BERLIN — Leisure demand is fueling recovery around the world, but resorts need more than just high leisure demand to be successful.

Owning and operating resort hotels in Europe adds additional layers of complexity, since resort products aren’t limited to only beachfront locations, and much of the overall success of the segment relies on third-party stakeholders, such as tour operators and transportation providers.

Still, the outlook for resorts in Europe is rosy, speakers said on a panel at the International Hotel Investment Forum on investing in resorts. Despite the challenges, sophisticated resort owners and operators are carving out expertise in their markets, managing yield and hyperfocusing on how to provide value to their target guests.

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May 16, 2022 10:26 AM

2022 International Hotel Investment Forum

the HNN editorial staff

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“Leisure is extremely elastic; if you have a good product, the elasticity of the market is huge,” said Javier Arús, senior partner at real estate investment firm Azora. “That proves how strong the demand for leisure is and it’s a key advantage of resort destinations.”

With such a wide variety of resort products across Europe, the first key to success is knowing the market, panelists said.

“At the end of the day, [success] depends on the experience and where the hotel is located,” said María Zarraluqui, global development vice president at Meliá Hotels International. “You can have beach hotels that are one segment, you can have mountain resorts that are another. In some locations, ‘resort’ means well-being and spas. You have resorts for every type of market, but the common link is to have a value proposition.”

Spain has long been a leading resort destination in Europe, and resort hoteliers operating there are trying to balance overdevelopment with opportunity.

“Spain is not the Caribbean, that’s for sure,” said Bruno Hallé, partner and co-head of hospitality in Spain for Cushman & Wakefield. “There are no private beaches, and the types of buildings and land are what they are. But opportunities definitely are here. There are some resorts that need repositioning. Take advantage of those assets, transform them, put a brand on them — that’s the future of resorts in Spain.”

Arús and Zarraluqui agreed that the Spanish resort landscape needs some product improvement.

“It’s difficult to meet the expectations of some of the guests," Arús said. “We have the challenge of continuing to improve current inventory. The entire landscape is trending up — F&B, culture, entertainment — and we have to defend ourselves in market share.”

Speakers emphasized that the key part of finding an audience for resorts in Europe is being hyper local.

“The takeaway is that regardless of where you come from, everyone likes a good product,” said Javier Coll, group president of global business development at Apple Leisure Group. “You have to adapt that product to a specific market, geography or customer. If you do it right, the demand is there.”

Coll’s brands began in the Caribbean and moved to Europe less than five years ago, a process that involved adapting the brand standards and value propositions to the European customer and European facilities, which he said “are not the same” as in the Caribbean.

Next up, Coll is considering what it will take to bring the brands to the Asia Pacific and Middle East.

“We can go with these high-end brands everywhere; it’s just a question of adapting product and operations,” he said.

Part of that means recognizing how resort travelers and the resort travel journey differs around the world.

“U.S. clients are more brand-loyal. In Europe, because of the historic role tour operators have played, the client is less brand-loyal; they’re more attached to the destination,” Arús said. “That makes a big difference, because in the U.S. and Caribbean you capture much more value from the guests. In Europe, you’re capturing much less value” because a cut goes to tour operators.

Because of that added layer of tour operators, resort hoteliers in Europe constantly look for ways to appease those stakeholders while continuing to grow the customer base.

“If we’re looking to expand, a key point is breaking seasonality,” Hallé said. "That involves more than just resort operators on board; it’s about convincing tour operators that off-seasons can be just as attractive, as well as lobbying for airlift if necessary."

But hoteliers are focused on adapting the appeal of their resorts beyond typical holiday seasons.

“It’s about what you put inside the hotel,” Hallé said. “Why go in February or March? That’s something we still need to work on. If we do that, we can be more profitable. Plus, we must figure out the technology because it’s much better to give your employees a full-year contract.”

Rosa Brand, director at KKR, said, “it all comes back to having an operator who is really creative in working within the boundaries of what they have, and also thinking creatively about how to attract customers at different times in the year.”

Despite the obstacles of seasonality, European resort hoteliers are using data to inform yield management as steps toward more profitability.

Brand said the stability of income streams for resorts in the Balearic Islands, for example, “have been very stable with predictable increases.”

“If you put a yield on that, it should be a tighter yield than a business hotel in a town with more volatile travel patterns," she said. "It all comes back to location. This only holds if you’re in a good location with good flight connections and a short drive from the airport. Further away, there’s more volatility, and that needs to be priced into yield.”

“Destination is key and it’s what drives the value of the asset,” Hallé said.

Environmental, social and governance compliance plays a huge role in the resort investment process in Europe, speakers said.

“It’s a must and investors are very strict on it,” Hallé said. “When it comes to buying a resort and due diligence, you already have ESG compliance or they will cut the price and give those investments to ESG.”

Brand said ESG issues influence her company’s investment decisions in a “huge way.”

“We buy an asset and make improvements with a view to sell to a long-term holder, so understanding what the long-term holder needs to underwrite and buy an asset is important to us,” she said. “What are the boxes people need to tick?”

Arús added that the social element of ESG deserves a lot of attention from hoteliers because of the high volume of staff that resorts require, and particularly because resorts often drive employment in a given location.

“Resorts have a huge impact on the environments where they are, and they’re really labor-intensive,” he said. “They can have a huge impact in creating career paths for people. The longer we extend the season, the bigger the impact in creating jobs in some more remote locations. We must embed that in our decision processes.”

“This all pays back,” Hallé said. “If you focus on the ‘S’ of ‘social,’ you focus on your staffing models. You must have people working in a good environment where you take care of them. It positions you as a company that’s good to work with.”

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