FIGURE 13: ADR AND REVPAR PROJECTIONS 2011‐2013
that new supply will enter this
segment but proportionately less Historical Projections
than in the five star segment. For 2007 2008 2009 2010 2011 2012 2013
the purpose of preparing our ADR
projections, we have considered 5‐star 145.12 154.62 131.36 119.22 122.80 128.94 136.67
two apparently opposing trends: growth 7% ‐15% ‐9% 3% 5% 6%
on one hand, GMs’ expectations in 4‐star 70.13 74.09 67.51 65.80 65.80 67.77 71.16
respect of an ADR increase and, on growth 6% ‐9% ‐3% 0% 3% 5%
the other, the decline in ADR Hotel Occupancy*
registered in the first half of 2011. 5‐star 57.0% 50.6% 41.6% 51.6% 48.9% 46.4% 47.7%
We have therefore forecast no growth ‐11% ‐18% 24% ‐5% ‐5% 3%
ADR change in 2011, followed by 4‐star 73.7% 68.7% 64.6% 69.6% 68.7% 67.1% 68.8%
an increase of 3% in 2012 and 5% growth ‐7% ‐6% 8% ‐1% ‐2% 2%
in 2013.
RevPAR Calculation
Results are presented in Figure 13. 5‐star 82.69 78.19 54.58 61.51 60.09 59.84 65.24
growth ‐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 48.92
growth ‐1.5% ‐14.3% 5.0% ‐1.3% 0.5% 7.6%

* As per Figure 12
Source: HVS Projections


Conclusion A Portuguese proverb says: “He who has seen Goa
needs not to see Lisbon”; certainly something  for the
Looking at the RevPAR forecasts, the five star market Lisbon Tourism Authority to think about in their
negative is expected to decline in 2011 followed by strategy for the future.
stabilization in 2012. An increase in RevPAR is
expected from 2013 when the oversupply period Note: No investment decision in this market should be
should be over and rate‐driven pricing strategies based on this article. For further information or advice,
should be more effective. Compared to 2010 RevPAR, please contact the authors.
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.


About HVS About the Author

Giuliano Gasparini, MRICS is a
HVS is the world’s leading consulting and services Senior Associate at HVS Madrid
organization focused on the hotel, restaurant, shared where he has been working
since January 2008. He
ownership, gaming, and leisure industries. Established graduated in Economics at
in 1980, the company performs more than 2,000 Bocconi University in 2001 and
assignments per year for virtually every major achieved a Master of Science in
Urban Economics and
industry participant. HVS principals are regarded as Management at Erasmus Universiteit in Rotterdam
the leading professionals in their respective regions of and a Master of Science in Tourism Economics at
Bocconi University. Giuliano has been working in
the globe. Through a worldwide network of 30 offices the tourism consulting and advisory world since
staffed by 300 seasoned industry professionals, HVS 2003 and has completed many market and financial
feasibility studies for hotels, integrated resorts and
provides an unparalleled range of complementary urban mixed‐use developments as well as hotel
services for the hospitality industry. For further valuations throughout Europe and especially in
Portugal, Spain, Italy and the Mediterranean area.
information regarding our expertise and specifics
about our services, please visit www.hvs.com. Contact:

ggasparini@hvs.com
HVS MADRID, established in 2003 provides a full
range of services to clients in Spain, Portugal and +34 91 781 6648
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.

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

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