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Spain is the world's second-most visited country

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It is Europe's top destination for hotel investment

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Barcelona will ban all short-term lets by 2028

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Protests against mass tourism have spread

By Joan Faus and Corina Pons

BARCELONA/SANTA CRUZ DE TENERIFE, Spain, Sept 3

(Reuters) - S panish authorities are encouraging the expansion of

luxury hotels as they crack down on a surge in holiday rentals

that has triggered anti-tourism protests in places like

Barcelona or the Canary Islands.

The hotel sector has faced local restrictions on expanding

but is now seen as a beacon for the high-end tourism officials

seek to lure.

Spain is the world's second-most visited country after

France and estimates point to a record of around 95 million

visitors this year, or double Spain's population.

Local people have staged protests this summer blaming

booming short-term holiday lets for soaring costs of housing and

overcrammed city streets, prompting a thorny debate about how to

limit one of the economy's main drivers.

Barcelona - the Spanish city most visited by foreigners -

and Tenerife in the Canary Islands announced earlier this year a

ban and stricter rules on tourist apartments, respectively,

aiming to sharply reduce supply.

Although Barcelona will keep its ban on building new hotels

downtown, existing establishments can upgrade their

classification, and it will support a plan to open 5,000 new

hotel beds in other areas while it shuts all of its 10,000

tourist apartments by 2028, Mayor Jaume Collboni told Reuters.

"We can do little about demand, but we can act on supply,"

he said.

To better attract "quality tourism", he wants to reduce

overcrowding and prioritise culture-and gastronomy-driven

visitors, and international conferences.

Collboni said hotels can guarantee quality and labour rights

better than short lets, which have curtailed local people's

access to housing. Rents rose 68% and house prices 38% in the

past decade.

In Tenerife, authorities plan to add 1,000 beds in new

luxury hotels near an area in the island's busy southeast that

already has the largest concentration of five-star hotels in

Europe.

"We want to compete not as a low-price destination, but as a

quality destination," said local tourism chief Lope Alfonso.

INVESTMENT HOTS UP

Timing appears favourable. Spain has surpassed Britain as

Europe's top market for hotel investment, particularly upscale,

a recent survey by real estate group CBRE showed. Madrid ranked

second and Barcelona sixth among the top 10 European cities.

Investors are also buying old hotels to convert them into

luxury hotels, with four- and five-star establishments up 4.5%

and 2.5% year-on-year to July in Spain. Hotel prices rose 7.18%

year-on-year in June, outpacing inflation and last year's

increase.

"The luxury and lifestyle segments have great potential for

growth in Spain," said Manuel Melenchon, managing director of

Hyatt Hotels ( H ) for Europe, Africa and the Middle East.

The U.S.-based group aims to have "many more" than its

current 50 hotels in Spain, he said, at a time of increasing

arrivals of American tourists.

A five-star Grand Hyatt opened in Barcelona this year and

two hotels will open in Mallorca and Tenerife later this year.

"The commitment to quality is a positive and necessary step

to change (Spain's) tourism model," said Gabriel Escarrer, chief

executive of Melia, Spain's largest hotel group, adding

that Melia will continue betting on the high-end segment, which

represents 63% of its portfolio and has boosted revenues.

In recent years, Madrid has positioned itself as a luxury

destination thanks to new five-star hotels, and the approach

appears to be paying off: in July, tourists spent a daily

average of 317 euros ($350), well above the national average of

195 euros and higher than Catalonia's 220 euros.

Barcelona's new push to attract high spenders is also making

inroads. It ranked second in hotel investments, worth 285

million euros, in Spain in January-June, behind the Balearic

Islands, according to CBRE. Barcelona's five-star hotels

received 36% of the funds, above Spain's average of 30%.

RISKY BET?

Still, the bet could be risky because most tourists usually

seek affordable holidays in Spain, partly fuelled by a vast

offer of low-cost flights. And while demand for hotels rose 9.5%

in January-July, for tourist apartments it did by 27%.

Perception matters too. Protesters spraying tourists in

Barcelona with water guns in July and making global headlines

"do not help at all in promoting a city of quality," complained

Mateu Hernandez, head of Barcelona's tourism consortium.

As the America's Cup sailing competition kicked off in

Barcelona on Aug. 22, his firm ran full-page ads in newspapers

abroad describing Barcelona as "welcoming by nature". The event

represents the "high-quality offer" the city seeks rather than

being a popular destination for drunken stag parties, he said.

But many people question the benefits of high-end tourism

that tends to drive up prices. A rally against the "Cup of the

rich" and its impact on the city is scheduled for Sept. 7.

In Tenerife, Alfonso Boullon, who leads a protest against a

beachside hotel project, said incomes remain low in towns with

luxury hotels: "Tourism is not benefiting residents".

($1 = 0.9026 euros)