When Portugal was added to the United Kingdom’s "Green List" — an approved list of international destinations in which travelers did not have to quarantine on their return — on May 17, Portugal's hoteliers were prepared for an influx of bookings.

Excitement quickly turned to frustration when it was removed from the list three weeks later.

After record months of hotel performance in January and February 2020, Portugal’s hotel industry took a huge hit due to the pandemic, with average daily rate and occupancy plummeting and turnover dropping by an average of 66% in 2020 compared to 2019.

The country is heavily reliant on British tourists, particularly in its Algarve region, where 50% of airport arrivals come from the U.K.

In 2020, there was a two-week “air bridge” between two countries, but it provided only cold comfort in a dismal year, said Sean Moriarty, CEO, Quinta do Lago, a golf resort in the Algarve region of Portugal, where 60% of guests come from the U.K.

“Our leisure business went from a huge 2019 to an almost zero [in] 2020,” Moriarty said.

Meanwhile, Martinhal Family Hotels & Resorts, which operates properties in the Algarve, Cascais, Sagres and Lisbon, captured only 25% of its 2019 revenue in 2020.

Portugal’s addition to the Green List in mid-May felt like a turning point, especially on the verge of the U.K.'s June half-term school vacation period. Once Portugal was approved, Martinhal saw between 98% and 100% occupancy in three of its four family properties, said Chitra Stern, owner and director of Elegant Group of Companies, the owner of Martinhal.

“There was a lot of pent-up demand for family travel, even with the expensive PCR tests,” Stern said. “People took their chance, and as soon as they could get a flight out, they came."

At Quinta do Lago, too, the mood completely shifted, Moriarty said.

“Our teams were working through the night to reply to everyone; there was huge energy about the place, and it really brought the Algarve back to life,” Moriarty said. “Everybody was enjoying themselves and adhering to the rules. I think people that came here needed that mental break from their normal life, and people here needed that mental break of seeing tourism again."

Prior to that point, hoteliers believed 2021 was another lost year, said Gonçalo Garcia, head of hospitality for Portugal at business advisory Cushman & Wakefield. But with Portugal approved for U.K. tourists, hotel operators jumped at the chance to win back lost revenue from more than a year of lost business.

“None of the other direct competitors for the summer season were on the Green List, which led to a significant increase in bookings and allowed hoteliers to charge higher amounts,” Garcia said. “They were already preparing their operations for 2022. And suddenly that changed."

On June 8, Portugal was downgraded to “Amber” designation. When he first heard the news, Moriarty was shocked. His restaurants had 2,000 cancellations over two days. He is still assessing the damage to hotel bookings.

“We’ve already had about 20% of bookings canceled, but many people don’t have to cancel this far out,” he said. “We’d expected that there would be prior warning, and it was hugely disappointing for us as resort operators, and for the people who had just arrived and had to leave two days later."

Stern had arranged PCR testing for guests at her properties and said she stopped counting after 600 cancellations. She added the hardest thing now is the uncertainty.

“We’re entering high season, and usually in the hotel industry you would plan things like staffing and outsourcing services for housekeeping well in advance,” she said. “It’s really difficult and complicated. We have a lot of fixed costs as a hotel, and we can’t switch those on and off.”

Martinhal is now focusing its marketing attention on its other strong markets — Germany, France, Switzerland, Belgium, the Netherlands and Luxembourg — but Stern said those tourists will never replace the volume of guests the U.K. brings in an average year.

Even at Discovery Hotel Management — which has a portfolio of 18 hotels spread across Portugal and only relies on the U.K. for 20% of its business — the news of Portugal's status change was “a massive blow,” according to Luís Mexia Alves, the company's CEO of Portugal.

“Bookings had increased by 100% when Portugal was added to the Green List, and a wave of cancellations for June and July immediately followed the U.K. government’s announcement,” he said.

He added the pandemic in general does not allow people and organizations to plan ahead with certainty, so last-minute changes to regulations are extraordinarily hard to bear.

“If these limitations persist the impact in our business will be much greater due to other markets still struggling to lift their own restrictions,” he said.

Stern and Moriarty used the down time offered by 2020’s travel restrictions to focus on the real estate divisions of their businesses, which are outperforming predictions made before the pandemic.

While the Martinhal Branded Residences is now more than two-thirds sold out — a third of that since March 2020 — Quinta do Lago Real Estate reported a 52% increase in the number of leads this January, when compared to the start of 2020, and a 300% increase in sales, Stern said. The U.K. continues to be its strongest market for that section of the business, too, although there has also been a rise in interest domestically.

The mainstream hotel industry in Portugal is hurting, although it will likely see new life, perhaps with new investment and operators, Stern said.

“Unfortunately, some hotels will close down and may never reopen in the same way, but there are opportunities and investors working with local knowledge [who] can perhaps revive these hotels for a different purpose,” Stern said.

Garcia said the appetite for hotel investment hasn’t diminished, although it is largely on pause.

“Investors still believe in tourism. The fundamentals have not changed,” he said. “But their risk perspective is different. We saw [from investors] an adjustment on price expectations after the first lockdown, which wasn’t balanced on the selling side. Over the past 12 months the gap has been adjusting, but it’s still wide enough to mean transactions generally aren’t happening."

He added the hotel portfolio of ECS, the largest in Portugal, has all the conditions to transact by the end of the year. ECS' hotel properties include the Conrad Algarve, Hilton Vilamoura As Cascatas Golf & Resort Spa and 10-asset NAU Hotels & Resorts.

“It is demonstrative of the willingness of investors to keep investing in tourism and in Portugal. There is genuine motivation from the buying and the selling side, but it’s a very complex deal,” he said.

Garcia said the market has all the conditions it needs to rebound.

“The Portuguese government has taken a path over the last 20 years, including tax incentives and persistent marketing, which has led to a strong market,” he said.

People want to travel, and the market motivation is there, he added.

“What is not there is the condition to allow people to circulate freely,” Garcia said.