The Spanish Leisure Sector
The last three years have certainly been unusual and the effects of the global pandemic have naturally had a significant role to play in the performance of property markets across the world.
Hot on the tails of completing a painfully drawn out Brexit; which we remind you, did not officially conclude until 23:00 GMT on 31 January 2020, just six weeks later, on 16March 2020, the PM announced it was time to “stop all non-essential travel and contact” and within 10 days the Coronavirus Act 202 had come into force, with ‘lockdown’ measures in place… Welcome to the Global Pandemic and 24 months of lockdowns, financial incentives, conflicting economic reports, home schooling and Zoom!
A cocktail of measures to include furlough, stamp duty holidays and bans on evictions helped keep the property market sustained, with the pent up demand from buyers and motivated sellers released in 2021, leading to a reinvigorated boom through 2021, continuing until summer 2022. At this time, most areas began to naturally slow, before, in the UK, Liz and Kwasi hit it with a sledgehammer and 75% of mortgage holders subsequently realised that interest rates could indeed return to what is often referred to as historically ‘normal’ levels.
What will happen over the next year or two is the subject of a separate and much larger debate, although most experienced operators (and even agents) concede that an adjustment, or correction, is on the way. What makes a correction a crash is yet a further debate in itself, but we typically accept it’s when agents check that their phones and email accounts are actually connected and when price falls move into double-digit percentages.
Whatever may or may not happen, it’s important to consider the opinion of at least one well-known industry expert who reminded us all that, even if some of the worst case scenarios come to fruition and we do indeed experience falls of between 10-20%, we’ll only be back where we were in early to mid-2021, so the vast majority of sellers will still realise substantial gains when selling and negative equity situations will likely be negligible in practice. Whilst this summarises the UK residential market, similar scenarios have been apparent across the western world, with booming prices in 2021-22 reported across most major cities.
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The Spanish market, which has seen something of a continual stop and start market since the crash over a decade before, experienced particularly strong growth in 2022, with demand above pre-pandemic levels and continued demand from multiple foreign markets, with 16% of purchase being overseas buyers (Q3 2022).
Despite Brexit, the UK still makes up around 10% of these, closely followed by the Germans at 8% and the French at over 6%, with both Romanians and Dutch increasing their shares since the pandemic. Most will concede that the market during 2023 will slow, or possibly slide, from its recent highs, but none can deny that it has bounced back strongly from its Covid stalemate; the tourists and the overseas buyers are most definitely back.
With rising demand and prices, where are the Propportunities?
So whilst the primary residential and second home markets have bounced back, not all of the associated leisure sector businesses have fared quite so well, with many continuing to suffer from a Covid fuelled hangovers and with some simply having been killed off by the decimation of their markets over the period. There is of course always a percentage of businesses that fail for a variety of reasons, but with a generally cautious market, higher borrowing costs and would be industry buyers even struggling to stay afloat themselves, prices for distressed (in many cases already closed) businesses have inevitably fallen. This has been further exacerbated by the Cost of Living crisis, which has hit luxury goods and leisure markets amongst the hardest. The recent surge in energy prices, which of course many leisure sector businesses are heavily dependent, has added yet further stress and for some will have been the final nail in the coffin.
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But, despite a decreasing market of potential suitors and increased caution among those fortunate enough to still be in a position to buy, the appointed administrators of those failed ventures have a duty to dispose of the assets and conclude matters as swiftly as practicably possible and, in practice, this can only result in lower prices. Given its comparably high dependence on tourism, the Spanish market in particularly seems to have a large number of such distressed sales, which does not particularly align with the comparable evidence of activity in the residential market.
This will of course result in some discounted sales in an otherwise buoyant market, many of which have a strong property angle; be it a change of use, redevelopment, or simply a refresh and re-sale or new letting, albeit perhaps when the market returns to a level of normality. We have picked three such propportunities we believe warrant further investigation. All very different in their operation, location and market, they share the same common theme in that they, or rather their previous occupant business, were reliant on a market that COVID simply put on hold for a year or two more than could be accommodated. All these properties are currently being marketed by the Spanish team at Bid X1. As a specialist in auctions and distressed sales, we wold expect them to list the odd bargain, but to find three seemingly workable propportunities available at the time of writing, suggests there may be many more such deals on offer.
No.1 – Pyrenean Skiing
OK, so we agree, Spain is not the first destination you might think of when planning your annual skiing trip, but the Pyrenees have long been a favourite and an often cheaper alternative to their European and globally preferred neighbours, the Alps. A string of increasingly well-known resorts, covering France, Spain and Andorra, offer established and varied ski choices and a reliably long season. Like their Alpine rivals, many of these resorts now offer a secondary summer season, with adventure sports, cycling and walking being among the principle draws. The regional resort of Baqueira-Beret is one of the most favoured, with the towns of Baqueira, Arties and Vielha making up the central vein of the region.
Property prices have risen steadily in recent years, with 2 bed apartments costing between £250k and £300k, townhouses at around £500k and luxury penthouses listed at over £1m. Hotel rooms are hoverer are not commanding what they were and, until the current season at least, there has been a consistent over supply.
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One of the victims of this – noting the assumption that the property was otherwise well run, as earlier reviews do seem to suggest – is the Hotel en Ctra. Located on the main street of Vielha. It is well placed to enjoy the local facilities and is a rather good looking building on a spacious site. The listing details includes an overview of the facilities, which include 2,050 sqm of space overall, made up over 5 floors. It includes underground parking and (ski) storage on the lower ground, with a modern bar & restaurant on the ground floor, plus a spa. The upper floors include 35 rooms in total, being 26 doubles, 8 triple rooms and a single.
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However, since its closure, the property has begun to fall into a state of disrepair and it is also currently without (hotel) licence. The devil will be in the detail of course, but the current permitted usage includes either single or multi residential, suggesting the property could quite easily be converted into individual residential units, serviced or self-contained, at relatively low cost.
A site that could provide (at least) ten good sized two bedroom units, plus have additional commercial leases for a restaurant, bar and spa should, we believe be priced higher that the cost of what just six comparable apartments would total. Alternatively, with limited additional conversion costs, a simple leasing of individual rooms or suites may be the preferred option, thus generating a faster return on investment, less overall outlay and greater incentive to the in-house service businesses.
No.2 – The Rural Retreat… with a side of Bulls and Anchovies
This propportunity may well be a little off the typical tourist route, but its situated perfectly between two of the regions most celebrates attractions, Pamplona (30 min) and San Sebastian (60 min). Along with the infamous bull run (July) Pamplona, the capital of the Kingdom of Navarre also enjoys its status as the most fortified town of Northern Spain, ideally located between Aragon and the Basque Country. It’s an architectural masterpiece, with numerous museums, Catherdral, Citadel and fortifications.
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Follow in the footsteps of Hemmingway and tour the old town tapas bars, watching artists and street performers, or head south out of town and you are quickly into the La Rioja wine region. Head north however and within the hour you’ll find San Sebastian, home of world class cuisine (as many Michelin stars per head than anywhere on earth apparently) beautiful beaches and a bayfront promenade. Add an extra 30 mins to the clock and you can get over the French border into Biarritz, or head North West for a similar journey time and spend some time in beautiful Bilbao.
Whilst this may seem to be swiftly turning into a script for a 1980’s holiday programme, the point is that, whilst rural, this propportunity is located in a fantastic location, with not less than four word class attractions within 90 mins.
Hotel & Spa El Mirador was bult in 2008 and operated as a Golf Hotel and Spa venue. With 27 rooms accommodating up to 53 guests, the property has been permanently closed for some time. The spa includes both indoor and outdoor pools, there’s a full restaurant and bar, conference facilities and already has an operator’s licence in place.
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Surrounded by nature, the hotel is situated in position ideal for a retreat, with its close proximity to Pamplona and San Sebastien an obvious draw for foodies. With ever increasing remote working patterns, supplemented with corporate ‘gathering’ events, we feel this property offers the perfect size, location and facilities for this ‘modern-corporate’ market, or indeed for a training centre.
What must be beyond any reasonable doubt is that for the £1.2m (Euro 1.350m) asking price, you would be hard pressed to fund just the planning and general site construction. For 15 year old fully fitted and licenced premises, situated in what is arguably one of the most exciting tourist regions in Europe, this seems a real bargain!
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No.3 – The Majorcan Yacht Club
Yes, Majorca is famous for many good things; yachting being among the many pastimes of the privileged residents of this Mediterranean stalwart of tourism. It’s certainly an island of many faces, with late night budget bars serving all day breakfasts in Magaluf, enclaves of secretive multi-millionaires seeking a summer of privacy behind the gates of mega-villas in Andratx, or big spenders boarding superyachts in Palma, heading out to see and away from paparazzi.
Somewhere in the middle, well actually way out to the East of the island, is the relatively private and picturesque resort of Cala D’or (Golden Bay). Established as a tourist resort for many decades, the small town is predominantly populated by smaller apartment building and individual Villas and Townhouses, as opposed to the larger resort style hotels found elsewhere on the island. At the heart of the resort, itself well known for its ‘yachties’ is the marina, with the surrounding promenade catering for its continuous stream of visitors; both day and night.
We were somewhat taken aback therefore to see one of the key sites of this development permanently closed and available. Yes, the Cala D’or yacht club, in existence for some 15 years and busily catering for the well-heeled (once Majorca’s No.1 wedding venue) is being marketed for just £2.35m.
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Admittedly, this does still seem a reasonably hearty price tag, particularly when compared to the other properties featured, but this must surely represent a fairly unique opportunity to buy an integral piece of this established, premium resort.
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Located right alongside the promenade and overlooking the Marina, it includes a large external area with pools, outside dining and spacious grounds. Internally, there are two restaurant & bar areas and function facilities, along with a luxury suite and three further letting rooms.
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Not only does the property offer a variety of former business opportunities to be revived (events venue, bar, restaurant, accommodation, pool) but huge potential for others (lettings, charters, excursions) that a prime site is best placed to deliver. Whether the new owner decides to offer these varied services direct, or does so through a series of leases to individual providers, there is a significant income potential and potentially high yield on the property, considering the accommodation alone can generate in excess of 1,000 Euros per night throughout the 12 week summer period. Yes, that’s a potential 85,000 Euros for the summer quarter alone, before a drink is poured or a lounger sat upon!
Whatever the new owner decides to do, we are confident that, like all those featured, this will be a property that you’ll perhaps stroll past in years to come and say “I could have bought that for…”
In reality, it’s unlikely that we’ve identified the three best Leisure sector deals available in the whole of Spain, but what we hopefully have demonstrated, is that where two sectors of the same economy are at different places in terms of their economic cycle, sometimes unusual an unsustainable gap becomes clear, offering opportunities for short term arbitrage, reinstatement or longer term capital gain.