Stars shine more brightly

After years in the doldrums, Central and Eastern Europe only now seems to be making up for lost time in hotel development. Tourists and business people are arriving in growing numbers, followed by players in the hotel sector

 

2004 was a critical year in the hotel industry, when earnings by companies developing hotels and other related facilities slumped to PLN 276 mln in Poland. But since then, the industry has clearly been picking up and investment is steadily increasing. Data obtained from PMR Consulting, specialists for investors in the Central and East European market, suggest that the value of hotel development in the next five years will rise by an annual average of 17 pct, reaching PLN 1.1 bln by 2012. In material terms this means that available facilities will increase by almost 30,000 rooms between 2008 and 2012, i.e. around 110 hotels annually (market players have already declared their readiness to develop almost 20,000 hotel rooms of all standards). This is something to boast about, since it is twice that built in 2001-2006. PMR estimates that EUR 4.7 bln will be invested in Polish hotels over the period.

Poland is already home to eight of the ten most important global hotel chains, most of which are already planning further investment. The heat of the competition is bound to rise since more players are entering the market, including Wyndham Hotels & Resorts and Choice Hotels, operating as franchises and looking for their own partners in Poland. The Choice chain intends to put down roots in Poland with its 2-star Comfort and 3-star Quality brands. Wyndham, on the other hand, has still not revealed the trademark under which it will manage its premises. However, if they stick to their usual operating strategy, then they are likely to operate in partnership with chains of small hotels already doing business. NH Hotels, which started adapting the pre-war Wielkopolska Hotel on ul. Św. Marcin in Poznań, is yet another group making its debut on the market. The first of several hotels which the investor is planning for Poland is to open there, with 92 single and double rooms on offer for hotel guests.

Hotels not only for football fans

The demand for hotel space results from the fact, among others, that Poland has become a country attracting an increasing number of visitors. The Tourism Institute highlighted that more than 15 mln people visited Poland in 2007, spending USD 7.9 bln in so doing. The lion’s share of that sum was payment for overnight accommodation. The steady growth of this trend will intensify as the Euro 2012 European Football Championships approach, which Poland will be holding jointly with Ukraine. The decision was announced by the European Football Association in April 2007.

Yet another catalyst is Poland’s unfailingly healthy economic situation (6 pct GNP growth in 2007) and the inflow of EU finance for tourism.

Tomasz Dziedzic, assistant professor at the Institute of Tourism, points out that: “No investor is going to develop hotels for just a one month long event. Organizing Euro 2012 will only get projects off the ground a bit more rapidly to take advantage of the opportunity which the influx of such a large wave of tourists creates.”

He also stresses that the Polish market is only enjoying a period of unrestricted growth because its material base is one of Europe’s worst developed. It is still very much of a European desert when we take into account that the number of hotel beds per head of the population is between one third and one quarter of that in the Czech Republic and Hungary. The figure for Poland is 44 hotel beds per 10,000 people, compared with 220 beds in the Czech Republic, 105 in Slovakia, 156 in Hungary and more than 700 in Austria. We are Europe’s black spot, with the lowest number in the entire European Union.

Since 2005 Warsaw hotels have registered a notable rise in the rate of occupied beds - though that has been at the cost of a drop in room prices. Jones Lang LaSalle Hotels claims the boom continued in 2007 and the return rate from hotel rooms rose then by as much as 14.5 pct.

Tomasz Dziedzic asserts strongly that: “In Poland, compared with other countries, a skewed proportion of 4- and 5-star hotels has appeared in relation to 2- and 3-star facilities, with poor quality hotels being the overwhelming majority. Investors have developed 3-star hotels over the past few years but they are no longer attracting sufficient customers. Clearly, what is good for everyone satisfies none.”

Hotel accommodation in the East

The Ukrainian hotel market is even less developed than in Poland. The Jones Lang LaSalle Hotels report emphasizes that Kiev is ten years behind comparable capital cities in Central and Eastern Europe. On a national scale, most hotels will still take you back to the times of the Soviet Union. Only 1,200 rooms in Kiev are of a modern standard, although the method of hotel classification tends to overstate the quality compared to international standards. Only two high-class premises were opened in 2007: the 4-star Riviera with 80 rooms and the 5-star Hyatt Regency Kiev with 234 rooms. But it must be noted that there is a well developed system of short-term flat renting, mostly ‘black market’, with the number in Kiev alone being estimated at around 6,000. That apart, Kiev has become a powerful magnet for international hotel chains. Visitors to the Ukrainian capital will soon be able to avail themselves of accommodation in properties owned by the InterContinental (280 rooms, opening planned in 2010), the Hilton (257 rooms, opening date 2009), and the Marriott (Ritz Carlton with 200 rooms in 2011). But even these planned investments will not be able to satisfy the huge hunger for modern hotels, as evidenced in rising room prices. Following UEFA’s decision granting Ukraine the joint right to stage the Euro 2012 football championships, Sparkassen Immobilien AG of Austria announced that it would be building 5 hotels by 2010 in key Ukrainian cities at a cost of EUR 500 mln.

Apart from those in Kiev, high class hotels are also available in 0dessa and Donetsk. In Lvov there are only 21 hotels with 1,700 rooms. The Commerce and Investments Promotion Section of the Polish embassy in Kiev claims that at least one 5-star hotel with 70 rooms and three 3-star hotels with between 200 and 250 rooms each would have to be built in Lvov to satisfy the most immediate needs. Land prices there are noticeably lower than those in Kiev.

Moscow for the rich

The situation is similar in Russia, where a large proportion of old post-Soviet properties way below modern standards proliferate on the hotel market. The Russian capital is the most rapidly expanding location on the market, with Moscow’s hotels being filled mainly by business customers, followed at some distance by tourists. This is reflected in the hotel structure, with less expensive, lower standard hotels hard to find in and around the city centre, as all those that are opening in this zone are of at least a 4-star standard. The situation is made additionally complex by the less expensive hotels currently closed for face lifts, only to reappear on the market as deluxe premises designed for wealthy guests. The Rossiya hotel is one of those undergoing repairs, before re-opening in 2011 offering 550 luxury rooms. Also re-opening is the Moskva, which is to be a Four Seasons hotel in three years time, as well as the Minsk which will open for business in 2009 under the InterContinental brand and the Leningradskaya in 2008 as a member of the Hilton chain.

According to Paweł Mirski, who is the marketing director of the Warsaw Hilton: “The Hilton chain treats the Russian market as its priority in Europe, as it does with the Turkish and German markets. Poland and the other Central and Eastern European countries are on the company’s secondary list. There are many, neglected, grey, but highly industrialized cities in Russia with huge potential. It does not cost much to invest there, while the demand from business customers is substantial.”

The directors of the chain intend to develop 11 new, mainly mid-range Garden Inn hotels in Poland within 5 to 10 years, with negotiations already under way on terms of cooperation with investors. In Russia, however, the Hilton group is interested in opening at least 25 hotels under its own brand in 11 cities with populations of at least 1 mln. London & Regional Properties, a private British hotel operator owned by the Livingstone brothers, is to be the investor. The company will need EUR 500 mln to develop the chain. The first Hilton hotel is to open in the spring of 2008 in one of Moscow’s post-Soviet skyscrapers – once called ‘palaces of culture’. The next to come will be in Novosybirsk. St. Petersburg, Rostov on Don, Samara, Yekaterynburg, Nizhny Novgorod and Chelyabinsk are also on the company’s list of locations.

Although 80 pct of visitors to Moscow are business people, JLL Hotels’ specialists point out that the city provides an opening for tourist-class hotel developers outside the city centre, but with well developed transport facilities. Only now are Russians waking up to the fact that the tourist industry merits solid support, a fact also noted by Moscow’s authorities, who have drafted a hotel construction support programme. Even so, Moscow still has a long way to go before it catches up with other European capitals in this field.

It doesn’t really have to be less expensive

St. Petersburg is a city which devotes much more time and effort to tourism, although it still costs a great deal to stay in a hotel in a good location, with prices for a room in a top-class hotel growing by around 10 pct in comparison with 2006, reaching USD 237 in the middle of last year. But the greatest upsurge in occupancy can be seen in the medium-class hotel sector. And it is now becoming clear that business people are spending much more time in the city. As in Moscow, the city centre is dominated by deluxe chain hotels, with the term ‘good hotel’ also being used for post-Soviet hotels which have been privatized and modernized, including the Elisieyev Palace, Pietropalace and the Grand Hotel Emerald.

Rostov on Don is quite a different kettle of fish. Despite having a much milder climate than St. Petersburg, the city has little to offer tourists but is definitely an important industrial and conference centre. And though only four hotels can offer modern standard accommodation, the number is to double by  2010. At the moment, business people have to stay at the Don Plaza (previously Inturist) or Wertold hotels. Practically speaking, every hotel complex built has large conference back-up facilities including Radisson SAS, the Turkish Rixos hotel, Marriott and InterContinental.

The region needs time

Individual countries grow in various ways, each in its own specific manner in respect of size and the type of visitor. The situation is much better in the south of the region, where tourism continues to grow despite the transformations of the 1990s. The industry’s history is also not without significance. There is no country in the region which has Switzerland-type conditions, where 6,000 hotels were already operating in the 19th century.

Paweł Mirski is convinced that: “Hotel investments are a ‘must’ for Central and Eastern European cities, although each needs other kinds of facilities and differing restrictions exist. Hotels in the TriCity in Poland are busy almost exclusively in the summer, when there are much fewer hotel guests in Warsaw. Prague is very fashionable throughout the year, as are Kraków and Bucharest, but the demand in Prague is for convention hotels while there is a lower 5-star hotel saturation in Bucharest. n