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About the Authors

Please cite this publication as:

Economía Creativa Consultancy (2016), Brexit: impact on EU Tourism & Real Estate markets /

Focus on Spain, Economía Creativa Consultancy Creative Insights

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Antonio Carlos Ruiz Soria

Economist, Principal Researcher

Antonio Carlos is Economia Creativa's co-founder

and CEO. He is expert in creative tourism, digital

and creative economy.

He advises companies, public institutions and

non-for profit sector on innovation, marketing,

investment and positioning. He has been Policy

Expert at the European Commission European

Crowdfunding Stakeholders Forum.

He is public speaker and delivers scientific

contributions and workshops at international

conferences, including academic environment.

He holds and advanced degree in Economics from

Seville University (Spain), has studied

International Economics at London School of

Economics, Political Science and International

Relations at Tours University (France), Tourism

SME Management at EOI Business School and

EU, Regions and Policy making at the EU

Committee of the Regions. He is fluent in Spanish

and English, with good level in French and basic

Polish

Justyna Molendowska-Ruiz

Researcher

Justyna is Economia Creativa's co-founder. She

is project leader and responsible for the social

media strategy, event management and

production.

Her work at Economia Creativa focuses on

digital marketing, research (creative economy,

tourism and hospitality), photography, creative

thinking and editing, company

data management and events organization.

She holds a MSc in Horticulture from Lublin

University (Poland) and has studied Social

Media and Digital Marketing at Salford Business

School, and EU, Policy making at the EU

Committee of the Regions. She is fluent in

English and Polish with good level in Spanish

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Resumen Ejecutivo Contexto macroeconómico del Reino Unido después del Brexit:

Las implicaciones macroeconómicas del Brexit para la economía de Reino Unido son: la contracción

del PIB entorno al 3% del nivel al que la economía británica hubiera alcanzado de no haber optado

por la salida de la UE; la depreciación de la libra –y su posible devaluación- que no será suficiente

para impulsar las exportaciones de Reino Unido con suficiente impulso, debido al contexto económico

internacional, como para compensar sus efectos negativos en la subida de los precios de las

importaciones y en la reducción de la renta disponible de los consumidores británicos.

Impacto del Brexit en el sector turístico de la UE y España

El resultado del referéndum por el que los británicos han decidido abandonar la UE tendrá numerosas

implicaciones en el sector turístico a corto, medio y largo plazo. Las negociaciones entre Reino Unido

y la UE previsiblemente se alargaran durante varios años creando un escenario de incertidumbre que

podría afectar a la propensión de los consumidores a viajar y al contexto económico general de Reino

Unido, reduciendo la inversión, el PIB y la renta neta disponible durante este periodo.

Incluso sin que la libertad de movimientos entre Reino Unido y la UE cambie, los consumidores

británicos podrían tener otras preocupaciones como la cobertura sanitaria, las fluctuaciones en la

cotización de la libra o incluso la percepción que los europeos puedan tener de los británicos cuando

estos viajen a los Estados Miembros de la UE. Como consecuencia, los consumidores británicos

podrían elegir otros destinos, o incluso reducir las vacaciones internacionales.

En el medio-largo plazo, viajar será más caro como consecuencia del Brexit: nuevas tasas podrían ser

introducidas, las empresas turísticas seguramente incrementaran los precios para recuperar los costes

derivados de la etapa de transición (costes de transacción más onerosos) derivados de la

incertidumbre legal y las fluctuaciones de la libra.

La industria turística de la UE tiene que considerar otros factores tales como:

Reducción de la demanda británica de turismo internacional debido a la sensibilidad al mayor

precio ya que las vacaciones están vinculadas a gastos discrecionales.

Consecuencias sobre el transporte aéreo:

La devaluación de la libra frente al dólar supondrá una elevación del precio del

combustible, incrementando el precio final de los billetes de avión y costes relacionados.

El ‘Área Europea de Aviación Común’ no será de aplicación en Reino Unido cuando este

abandone formalmente la UE, afectando a empresas como Ryanair o Easyjet que

tendrán que incrementar los precios para cubrir el incremento de los costes al no serles

aplicables las tarifas aeroportuarias reducidas de la UE

Menores compensaciones por retrasos u otras incidencias para los turistas británicos

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Inseguridad respecto a la cobertura de los seguros de viaje (que están muy extendidos en Reino

Unido)

Incertidumbre acerca de la asistencia sanitaria a los turistas británicos

Probablemente costes añadidos por roaming en llamadas de teléfonos móviles

Según el Instituto Nacional de Estadística (INE) más de 15,8 millones de turistas británicos viajaron

a España en 2015, un 6% más que en 2014, representando un total de 14.300 millones de euros en

2015, un 12% más que en el ejercicio anterior. Los turistas procedentes de Reino Unido representan

alrededor de un 20% del total de las llegadas internacionales de turistas a España.

Al contraerse la economía británica como consecuencia del Brexit y ser un mercado emisor que

representa un quinto del total de turistas extranjeros que visitan España, es previsible que el sector

turístico español se vea afectado en términos de número de visitantes y/o gasto total.

De hecho, a pesar de que el la tasa de crecimiento de turistas residentes en Reino Unido que visitan

España haya crecido en el primer trimestre de 2016 respecto al mismo periodo del ejercicio anterior,

la tasa de gasto total de los turistas británicos ha crecido a un menor ritmo, lo que implica que el

gasto medio por turista británico en España ha decrecido en el primer trimestre de 2016 un 2,5%

respecto al primer trimestre de 2015.

Existe una correlación positiva entre la variación del tipo de cambio efectivo de la libra frente al euro

y el gasto medio por turista británico en España. Por ejemplo, si el tipo de cambio efectivo de la libra

frente al euro se reduce un 10%, el gasto medio de los turistas británicos podría reducirse entorno al

12%.

La tasa de crecimiento de la demanda de turistas británicos en España muestra una tendencia

creciente, sin embargo la de los británicos viajando a Estados Miembros de la UE muestra una

tendencia descendente. Esto puede ser debido a que los turistas británicos pueden estar ya viéndose

afectados por la depreciación de la libra, eligiendo España como destino más barato comparado con

otros destinos de la UE en términos de coste de vuelos respecto de, por ejemplo, Grecia, y de coste de

vida respecto a Francia o Italia.

El crecimiento del tráfico de turistas británicos a España a una tasa superior al crecimiento del gasto

presiona la rentabilidad de empresas turísticas que estén comerciando ya con modelos de low-cost si

continúan compitiendo basando su competitividad en el precio baratos y servicios de poco valor

añadido.

También pondrá en dificultades –como se ha observado ya en numerosas zonas costeras españolas- la

sostenibilidad de los destinos, llegando a crear efectos indeseados de saturación, particularmente en

las costas, creando problemas de congestión, contaminación, ruido e, incluso, de orden público.

Existe la posibilidad de que se esté incubando una burbuja en España respecto al turismo británico

que podría romperse si la libra se deprecia aún más frente al euro y la economía británica entra en

recesión.

Algunas comunidades como las Islas Canarias o las Islas Baleares pueden sufrir más que otras como

Cataluña, Comunidad Valenciana o la Costa del Sol el descenso de tráfico de turistas británicos

debido al mayor coste del transporte aéreo a las islas.

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Conclusión: En el medio plazo el resultado del Brexit producirá un descenso de la demanda de turistas

procedentes del Reino Unido así como del gasto medio por turista.

Sin embargo este contexto también presenta oportunidades, principalmente a las zonas costeras cuyo

modelo de sol y playa se está resintiendo por la saturación, la estacionalidad y la necesidad de

diversificar la oferta.

Estos destinos tienen la oportunidad de reinventarse no solo a través de promocionar productos y

servicios en nuevos nichos de mercado, sino cambiando el paradigma del turismo centrado en el

modelo sol y playa actual basado en productos y servicios con poco valor añadido por un modelo

basado en el turismo creativo con el objetivo de ofrecer experiencias transformadoras a los viajeros,

con alto valor añadido y de impulsar el emprendimiento en los destinos, generando empleo de calidad

y atrayendo talento, posibilitando los efectos en cadena y las sinergias del turismo con sectores

innovadores como la economía creativa y digital.

Esto requiere una mayor colaboración público-privada y la co-creacion de abajo-arriba del diseño y

la implantación de la estrategia de regeneración de los destinos. En esta línea, el proyecto ‘Reinventar

la Costa del Sol a través del turismo creativo’ incluido por la OCDE en el Foro de Desarrollo

Económico y del Empleo Local (LEED) aplica el modelo de negocio de turismo creativo a Málaga-

Costa del Sol -y aplicable a zonas costeras con alta intensidad turística- a través de focus groups para

evaluar los retos y oportunidades para el destino con la participación de distintos actores tanto

privados como públicos; y talleres de co-creación de experiencias de turismo creativo a partir de los

recursos locales, desarrollando sinergias con el arte, el patrimonio histórico, la cultura y las industrias

creativas, puede

Este nuevo paradigma tiene la finalidad de impulsar el desarrollo inteligente de los destinos (SMART

Destinations), generando un modelo de turismo sostenible capaz de reducir la estacionalidad y de

atraer talento innovador a las costas españolas, diversificando su tejido productivo a la vez que se

reduce el impacto del Brexit en España.

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Foreword

“The secret of change is to focus all of your energy, not on

fighting the old, but on building the new”

Socrates

rexit has risen a considerable concern both in the UK

and the EU. The fact that the UK, the second largest

economy of the EU, has voted for leaving –despite the

tight margin- is going to have an impact on both Britain

and EU in socio-economic, politic, business and cultural

levels. The present analysis concentrates in presenting the

main consequences of Brexit for the EU travel and real

estate markets, focusing in Spain.

The macroeconomic context of the UK after Brexit

B

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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According to a Bloomberg poll almost three-quarters of market economists surveyed expect the

UK to have a technical recession (two consecutive quarters where output falls) in the next

eighteen months. The main reason for the UK economy to be facing a probable recession is the

uncertainty created by Brexit, which is the major concern for businesses and investors.

The National Institute for Economic and Social Research of the UK predicts that due

to the fact that the UK has chosen to be less economically integrated with the EU, this

is likely to lead to lower levels of migration and trade. The UK economy is likely to be

less specialised and less productive with lower level of investment. The GDP is likely to

be lower than it would otherwise have been if the UK had remained in the EU. For

example, the consensus medium term projection is that output in 2020 will be 3% lower

than otherwise.

The pound has depreciated by 10% against the euro and 13% against the US dollar just

from the 23rd June, the day of the referendum, to the 8th of July –as it is shown on

figure 1 below. The depreciation and the possible future devaluation in the pound will

lead to more expensive imports, reducing effective disposable income and possibly

leading to lower consumer expending. The concern is how much the pound will fall

against the dollar because declining capital flows combined with current account deficit

will put strong downward pressure on the pound. The depreciation or possible

devaluation of the pound could give a boost to the UK economy because exports would

become cheaper, as it happened during the 1992 devaluation that helped UK recovery.

However the situation in 2016 does not resemble that of the 1992 since interests rates

are already low at 0.5% (when in 1992 interest rates also fell dramatically) and other

factors such as the Chinese slowdown implications to Europe and US economy and the

Figure 1. Pound exchange rate against euro and dollar

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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very impact of Brexit on EU will imply lower growth in Europe, limiting the effect of

the depreciation of the pound on UK exports.

In consequence, the Brexit macroeconomic implications to the UK economy will imply

a contraction of the GDP that would have happened if Brexit would not have taken

place of 3%, a depreciation of the pound –and possible devaluation- that would not be

enough to boost British exports, due to the global economic context, in order to

compensate its negatives effects on the import prices and effective disposable income.

Brexit impact in EU travel market

Great Britain's referendum to leave the European Union will also affect the EU travel

market in the short, medium and long run. The negotiations between the UK and the

EU are likely to span over a number of years creating a scenario of uncertainty that

could affect consumers’ propensity to travel and the general UK economic outlook as

we have seen above, reducing investment, GDP and net disposable income during this

period. Even if there were no changes to travel requirements, in terms of freedom of

movement restrictions, consumers might still have concerns for other issues, such as

access to health care, currency fluctuations or even perceptions of the Britain when

travelling to EU countries. As a consequence, UK consumers might finally choose other

destinations, or even reduce travel abroad altogether. In the long term, travel is likely

to become more expensive due to

Brexit: new taxes could be introduced,

businesses in the travel industry are

also likely to increase prices in order to

recover any costs occurred during a

transition period, such as transactional

costs due to sterling depreciation and

legal complexity derived from the

uncertain legal framework. Figure 2. Brexit impact on EU travel market

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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In fact, figure 2 shows that UK outbound tourism both in global figures and to EU has

been benefitting from a positive growth on UK Net disposable income of around 2%

from Q4 2014 to Q4 2015 and a strong pound compared to the euro until Q1 2016, when

the market instability prior Brexit has weakened the pound by 3.5% vs. Euro, having

as a consequence that the UK total outbound tourism growth rate has decline from

10% to 8% and the UK outbound tourists to EU from 12.3% to 9.1% in Q1 2016

compared to Q4 2015. It is likely that this decline will deepened in the short and

medium term if the pound continues its depreciation vs. euro and the UK net disposable

income might be further declining due to the more expensive imports and the

uncertainty for investment in the UK economy.

EU tourism industry has to consider also several possible consequences due to Brexit:

Decline on UK outbound tourism due to price sensitivity, because holidays

abroad are closely linked to discretionary spending behaviours

Consequences on flight prices:

Fuel price rises due to the fact that the sterling has also depreciated

against the dollar. This will lead to higher flight and related costs

Also ‘The European Common Aviation Area will no longer be applicable

to companies such Ryanair or Easyjet following Brexit, so they will have

to increase prices to cover the costs of reduced EU airport charges no

longer applying to them.

Lower compensation for delayed flights for tourists

Poorer holiday protection and uncertainty regarding the coverage of travel

insurance

An uncertain future for reciprocal health benefits for the tourists

Additional roaming costs on mobile phones

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Brexit impact in Spanish tourism industry

According to the Spanish National Statistics (INE), more than 15.8 millions of UK

residents travelled to Spain in 2015, a 6% more than in 2014, representing a total

expenditure of 14,312 millions of Euros in 2015, 12% more than in 2014. UK tourists

represent around 20% of total foreign arrivals into Spain. Therefore, it is a corollary

that the UK referendum result of leaving the EU will have important consequences for

the Spanish economy and for the travel and real estate markets (the later will be

considered below).

Figure 3 shows that

UK residents

traveling to Spain

(darker green line)

growth rate in Q1

2016 continues an

increasing trend

whereas the UK

outbound tourists to

EU (blue line) shows

already signs of

decline in consonance

with the decrease on UK net disposable income growth (lighter blue line) and the pound

depreciation (darker red line). The UK tourists average expenditure in Spain growth

rate is also negative in Q1 2016 (red line), what it might be an early sign of the effect of

uncertainty and pound depreciation into UK tourists purchasing power when traveling

to Spain.

Despite the fact that in Q1 2016 the UK residents traveling to Spain shows a positive

trend, andthe expectative for Q2 2016 and Q3 2016 are also positive since most of the

holiday might have been booked prior to the Brexit referendum, the UK tourists

average expenditure in Spain shows a negative growth rate in Q1 2016 vs. both Q1 2015

Figure 3. Brexit impact on Spanish travel market

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and compared to Q4 2015; the Spanish inbound tourist demand from the UK (darker

green line) shows an increasing trend in Q1 2016, at a faster rate than total expenditure

by UK tourists in Spain growth rate, whereas the UK outbound tourists to EU is

showing decline. The implication of this might be that UK tourists are already suffering

from the depreciation of the pound against the euro, that as we can see on figure 3

started to lose value on Q3 2015, choosing Spain as a cheaper destination in terms of

flight costs compared to other EU destinations such as Greece and less expensive cost of

living as compared to France or Italy.

The increase of UK tourists’ traffic to Spain at a higher rate than the growth of their

expenditure puts pressure on Spanish business profitability, particularly on those which

are already trading almost on margin or with low-cost business models if the compete to

satisfy a higher demand at even lower prices. It will also put pressure on destinations,

particularly on the Costas, saturating the destinations, creating problems of congestion,

pollution, noise, conflicts with local population, public disorders and binge drinking.

However the figures might also

show the possibility that Spain

might be incubating a tourism

bubble that could bust if the

pound depreciates more against

the euro and the UK economy

enters in recession (UK tourists

represent 20% of total tourism

demand in Spain).

Figure 4 shows the positive

relationship between the pound-euro effective exchange rates and the UK tourist’s

average expenditure in Spain growth rate. This means that the depreciation of the

pound against the euro will imply a decline on the average spending by UK tourist in

Spain, either by the decline of traffic or total expenditure or both.

Figure 4. UK Tourists average expenditure - pound/euro exchange rate

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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Figure 5. Spanish properties sold by nationality of buyer - 2015

Certain regions of Spain such Canary Island or the Baleares could suffer more than

others such Catalonia, Alicante and Costa del Sol the decline in the traffic of UK

tourists from Britain due to higher flight prices to the islands.

Impact of Brexit in Real Estate market EU/Spain

As it has been shown above, the UK decision to leave the EU will have impacts such

the depreciation of the pound, UK GDP will decline with the serious possibility of a

recession in the British economy. This outlook worsened by the uncertainty brought by

the limbo situation in which the relations between the UK and the EU are until the UK

will apply officially to the process of leaving the UK and this finally will be effective (a

process that will last at least two years) plus

the whole and complex negotiations

between the UK and the EU and many

other countries are completed in order to

establish the new legal framework, from

travel documents, to circulation of people

and regulation for living and working in the

EU for UK citizens and for trading for every

sector of the economy. This scenario will

have a serious negative effect on the EU real

estate markets whose share of British buyers is high. This is the case of Spanish costas,

particularly in the areas of Alicante and Costa del Sol.

In Spain, British demand grew strongly last year due to the strong pound and

attractive Spanish property prices. British buyers represented the biggest foreign

market as it is shown on the figure 5. The referendum result brings up big questions for

British expats and property owners in Spain (affecting issues such as residency rights,

pensions, freedom of access, taxes, health care and so on) which, as we have described

above, is likely to take years to sort out. Property buyers are risk averse and do not like

uncertainty, so it is the most probable that British buyers will reduce their demand of

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

14

properties in the EU and also in Spain. This could lead to a shock in the market that

could take several years to be stabilized.

Conclusion & Recommendations The UK referendum and its result on 23rd June 2016 has brought a great degree of

uncertainty to the UK economy, with the depreciation of the pound against the euro

and the dollar, and to both the travel and the real estate markets in the EU and in

Spain.

In the travel market the most evident consequences will be the reduction of the travel

abroad altogether and/or the reduction of the expenditure by British tourist in the EU

and in Spain. However this context might present an opportunity to many

Mediterranean and coastal destinations that are suffering from congestion and tourism

seasonality due to an unsustainable tourism model excessively dominated by the sun

and beach segment to reinvent themselves by changing their model –not just by

promoting niche markets- by moving from a low-cost typical offering based on product

and services to a higher added value creative tourism business model in which the aim is

to provide a transformative experience in the destination for the creative tourists of the

XXI. This implies a higher degree of collaboration between the public and private

sector and a bottom up approach to design and implement the strategy. In the project

Reinventing Costa del Sol through Creative Tourism’ included at OECD Forum LEED

(Local Economy and Employment Development) it is applied the creative tourism

business model to Malaga-Costa del Sol. This new tourism paradigm aims for a

sustainable local economy boosting entrepreneurship and talent attraction that can also

contribute to reduce to certain extent the reduction on the demand for buying

properties in the EU and Spain due to Brexit.

Brexit: impact on EU Tourism & Real Estate markets / Focus on Spain

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