Interest in the hotel markets in Central and Eastern Europe keeps growing, as implied in the recently published study of the international real-estate company, CB Richard Ellis. Constantly growing internationalization and globalization of markets and tourists’ interest in the Central and Eastern European countries leave its marks in this region.
Continuous growth of the number of tourists arriving to the aforementioned countries in recent years has caused increased interest of investors in hotel markets in Central and Eastern Europe.
This increase may be sustained especially by the following factors: • Growing attractiveness of regions for commercial and investment activities, • Area-wide expansion of cheap transportation companies that provide transport between European regions • Significant increase of quality of tourist activity offers and marketing of travel agencies Development of tourism is noticeable especially from the growing number of international flights into the most important destinations in Central and Eastern Europe. In 2006, the majority of these international airports achieved two-figure growth. For example, in the third quarter of last year, Bratislava airport registered a 50% increase in arrivals, in comparison with 2005.
Even despite the big growth in the number of visitors, the occupancy rate remained stable. The biggest growth of the occupancy rate occurred in 2003 and 2004.
Nevertheless, even despite the minimum growth of the occupancy rate, the RevPAR indicator (the average achieved revenue per hotel room) grew nicely, which was caused primarily by the increase of average prices per hotel room per day (ADR – annual daily rate). The biggest level of growth of the RevPAR indicator was achieved on markets with an unsatisfactory supply of hotels on the international level, e.g. primarily in Moscow.
Culmination of all these strategic factors increased the attractiveness of Central and Eastern Europe for investors. It is generally known that hotels in this region generate much bigger revenues than similar real estate in Western Europe.
As for Western Europe, investors consider this region a relatively safe alternative for hotel investments. The key markets, e.g. Czech Republic, Poland, and Hungary, are considered interesting in particular.
Therefore, purchases of hotels are becoming more and more interesting for foreign investors. The largest boom was registered from the end of 2003 to the beginning of 2004 when almost 79% of all the institutional investments went into the hotel sector.
On the developing markets, as is the Central and Eastern European region, it is typical that the hotel sector is the last sector that addresses investors. Business with commercial real estate began in the nineties and started to attract attention of institutional investors in 1999-2000. The hotel investment market started to mature three years later – led by Prague, Budapest and Warsaw. Out of the aforementioned markets, Prague is the most developed one – regarding the demand, which is reflected in the occupancy rate, as well as the supply of high-quality hotels on the high international level. Prague is closely followed by Budapest and, with a larger gap, by Warsaw and Bratislava.
Despite its size and large potential, Moscow still remains on the low level because it has to face not only the technical obstacles, but also the inflation pressure on land.
BRATISLAVA Bratislava is a promising hotel market.
It benefits from a strong entrepreneurial environment and fast development of the city as one of the key economic cities of the region. Bratislava also development, nor from a surplus in supply during recent years. The hotel market is relatively well developed, which is reflected in the high number of international hotel groups on Prague's market. In 2004, the RevPAR registered a two-digit percentage growth and, during the last two years, this indicator stabilized. Prague also has a very strong position in incentive and congress tourism, and tourism as such. Reconstructions of historical structures into first-class hotels represent a big challenge for developers and, therefore, there is a big progress even in this segment.
WARSAW The Warsaw hotel market is at the end of a short-term period of surplus in supply, during which a lot of large international hotel chains established themselves with their hotels on the Warsaw market, and that had a negative impact on the overall efficiency of the market.
The RevPAR indicator value is one of the lowest ones in the European capital cities. Tourism is not very significant.
OTHER CAPITAL CITIES In other capital cities of Eastern and Central Europe, the supply of high-quality hotels at the international level is very limited. Those metropolises include especially Bucharest, Sophia, Kiev, and also Riga, Tallinn, and Zagreb. Larger cities, such as Bucharest, Sophia, and Kiev, have a large potential for hotel development and investments are growing accordingly. Revenues are decreasing in these cities as well, and it is a result of economic growth and growing economic stability, as well as a flow of capital from foreign investors.
OTHER EXPECTATIONS Despite the fact that acquisitions in the hotel sector in the second half of 2006 increased, great potential still exists in the hotel sector. The CB Richard Ellis Company assumes that during this and upcoming years, investment activities will significantly increase because revenues are still more interesting than in the case of other real estate groups. keeps focusing more and more on development of tourism and congress tourism. The majority of hotels are privately owned. Several four and five star hotels are at the final stage of completion.
BUDAPEST Budapest has a relatively well developed hotel market and is slowly recovering from a period of short-term surplus.
International hotel chains, which are interested in further expansion, represent a significant share of the hotel supply.
The RevPAR indicator has grown steadily since 2004, and also congress tourism has reached a good level. Among the most important hotels that were recently opened are the Gresham Hotel and Boscolo New York Palace. Several other hotels in the most luxurious segment are being built.
MOSCOW As for the hotels’ performance, Moscow is the market leader in Europe. The RevPAR indicator has been achieving higher values in Moscow than in Paris or London. However, that is caused by high demand, which cannot be satisfied, and, therefore, by potential for price increases. Supply of hotels with a high international level is nowhere near sufficient and its prominent increase is planned during the next five years.
PRAGUE Prague is one of a few cities in Europe that suffered neither from slow economic development, nor from a surplus in supply during recent years. The hotel market is relatively well developed, which is reflected in the high number of international hotel groups on Prague's market. In 2004, the RevPAR registered a two-digit percentage growth and, during the last two years, this indicator stabilized. Prague also has a very strong position in incentive and congress tourism, and tourism as such. Reconstructions of historical structures into first-class hotels represent a big challenge for developers and, therefore, there is a big progress even in this segment.
WARSAW The Warsaw hotel market is at the end of a short-term period of surplus in supply, during which a lot of large international hotel chains established themselves with their hotels on the Warsaw market, and that had a negative impact on the overall efficiency of the market.
The RevPAR indicator value is one of the lowest ones in the European capital cities. Tourism is not very significant.
OTHER CAPITAL CITIES In other capital cities of Eastern and Central Europe, the supply of high-quality hotels at the international level is very limited. Those metropolises include especially Bucharest, Sophia, Kiev, and also Riga, Tallinn, and Zagreb. Larger cities, such as Bucharest, Sophia, and Kiev, have a large potential for hotel development and investments are growing accordingly. Revenues are decreasing in these cities as well, and it is a result of economic growth and growing economic stability, as well as a flow of capital from foreign investors.
OTHER EXPECTATIONS Despite the fact that acquisitions in the hotel sector in the second half of 2006 increased, great potential still exists in the hotel sector. The CB Richard Ellis Company assumes that during this and upcoming years, investment activities will significantly increase because revenues are still more interesting than in the case of other real estate groups.
