Light at the end of the tunnel – the Greek hospitality market

On 14 August last year, after a stormy all-night debate in parliament and a split in the ruling party, Greece agreed to the EU's terms for a €85-billion relief package, designed to give its failing economy a much needed shot in the arm. Desperate to keep the country in the eurozone, Prime Minister Alexis Tsipras signed a memorandum of understanding with the troika committing to tough fiscal austerity measures in exchange for relief. World markets watched events in Athens with bated breath.

But, not far from the turmoil of Syntagma Square, it was a holiday season like any other. Greece's beaches and hotels were teeming and, in terms of occupancy at least, the leisure hospitality industry was enjoying an exceptional year. Even as the economy pushed the eurozone to its limits, tourism was thriving.

Since the days of the Roman Empire, when well-to-do Italians would venture east across the Mediterranean to visit Greece's centres of philosophy, tourism has been crucial to the country's economy: a cash cow during the good times and often one of the few reliable sources of income during the bad. The country ranks 17th as a world destination and 2015 saw 26 million visitors come to Greece. It's estimated that 16.5% of its total workers rely directly on the tourism industry.

But this is a country that has struggled to find much about which to be cheerful in recent years. With the effects of the eurozone crisis, three bailouts since 2011, heavy fiscal austerity, and an economy still wracked by high unemployment and high interest rates, Greece has taken a heavy hit and it's going to be a long, uneasy road to recovery. What this means for its hospitality sector is complex: economic problems and low liquidity levels have an impact on the ability of the domestic market to invest in the industry, but visitor numbers seem to be virtually depression-proof.

"Tourism in Greece is driven by non-Greek GDP, it's practically immune to what's happening in the economy," says Dr Costas Mitropoulos, an executive director at PwC Greece. "The economy's not in a particularly good shape, but it's robust enough, and in 2015 tourism grew by almost 8%, while the economy went down by 1% or thereabouts."

Greece is the word

Things don't get more hectic than they did for Greece in 2015, with two national elections, a referendum, capital controls and a new agreement with the country's creditors. While Mitropoulos admits that hospitality struggled in the early days of the eurozone crisis, the past three years have been "almost glorious" in terms of growth and income.

Robert Koren agrees. Even when the economy was exceptionally troubled, argues Starwood Hotels & Resorts' VP and regional director for southern Europe, the hotel industry remained strong.

"I got the brunt of 'Grexit'," he says. "I was on the phone every day during the height of it all, talking with our owners, just trying to make sure everything was okay. I think that their sense of resilience in managing what has transpired was unbelievable. As a company, we supported them through it; we didn't want to put any pressure on them."

This isn't to say that everything has gone entirely smoothly. Athens, in particular, has seen massive public unrest for much of Greece's economic and political crisis, negatively impacting RevPAR figures. At a low point last year, the state was forced to introduce capital controls, limiting how much cash could be withdrawn from the country's banks at one time, all this in June, at the height of the tourism season.

"They were initially very worried, we made sure that everyone was taken care of, we had cash in the hotel for them," says Koren. "Everything went very smoothly. At one point, someone said 'oh you should be worried about security concerns', and we said 'no, you know we've gone through so many riots over the years we shouldn't be'."

Economic morality

The effect of economic crisis on infrastructure and financing of projects has left many hotels out of pocket. In January, research by broadsheet daily Kathimerini showed that an unprecedented number had placed ads online to sell their properties in the past months, amounting to 5% of the country's hotel owners. The trend, the newspaper argued, pointed to a central problem in Greece's hospitality industry: while 2015 saw record numbers visiting the country, many of its independent small and medium hotels have faced serious profitability issues as a result of the economic crisis.

But that also spells opportunity. Mitropoulos believes that this is where international players can step in and play a role in the rejuvenation of the country's hospitality industry, centralising decision-making and streamlining operations. Very few Greek companies have more than five properties on the books and under management.

"I always had a theory that there was a role for international operators," he says. "The reality has not vindicated me and the industry is still very fragmented, the Greek operators are not in a particularly good shape, and there is no real strong presence by tour operators."

Despite this, there's a lot of interest in the Greek market. With rising arrivals and plenty of destinations ripe for development, there remain opportunities out there for those keen to take them. There's also a great deal of interest, according to Merkenhof, from numerous Asian brands, but not a lot of deals yet.

This is not to say some aren't making headway. Carlson Rezidor opened its first Greek property in 2011 - a bold move at the height of the crisis. Gianleo Bosticco, who heads up the group's business development in Southern Europe, sees international operators as a stabilising force that can play a key role in building more constant (and less seasonally dependent) demand.

"It was important to enter the Athens market, despite the financial crises," he says. "Obviously, entering Athens during the peak of its crisis was not easy but we are still happy about how the property positioned within the market." A Radisson Blu is scheduled to open its doors in Crete later this year.

And events further afield have played a role in bringing guests to Greek resorts. Instability in the Middle East and North Africa, combined with terrorist attacks and security concerns, has driven visitors back to the country's resorts.

"Of course unrest in competitive countries has played a major role in the increase of tourism to Greece," says Stefan Merkenhof of GBR Consulting. "In the resorts, there was a very stable and secure environment and I think these are the reasons they're experiencing growth."

"It was all demand driven," agrees Mitropoulos. "More people were coming to Greece for reasons that had to do with the wider region and the attraction of the country itself. It's difficult to explain, it's not necessarily that Greek hoteliers got their act together and provided the world with a better product."

Fiscal motivation

There have also been financial incentives. Throughout the crisis, the dollar grew stronger against the euro, making travelling to the country more affordable: so while Starwood lost out on a segment of business from the Greek market, particularly resorts in driving distance from Athens, Koren believes that it was all recovered through US tourists.

"You started seeing significant increase in what we define as geographic sources of business, from the US," he says. "The islands, for example, were booming with Americans. The hotels did very well, especially in the resorts out of the capital; Athens felt that bit of a shake and then it got over it and recovered."

There's a lot of uncertainty still on the horizon, and the hospitality industry does have a tendency to declare a recovery in a popular market while things remain fragile. Greece's exit from the euro remains a distinct, if increasingly slim, possibility and the country's location at the forefront of the EU's growing migration crisis could mean further political instability lies ahead.

Structural issues also need to be addressed. One is significant market saturation in popular destinations, according to Mitropoulos, who wrote in his July 2014 report, 'Greek Hospitality Industry: Ripe for innovation', that many of the country's most popular resorts - Rhodes, Kos and Crete, for example - were reaching capacity and that the lesser-visited destinations were ripe for development.

"Where you don't have enough capacity, you need to invest in new capacity," he says. "And where you have a capacity surplus you need to bring in more tourists and redirect the flow to the lesser-visited destinations."

With the continued strength of the resort destinations and the signs of a broader economic recovery on the way, it's hoped that the worst is over and that Greek hospitality can start to think boldly about the future. International operators are already swooping in - Rezidor, for example, is keen to snap up properties as quickly as it can - but much of the work will have to be done by Greek developers and investors, improving the overall product and growing underappreciated destinations. Things may be looking brighter than they have in a while but there still remains a great deal left to do.