How the Canaries and Balearics are driving Spanish hotel investment

Investor momentum on rising demand

Speaking exclusively with Hospitality Investor, Laura Hernando, managing director of hotels at Colliers noted the islands are driving continued interest from a diverse pool of investors all seeking to capitalise on the regions’ momentum. “They are increasingly seen as preferred options by core and institutional investors as well as leading Spanish family offices,” she noted.

According to Colliers’ Golden Tourist Destinations: Canary Islands vs. Balearic Islands report, the Canary Islands benefits from 72.9 million overnight stays annually, with the Balearics not far behind, recording 63.1 million overnight stays in 2024. This is as the Balearic Islands experienced a 3.5 per cent GDP growth in 2024, with projections of 3.2 per cent in 2025, driven by robust foreign tourism and rising domestic demand according to data published by BBVA Research. And the Canary Islands' economy is bolstered by tourism, which accounts for 35 per cent of its GDP and 40 per cent of employment.

Another thing both regions share is a powerful narrative of repositioning - the Canary Islands and the Balearic Islands continue to increase demand, thanks to the ongoing improvement of their infrastructures. Tourism expenditure in both regions has soared by more than 50 per cent in the last decade, placing the Canaries second and the Balearics third in Spain’s tourism spend rankings, just behind Catalonia.

Over the last eight years, tourism demand has grown 7.5 per cent in the Balearic Islands and 4.6 per cent in the Canary Islands. In the Balearics, the average daily tourist spend now reaches €203 - 9.1 per cent above Spain’s average - while in 2024, the Canaries recorded a YoY 4.6 per cent increase in overnights to 72.9 million.

The sustained demand growth, coupled with the limited expansion of hotel supply and the repositioning of a significant number of assets in recent years - Hernando notes that investor appetite is very focused on finding value add opportunities - has driven occupancy rates upwards and pushed average daily rates up 35 per cent across both destinations since 2019.

For 2024, the Canary Islands recorded occupancy of 84.3 per cent, revpar of €113.60 and ADR of €134.70, with Tenerife and Gran Canaria leading with ADRs of €143 – up 10.6 per cent - and €141 – up 9.7 per cent – respectively. In the Balearic Islands, occupancy for 2024 was at 83.6 per cent, revpar €118.40 and ADR at €141.70. with Ibiza-Formentera miles ahead in terms of ADR at €189.

While the Balearics still struggle with seasonality despite efforts to extend the season, the Canaries attracts visitors throughout the year, giving the destination a stability edge.

Positively, both archipelagos are doubling down on long-term viability. From the Reserve for Investments in the Canary Islands (RIC) to Modernisation Plans, NextGen funding and infrastructure investments such as the €550 million expansion of Tenerife South Airport, strategic tools are in place to futureproof their appeal, with both the Balearics and Canaries putting sustainability front and centre.

“Repositioning and investment will continue to drive tourism expenditure, and sustainability will remain a top priority on both destinations' agendas,” Hernando notes.

Opportunity

The hotel market in both islands is still largely ownership driven. In the Canary Islands, 73 per cent of rooms are directly owned, with the Balearics at 74 per cent. Lease and management contracts play only minor roles.

That preference for direct ownership has given local operators strong control but it also means there’s ample room for growth in alternative models like management and franchise agreements.

Hernando predicts more appetite for franchise and management agreements in the near future, albeit slowly. “We are more used to lease agreements and maybe franchise is the future in some specific markets but franchise is currently at about 4 percent and management 11 per cent. We think it will increase but very slowly - maybe we'll achieve 10 per cent franchise percentage in 10 years,” she says.

While the Balearics have pulled ahead in the race to attract marquee international brands like Four Seasons and Mandarin Oriental, the Canary Islands still represent fertile ground for upscale development.

“Despite the tourism maturity of both destinations, there remain significant growth opportunities, particularly within the international luxury segment. The Canary Islands still possess considerable development potential in this segment, with few luxury international projects currently underway,” Hernando notes.

International hotel groups still operate only 8 per cent of the hotel rooms in the Canaries, with a significant portion of this share is fuelled by the commercial partnership between IHG and Iberostar, signifying enormous growth potential. In the Balearics, the share is slightly higher at 10 per cent, also driven in part by alliances such as IHG and Iberostar. But both regions remain heavily fragmented, leaving the door wide open for consolidation, repositioning, fresh brand entries and global operator expansion especially from high-end lifestyle and extended-stay operators.

“It’s quite difficult to build new hotels in both regions, supply has remained restricted, and demand is increasing. Both markets are quite fragmented so there will be opportunities in the future. We are seeing a lot of interest in partnerships with Spanish operators,” Hernando says.

In fact, the alliances between local operators with deep market expertise and international brands with global reach, as well as the entry of new international brands through the acquisition of experienced national hotel chains are expected to be one of the key trends in the coming years.

The Colliers report notes that new entrants in the market, particularly serviced apartment operators with currently limited presence in the vacation sector, are poised to gain traction. In fact, serviced apartment players are gaining momentum as the islands look to diversify and de-risk their tourism offerings. With lower overheads and greater operational flexibility, they’re uniquely positioned to navigate labour shortages and seasonality, challenges that are especially pressing in destinations such as the Canary Islands and the Balearic Islands.

Very few risks

Looking ahead, the outlook for both the Canary Islands and the Balearics remain strong, with infrastructure improvements combined with repositioning efforts in recent years, expected to drive improved performance.

“The winners will be those that are able to have a presence in these two markets. They always have a positive performance, Ebtida has been better and I don’t see a lot of new supply coming in which is helping operational KPIs so there a very few risks in terms of investment,” Hernando concludes.