Tourism is losing its hegemony and the "rent-seeking" business is on the rise.

PalmOne in four euros generated by the Balearic Islands' economy is directly linked to tourism. And nearly a third of the region's workforce is employed there. These figures come from the Impulsa Foundation, which has meticulously categorized the islands' main productive sectors and paints a stark picture: despite still being by far the most quantitatively significant activity, tourism is proportionally losing ground within the overall Balearic economy. The reasons lie in a combination of complex factors and even change "depending on the parameters used for analysis," explains Antoni Riera, Professor of Economics and Director of Impulsa. But in any case, they reveal that "things are changing" and that tourism can no longer be the sole defining factor of the island's economy.

Domestic consumption soars

However, depending on the criteria used, the percentage of tourism's contribution to the archipelago's economy can be even higher. "Undoubtedly, a portion of commerce and construction is directly driven by tourism, but we mustn't lose sight of, for example, the increase in domestic consumption due to population growth," notes Antoni Riera. Between 2010 and the present, the number of residents in the islands has increased by more than 150,000, representing the largest increase in all of Spain.

This population, experts agree, has also contributed to the surge in the retail sector, which saw 20,400 new square meters of large retail spaces authorized between 2018 and 2022 alone. Large supermarkets are among the biggest beneficiaries, though not the only ones, of two key factors: a larger resident population and more people who no longer stay in hotels, preferring other accommodation options that fall outside the strict definition of tourism. These are primarily European citizens who buy, rent, or stay with friends for extended periods, and who are not technically tourists.

Real Estate Economics

This phenomenon, which UIB's PhD in Geography, Van Murray, describes as a "real estate and rentier economy," has triggered a surge of activity in sectors such as construction and its complementary segments. Carpenters, blacksmiths, installation companies, and gardeners frantically crisscross the islands to service this whirlwind, which, although not officially recognized as a specific sector, is currently an economic engine. Just observe the usual morning traffic jam on the Palma-Andratx highway: high-end cars belonging to foreign owners share the road with vans carrying workers heading to construction sites, primarily for luxury villas. This is a sub-industry that occupies large offices of architects, designers, project managersAir conditioning companies and all kinds of professionals cater to the allure of owning or renting a property in paradise. It's a business that generates hundreds of millions of euros each year.

"It takes advantage of the path laid out by what we might call conventional tourism, because it attracts visitors thanks to the brand and the investment of significant public resources. It's a business that benefits from the hyperconnectivity we have in the Islands, from the ease of constantly coming and going. Of course, the environmental impacts of all this are the same as before," says Murray.

One of the characteristics of this economy is its dispersion: properties are scattered throughout the territory, often sacrificing areas of high rural value. "You only have to take a drive around Foravila to see how the occupation of land by large, luxury-oriented buildings has been allowed, buildings that live with their backs turned to the island's reality and contribute far less than one might think," warns ecologist and GEN-GOB spokesperson Neus Prats.

In places like Santanyí, winter is the best time to calmly observe this phenomenon. This week, a stroll through the town made it clear that English or German are the languages displayed on the signs of shops and cafes in the center. The owners of villas in the countryside, or their friends and guests, have carved out a place for themselves in every sense, and of course, in the local economy. "Gardeners, pool maintenance workers, stonemasons, and cleaners are the ones who work around here. Most are self-employed," explains Toni, a waiter at a business in this town in the Migjorn region of Mallorca.

A large platform

For the doctor in Geography Joan Enric Capellà, author of the book Tourism or no tourism? Challenges for Mallorca in the 21st century. "We are witnessing an evolution of the model, because now residents long for the time when tourism was concentrated in a dozen or so spots for half the year. A transformation is underway, one that has accelerated since the pandemic. Thousands upon thousands of Europeans are seeking refuge in the Islands," he concludes. And this refuge, according to Ivan Murray, is becoming "a major business platform, where the Balearic Islands provide the territory, and capital, whether small or large, is dedicated to accumulating properties and managing them through all kinds of arrangements," he explains. This phenomenon, Murray says, "is not only happening with the rental of the most luxurious properties, but with everything else. We are moving towards a society of homeowners, where those with higher incomes accumulate housing and extract a large part of the income from the working classes," he states.

The thousands of people who arrive in the Islands as owners, renters, friends, or similar visitors generate significant economic activity "that begins with rental transactions that often take place outside the Islands, in a completely decentralized manner," Murray points out. Then, once in their destination, the Balearic Islands, this activity continues in the form of supermarket purchases and consumption of all the complementary services offered. "We've gone from traditional tourism to this world that operates in residential developments, where people buy from supermarkets, preferably German ones, and hire contractors for construction and renovations," explains Marga Gómez, owner of a shop in a tourist area on the Levante coast of Mallorca. "More and more people are living in the villas during the winter, but we still close; they're not our target market, our shop isn't what they're looking for," she asserts.

Occupancy versus Yield

The fact that more traditional tourism has lost ground to this new economy of villas bought for personal enjoyment and rental doesn't mean the dominant sector has lost strength, but rather that its accommodation capacity has increased very little in recent years. "But hotel groups have made significant profits after the pandemic; we shouldn't lose sight of that," explains Ivan Murray.

What is clear is that hoteliers have been warning for some years that saturation is a reality and benefits no one. "We have a clear direction, which is to act on supply to transform demand. We have invested more than 3.5 billion euros in the modernization of hotel infrastructure, focusing on shifting from a quantitative to a qualitative approach, which is the way to create value," assert sources from the Majorca Hotel Federation (FEHM).

Along the same lines, the sector emphasizes that efforts have been made to extend the season and generate greater job stability. "20% of hotels in the Islands are now open year-round, and most operate between March and November," they state. The stable employment generated by hotels and traditional tourism in general is one of the arguments the sector uses to confront the "rent-seeking" model of building houses that are rented online without, in many cases, any control or other regulated offering.

This same source from the FEHM (Mallorca Hotel Federation) believes that "clear political decisions must be made" to reduce the pressure on the land exerted by activities that ultimately prioritize bringing in more tourists. The latest example is the agricultural law proposed by Councilor Joan Simonet, which has met with staunch opposition from the FEHM because "everyone criticizes tourism and overcrowding, and then we want to fix the primary sector by putting tourists in it," this hotel source states.

Dynamism and diversification

This analysis of economic sectors by the Impulsa Foundation also reveals a very significant fact: the slow but steady growth of sectors that can allow us to move "towards the much-desired diversification," Antoni Riera acknowledges with satisfaction. The social and local economy, for example, already accounts for more than 8% of the Balearic economy's Gross Value Added, and others, such as the cultural industries, are taking steps towards professionalization. "Ultimately, they demonstrate that, as has already happened elsewhere, we can aspire to have culture, knowledge, and technology reduce our dependence on certain activities," asserts the head of the Impulsa Foundation. "There are ideas, entrepreneurship, and, moreover, concrete results are being achieved that show us the way," he affirms. Riera argues that the Islands need a profound transformation to reduce their dependence on tourism and move towards a more diverse, resilient, and sustainable economic model. For him, the problem isn't tourism itself, but rather the lack of solid alternatives that would generate added value and improve productivity. One of his key arguments is the need to "activate the ecological transition as an engine of change."