Limited-Service Hotels Move Into Madrid, Despite Drops In Demand

Limited-service properties are flourishing in Madrid despite declining demand and oversaturation of supply in the Spanish capital, one of the top venues for international conferences in the world, according to a market intelligence report released this month by HVS Hospitality Services and Smith Travel Research Global.

Occupancy in Madrid's upscale hotels in 2008 reached its lowest level this decade, falling to 63.9 percent, down from 72.6 percent in 2007. Madrid's room supply grew by 3.5 percent in 2008 and is expected to grow by 6.7 percent this year, and with the economy making an increase in demand unlikely, occupancy could drop as low as 55.4 percent this year, according to the report.

Limited-service hoteliers, however, are ramping up development plans in Madrid, as that segment is seeing increased interest from both business and leisure travelers seeking to cut their costs of stay, the report indicates. Spanish operator Room Mate, for example, saw its sales triple in 2008, according to the report.

High-Tech Hotels plans to open nine new hotels in Madrid in the next two years and international operators, including Easyhotel, Qbic, and PentaHotels, are considering expansion into Madrid, the report said. Several hoteliers in the market also are considering introducing new lower-tiered brands to compete.

Still, this focus eventually could saturate the limited-service tier as well. "Limited-service hotels seem to have been an oasis in the desert of declining demand for traditional full-service hotels, but with the introduction of many new players with ambitious expansion strategies, those already in the game know it would be difficult to predict how long this niche will continue to offer good returns," the report said.