Hotel, Tourism and Leisure. Special Market Reports Issue 3 - ZARAGOZA. June

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1 Hotel, Tourism and Leisure Special Market Reports Issue 3 - ZARAGOZA June

2 Special arket eports ssue 23 Zaragoza, Spain ZARAGOZA, SPAIN Capital Cities of Autonomous Communities Zaragoza is the capital of Aragón, an autonomous community in northern Spain, which corresponds to the identically named medieval kingdom dating from Aragon's northern province of Huesca borders France and is positioned in the middle of the Pyrenees. Within Spain, the community is flanked by Catalonia on the east, Valencia and Castile La Mancha to the south, and Castile and León, La Rioja, and Navarre to the west. Zaragoza is Spain s fifth largest city, covering 1,062 square kilometers with a population of 700,000. Located within three hours by car from Madrid, Barcelona, Bilbao, Valencia and Toulouse, Zaragoza is a hub in transportation and communication. DEMAND AND SUPPLY The city's economy benefited from such projects as Expo 2008, whose theme was water and sustainable development, held between 14 June and 14 September Since the end of Expo 2008, hotel operators and owners have been suffering the consequences of a dramatically oversupplied market combined with a severe economic environment. The fair, together with the launch of the AVE, were the origins of a hotel construction boom, causing a severe oversupply that will take years to consolidate. The three hotels in the western periphery of Zaragoza close to the AVE station and in the Expo area, achieved a combined occupancy of 41% in 2013, according to information provided by the hoteliers. The inauguration of the high-speed AVE train from Barcelona to Madrid in 2003, with 50% of the trains stopping in Zaragoza, has approximated the city to Madrid and Barcelona. The tracks recently have been extended to Figueres in northern Catalonia, and connect with the French high-speed TGV to Marseille and Paris. Source: Horeca - Zaragoza Hotel Association The leading hotel operator in the city, Palafox Hoteles, has added two singular upscale 180-room properties (Hotel Hiberus and Hotel Reina Petronila). One is located in the Expo area across the Ebro River, and the other is adjacent to a new shopping center, Aragonia, within a mainly residential area. The second largest hotel operator, Meliá Hotels International, operates the Meliá Zaragoza in the city center as well as the Tryp Zaragoza within walking distance of the AVE train station.

Within Spain, the community is flanked by Catalonia on the east, Valencia and Castile La Mancha to the south, and Castile and León, La Rioja, and Navarre to the west.

3 Special arket eports Issue 23 - Zaragoza, Spain NH Hoteles operates three properties in the city center. The Zaragoza Hotel Association is taking active measures and has presented a study, which includes a set of recommendations to increase the number of visitors to the city and reduce costs. Source: INE (National Institute of Statistics) The excessive growth of supply shows clearly during the time of Expo 2008, when occupancy rates dropped by 1 percentage point compared to the previous year. Source: INE (National Institute of Statistics) Among the actions to attract traffic to the city is a proposal to improve conditions for low-cost airlines that would help to create new routes to Zaragoza Airport, which is mainly a cargo airport, targeting main feeder cities located less than two hours by plane. Other recommendations include: tax incentives for the hotel sector; deferred payment schemes for social security during the four lowest months of the year; applying the rates of domestic users to water supply; and a reduction of value-added tax from 10% to 4%. CONSEQUENCES In spite of moderate optimism for 2014, the damage of the situation can no longer be avoided. One of the largest properties, Hotel Husa Zaragoza, located in the same building as the AVE train station, is no longer being distributed on the online travel portal booking.com. As a part of the disinvestment campaign and restructuring of the Spanish portfolio, NH Hoteles will cease to lease and operate one of their five hotels in the city. Both new properties of Palafox do not operate year round, closing for five weeks from mid-december to the end of January. In spite of this critical lack of demand, one new hotel project, Hotel Eurostars Zaragoza operated by the Hotusa Group, will be located in the Expo area and is on schedule to open in June PROACTIVE STEPS Taking into consideration all aspects, including taxing and local remuneration agreements - which are among the highest of the provincial capitals - Zaragoza is likely to remain one of the most challenging hotel markets in the country. FAIRS AND CITYWIDE EVENTS Twelve annual and 14 biannual national fairs are attended exclusively by Spanish visitors, and none of them generates enough demand to fill the hotels in the city, including the ones in the city center. Most national fairs consolidate into fewer and larger events in Madrid and Barcelona, and Feria de Zaragoza has difficulties competing in this scenario. The expectations are moderate; no new fairs are programmed; and for the next two years, a slight decline in visitors is expected. A successful and award-winning car launch of the new Volkswagen Golf 7 in 2012 became a citywide event spanning over four months and producing 15 million ($20.6 million) in additional revenues for the city. As a result, Zaragoza Turismo has launched a strategic promotion plan to attract larger events to the city, which profits from a surprise effect. Zaragoza enjoys a positive reputation with a solid fourth position of 78 Spanish cities, just behind Madrid, Barcelona and Bilbao. However, many operators agree citywide events are too uncertain to justify overly optimistic forecasts.

Source: INE (National Institute of Statistics) The excessive growth of supply shows clearly during the time of Expo 2008, when occupancy rates dropped by 1 percentage point compared to the previous

4 4QFDJBM.BSLFU 3FQPSUT CONVENTIONS Zaragoza s location between Madrid and Barcelona and the attractive price-quality relation of hotels and meeting spaces promote Zaragoza to an awakening *TTVF 3 Zaragoza, Spain NEAR FUTURE 2014 will be a crucial year to prove the moderately optimistic projections for the coming years are justified. market of corporate meetings and conventions. It is expected to grow as of 2014, fuelling hopes and expectations that the bottom point has been reached in TOURISM For foreigners, the reason to visit Zaragoza is leisure and tourism. The chart below shows the number of global travelers exceeded pre-expo numbers as of 2010, indicating the marketing effect of Expo 2008 has slightly improved the awareness of the city abroad. Zaragoza Turismo, a partly public and private organization, enjoys solid support of the principal hotel groups and owners. A wide array of creative niche promotions intends to expand the average length of stays in the city and convert daytime visitors to hotel guests. The yearly updated five-year marketing plan aims to increase synergies by cooperating with existing networks such as the convention bureau or network of AVE cities (connected by high-speed trains). Zaragoza will only be able to grow if national tourism as well as corporate travel recuperates, as a consequence of economic recovery. The first quarter was positively influenced by the increased number of fairs, as three biannual fairs are being celebrated between January and March of even years. Occupancy figures have also been solid during Easter Week and during the Bridge Holiday of 1 May, from Thursday to Sunday, indicating a slightly higher level of confidence from leisure travelers. In spite of increases in room nights, Zaragoza will remain a challenge for hoteliers. The oversupply of guestrooms has been caused by large new hotels in the periphery of the city center. Unless the city captures more and larger events, there is not going to be enough demand for these hotels in the years to come. Even the best locations in the city center will not enjoy a solid demand of over 80% occupancy for more than six to 10 days per month. Therefore, the average rates will also recuperate slowly and remain below 75 to 90 ($103 to $123), comparable to cities such as Pamplona or Cáceres. WRITTEN BY: REINHARD WALL Director of Asset Management Horwath HTL Spain rwall@horwathhtl.com Reinhard Wall joined Horwath HTL Spain in 2014, and is heading Asset Management Services from the Madrid office. With 30 years of international experience in Hotel Management in Europe and South America, he is responsible for the analysis and reviews of hotel portfolios, providing a range of service proposals and management solutions for hotels and resorts, both branded and independent. )038"5) )5- SPAIN BARCELONA Av. Diagonal 429, Barcelona T MADRID Paseo de la Castellana 130, Madrid T

Spain NEAR FUTURE 2014 will be a crucial year to prove the moderately optimistic projections for the coming years are justified. market of corporate meetings and conventions.

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