Hungary and Romania on the hotel radar

The demand from investors and the size of the investment deals increased by 66 pct last year compared to 2015. [n1] The growth in the key performance indicators in 2016, including the occupancy index, price per room and revenue, along with rising revenue and the availability of capital, are all instilling optimism for the rest of the year, which will also see openings of many hotels.

According to C&W, 46 investment deals worth nearly EUR 1.2 bln took place in 2016 on the most important hotel markets in the region (the Czech Republic, Poland, Austria, Hungary, Slovakia, Bulgaria and Romania). By comparison, 45 transactions worth just over EUR 700 mln were concluded a year earlier. Last year Austria enjoyed the highest level of investment activity, with almost EUR 800 mln transacted, constituting 76 pct of the total volume in the region. The turnover on other CEE markets was lower than in 2015 – this was mostly due to Poland, where investment dropped by more than a half. The share of the Czech Republic in the total volume of investment transactions in the region amounted to 18 pct, with investors being mostly interested in Prague, where seven deals were closed, including for the Hilton Old Town, Park Hotel and Chopin.

All the key performance indicators for the CEE hotel sector improved last year, as more and more tourists flock to the region. Thanks to this the average occupancy indexes increased from 69 pct to 72 pct, back to their pre-credit crunch levels and even exceeded them in some cases. The increase of the costs of travelling to CEE and hotel rates translated into operators’ higher profits. The average price per room grew from EUR 73.6 in 2015 to EUR 76.6 last year. Eastern European markets can boast an even double-digit growth of revenue per available room (RevPAR) and the more mature locations in Central Europe, including Prague and Warsaw, registered growth of app. 6 pct.

The character of the investment market in Central and Eastern Europe is becoming increasingly international, as is confirmed by the inflow of capital from the Far and Middle East, America and other European countries. ““In the last few years the region has seen important inflows of capital as wider groups of investors try to take advantage of the strong performance of the local hotel industry. Among the key factors driving performance are the continued strength of inbound international tourism into the CEE region, supported by Asian travellers as well as the re-focus of North African and Western European tourism. Moreover the willingness of banks to finance hotel acquisitions has significantly enticed high investor demand,” explains David Nath, the head of CEE hospitality at Cushman & Wakefield.

The banks’ interest in providing loans is leading to greater development activity on the hotel market. 4,000 new rooms in hotels could be developed in CEE capital cities in 2017. Warsaw and Budapest have the greatest prospects in this respect, as opposed to Prague, where restrictions on spatial development and the short supply of plots for hotel projects has limited the number of development projects. “Although we expect growth to slow down slightly during 2017, the investment market will remain robust compared to other more established markets in Western Europe. We will also see increasing capital invested in less mature hotel investment markets, such as Bucharest and Sofia. The average daily rate is expected to rise further, generating higher income returns for investors – especially in the more mature CEE markets, where the development pipeline is limited,” adds Frédéric Le Fichoux, the head of hotel transactions in Continental Europe at C&W.