Algarve hotel market presentation done by JLL

Algarve Hotel Market Overview Prepared for: Adriana Rodrigues 19th of June 2017

Table of Contents 1.

Introduction

p. 3

Supply

p. 4

Demand

p. 6

Trading Performance

p. 12

Transactions

p. 14

1. Introduction Algarve Market Overview In 2012, 2013, 2015 and again in 2016 the Algarve won the award of World Travel Awards Europe for best destination for beaches category and this year (2017) it has been nominated again for the prestigious prize. In addition, earlier this year the British magazine “Today´s Golfer” has elected Algarve for Best European Golf Destination for the 2017 “Today’s Golfer Travel Awards”. This region shows a high potential for tourist development; the beauty of its beaches, the quality of its golfing facilities or the value assigned to its regional culture, all contribute to attract record of welcoming tourists. Main features of the destination: safety, good accessibilities, excellent golf destination, excellent weather all year round, 200km of coastline and a large number of pristine beaches, airport located in the center of the region and with large number of connections (only a few hours away from the main European cities).

2. Supply Evolution of tourist accommodation supply in Algarve In Algarve, Hotels are biggest category in tourist accommodation, representing 34% of the market, followed by holiday apartments with 29%, this last one presenting however a negative compound annual growth rate (-0.6%). Pousadas, Hotels and Aparthotels are the accommodation with the highest average compound annual growth over the last 11 years (7.2%, 2.9% and 2.5% respectively). Albufeira, where Club Med da Balaia is located, is the statistical sub-region that provides the highest number of beds, more than 47,3 thousand beds, 37% of the accommodation offer existent in the Algarve. Portimão/Monchique and Loulé, where the total amount of beds reached more than 15 thousand in 2015 - 15% and 13% respectively of the supply market of Algarve – are the second and third sub-regions in what concerns to supply.

113,117 99,982 97,524 96,180 98,724 95,910 98,980 102,462 106,625 107,339

2005 Var.

2006 -2,5%

2007 -1,4%

2008 2,6%

2009 -2,9%

2010 3,2%

2011 3,5%

2012 4,1%

2013 0,7%

2014 5,4%

119,609 122,600

2015 5.7%

2016 2.5%

Source: INE

2.1 Supply per category Distribution of supply per accommodation category The pie chart below shows the distribution of supply in Algarve according to the last available data which is from 2015.

Algarve Supply Distribution

Hotel Supply Distribution by Category 4.46%

Hotels Inns 18.68%

27.17%

31.66%

Pousadas

26.34%

5* 4*

Aparthotels

11.65%

2* & 1* 7.66%

Touristic Villages

50.52% Touristic Apartments

21.56%

Source: INE

0.30% Source: INE

2.2 Supply per sub-region Tourist accommodation supply per sub-region of Algarve (2016)

Total: 47.309 37%

Total: 11.278 10%

Total: 16.859 15%

Total: 13.377 12%

Municipalities: 1 – Lagos, Aljezur and Vila do Bispo 2 – Portimão and Monchique 3 – Lagoa e Silves 4 – Albufeira 5 – Loulé 6 – Faro, Olhão and São Brás de Alportel 7 – Tavira 8 – Vila Real de Sto. António, Castro Marim and Alcoutim

Total: 14.997 13% Total: 3.186 3%

Total: 4.924 4%

Total: 7.679 7%

Source: AHETA

3. Demand Airport Arrivals Over the last few years, the Portuguese Government has made a tremendous effort and provided support in order to bring in new international routes for Portugalâ&#x20AC;&#x2122;s international airports, in particular case of Faro. Between 2005 and 2016, Faro International Airport recorded a compound annual growth rate of 4.55%, reaching approximately 3.8 million passengers arrivals. Faro Airport recorded a total of 3,782,700 passenger arrivals in 2016, this was a record year in terms of arrivals representing an increase of 19% compared with the previous year. This increase was fueled by both international and national passengers that grew 20% and 7% respectively year over year. The largest contribution from a specific airline came from Ryanair, which grew almost 32%. The low cost airline signed nine new routes in 2016, equivalent to another 20 weekly flights.

Evolution of passenger arrivals (thousands of passengers)

2 318

2 490

2005

2006

2 677

2 669

2 493

2 637

2 775

2007

2008

2009

2010

2011

3 783 2 950

3 053

3 181

2 806

2012

2013

2014

2015

2016

3.1 Room nights demand Evolution of tourism accommodation demand in Algarve Algarve with a 34% of share of the total room nights is the most demanded region in Portugal. During the last 12 years demand continued to grow at a compound annual growth rate of 2.49% a year, although slightly below the national average (3.0%); this can be explained by the instability lived over the last decade and due to the fact that Algarve is already a mature destination. However, over the last 7 years (2010-2016), the international market has been recovering, contributing to a compound annual growth of 5.2%, a bigger number compared with the supply analysis; it is important to highlight that this behavior of the foreign market helped offsetting the Portuguese market slowdown. Since 2005, the majority of markets present a gradual increase. The Germans, Dutch, Irish and French markets have strongly contributed to the increase on the number of tourists, each with a year over year growth of 9.8%, 9.1%, 10.7% and 41.1% respectively. Still the English continue to be the main feeder market with 42.6% share of the foreign room nights, 6 million room nights representing an increase of 8.6% compared with 2015.

18,109,600 16,177,153 16,618,306 14,704,384 14,265,164 13,814,274 14,163,652

2005

2006

2007

2008

12,927,603 13,247,450

2009

2010

14,741,969 13,979,866 14,326,774

2011

2012

2013

2014

2015

2016

Source: Proturismo

3.2 Room nights by categories Distribution of overnights stays by different accommodation categories The Hotels are very demanded in Algarve, recording 40.50% of the accommodation market. In addition, there are two other very important categories for the region of Algarve which are the Aparthotels and the Holiday Apartments which together account for 46.58% of the demand. Holiday villages can still be considered a popular segment since it has a share of 11.05% of the room nights spent in Algarve. The “Others” category refers to the Inns, Motels, Hostels and “Pousadas”, this is a residual category since all the types in the category account for only 1.87% of the total room nights in Algarve.

Distribution of Overnights by Typologies

22.17%

Hotels 40.50%

Others Aparthotels

11.05%

Holiday Villages Holiday Apartments 24.41% Source: INE

1.87%

3.3 Demand by sub-region Which sub-region is the most demanded (2016)? The performance of the demand in the regions of Algarve is similar to the one observed in the supply analysis, highlighting again the municipality of Albufeira which concentrates 40% of the overnights in Algarve.

Total: 7,306,242 42.7%

Total: 2,554,065 14.9%

Total: 2,259,365 13.2%

Total: 1,751,826 10.2%

Total: 1,162,427 6.8%

Municipalities: 1 – Lagos, Aljezur and Vila do Bispo 2 – Portimão and Monchique 3 – Lagoa and Silves 4 – Albufeira 5 – Loulé 6 – Faro, Olhão and São Brás de Alportel 7 – Tavira 8 – Vila Real de Sto. António, Castro Marim and Alcoutim

Total: 491,166 2.9%

Total: 458,422 2.7%

Total:1,129,682 6.6%

3.4 Demand distribution by area and key market Where do visitors spend their room nights? Considering overnight stays by major tourist areas and major markets, it is clear that the U.K market is responsible for the largest market share in half of the municipalities in Algarve. In Albufeira the English market represents almost 40.6% of the demand, a much higher number compared to the other municipalities, followed by the Portuguese market with 13.5% of the share and the Dutch with 11.4%.

Distribution of demand for by tourist areas and key markets (% of overnights in 2016) U.K.

German

Netherlands

Spain

Portugal Ireland

VRSA – Castro Marim

9.9%

9.8%

29.9%

3.9%

36.9%

1.3%

Tavira

13.6%

9.3%

14.7%

9.4%

38.4%

Faro-Olhão

17.5%

8.6%

6.7%

6.9%

21%

2.2%

Loulé

52.2%

3.1%

2.4%

19.8%

8.4%

Albufeira

40.6%

9.5%

11.4%

13.5%

6.8%

Lagoa-Silves

35.6%

12.7%

9.6%

3.6%

12.6%

5.2%

Portimão-Monchique

29.4%

15.5%

5.2%

3.9%

23.4%

7.1%

Lagos-Sagres

21.9%

25.9%

5.9%

15.2%

3.6%

Source: AHETA

3.5 Seasonality Variation in demand throughout the year The Algarve is a highly seasonal market which justifies the closure of a large number of hotels and self catering units in the period between November and February. In 2015 for example these 4 months concentrated around 11% of total annual demand (1.9 million of overnights); in 2016 the quote of the period between November and February was of 12% totaling 2.2 million of overnights. However, the Algarve region has been making efforts in order to reduce the impact of seasonality within the region. Currently this is being done by positioning Algarve in other tourism segments such as the nature tourism and congresses.

431,847

647,313

635,269

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

2,2%

3,2%

4,9%

7,3%

9,6%

12,0%

15,4%

17,8%

12,6%

9,2%

Nov 3,3%

466,691

Dec 2,5%

12% of total annual demand; 2.2 million overnights Source: INE

4. Trading Performance Algarve Hotel Market Outlook Room occupancy rates increased significantly in the last year, confirming the start of the recovery in 2011 (after a 3 year decline). Room occupancy reached 64.80% in 2016 representing a 4.9% increase year over year. This number is almost in line with the pre crisis level. b) Occupancy rates per municipality

a) Trading Performance Evolution in Algarve 80 € 70 € 60 € 50 € 40 € 30 € 20 € 10 € -€

70% 60% 50% 40% 30% 20% 10% 0%

67.3%

58.3%

Revpar

Occupancy

Room occupancy rates have increased in all municipalities, some of them reaching the highest values since 2009. Albufeira is one of those cases, recording an higher occupancy rate than most other regions in Algarve. ADR has also been increasing in Algarve, in 2016 the average room price was €72.07, a record figure representing an increase of 9.93% year over year. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved.

73.6%

62.2% 53.7%

M. 1 ADR

63.0%

68.1%

68.0%

M. 2 M. 3 M. 4 M. 5 M. 6 M. 7 M. 8 2009 2010 2011 2012 2013 2015 2016 Municipalities: 1 – Lagos, Aljezur and Vila do Bispo 2 – Portimão and Monchique 3 – Lagoa and Silves 4 – Albufeira 5 – Loulé 6 – Faro, Olhão and São Brás de Alportel 7 – Tavira 8 – Vila Real de Sto. António, Castro Marim and Alcoutim 13

4.1 Trading Performance RevPar Evolution in Algarve In the Algarve, since 2005 RevPar has grown at a CAGR of 5% a year, reaching in 2016 approximately €46.70. Since 2007 the RevPar has decreased for 3 years, numbers only recovered in 2011 when it reached €31.20 of RevPar. The Revpar level achieved in 2016 was a record number and an astonishing year over year increase of 15.31%.

46.7

48 46 44 42

40.5

35.6

36 34

32.6

33.6 32.1

32 30

29.3

29.9

2009

2010

31.2

31.6

2011

2012

28 2006

2007

2008

2013

2014

2015

2016

Source: INE

5. Transactions Hospitality assets transacted within the last two years in the Algarve region Within the last two years JLL has recorded 10 hospitality asset transactions. Amonng there is the Vilamoura Resort Development sale for €200M euros. One of the hightest hospitality asset recorded in Algarve.

Asset Pestana Delfim Pestana D.Joao II Hotel Oriental Hotel Eva Vilamoura Resort Development Pestana Viking Aparthotel Forte da Oura Portfolio Golfe Oceanico Montechoro Hotel Memmo Baleeira

Location Portimao Portimao Portimao Faro Vilamoura Lagoa Albufeira Vilamoura Albufeira Sagres

Algarve Algarve Algarve Algarve Algarve Algarve Algarve Algarve Algarve Algarve

Sale Price € 20,000,000.00 € 36,960,000.00 na na € 200,000,000.00 € 19,200,000.00 na € 70,000,000.00 € 19,000,000.00 € 10,000,000.00

Rooms 312 330 90 134 na 184 115 na 362 144

Price Per Key € 64,102.56 € 112,000.00 na na € 104,347.83 na na € 52,486.19 € 69,444.44

Star Rank Sale Month 4 December 4 December 4 December 4 December April 4 April 4 July September 4 December 4 December

Year 2015 2015 2015 2015 2015 2016 2016 2016 2016 2016

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