Spring awakening
Hotels
Natalia Chystiakova
associate director in the valuation and advisory department at Colliers International Ukraine
In the crisis zone
The current social and political instability is the key factor influencing the real estate market in Ukraine – and this is also significantly impacting the hospitality segment. In March the average rack rate for five-star hotels in Kyiv decreased by 10 pct compared to the same period in 2013, amounting to EUR 365. In the four-star hotel segment the figure decreased by 25 pct to EUR 133, while for the three-star hotel segment it dropped by 20 pct to EUR 77. Nevertheless, if we take into account fluctuations in the exchange rate, we can observe some increases in average rack rate in Hryvnia: by 130 pct in the five-star hotels (amounting to UAH 5,500), and by 110 pct both in the four-star hotel segment (UAH 1,990) as well as for three-star hotels (UAH 1,150). Hoteliers are currently offering substantial discounts. The biggest discounts are in top-range hotels and can amount to 50 pct of the asking room rate. This year there has been a significant decline in the flow of tourists from abroad as well as internally from Ukraine. It should be noted that a few weeks ago an anti-crisis committee by hoteliers was set up with the main goal of looking for ways for the hotel segment to recover from its sudden slump.
Andreas Karsten
CEO, Vienna International Hotelmanagement
Early birds
The hospitality sector is currently recovering from the economic crisis of the last few years especially in Poland, Russia and the Czech Republic. The main trend is investment – especially in the eastern part of Europe. There is still potential for new hotels in Poland and Romania. One trend, and we were definitely among the early adopters, is the focus on investing in existing assets rather than developing new projects – due to the lack of financing from the banks, lower costs and lower risks. For Poland we see a great deal of potential outside the capital Warsaw. I expect the sector still to grow in the MICE and conference section, especially in secondary cities across the CEE region. I am also convinced that budget hotels with certain design requirements are getting more and more popular – whereas the service level still matters. Most CEE markets are not yet saturated by international hotel brands. Therefore there is still potential. Concerning the investment part – there are more and more Russian and Arab investors trusting middle European hotel management companies. Due to their management and market know-how, the likely players for operating hotels in the CEE market are more likely to be experienced middle European hotel management companies. Many investors have experienced the hotel sector to be a reliable investment with small risk and an interesting return. The interest for investment is growing due to better returns in a low interest rate environment. We can now see that real estate companies are increasingly mixing hotels into their projects. At the moment the biggest investment is being made on the Russian market. At this time the crisis in the Ukraine is impacting us in terms of exchange rates and travel restrictions. But in the long term we are relying on our trusted partners and are keen on new projects in this region. To be honest I do not see limits in available financing due to huge liquidity. The limiting factor is the equity part, provided the project has an attractive return. New projects are a relatively expensive with returns of around 6–7 pct. But, as always: it is the early bird that catches the worm.
Dorota Malinowska
partner, Pro Value
Ecology knocks on the hotel door
In the next few years we will see the growth of branded facilities in the total supply of hotels on the Polish hotel market, which will translate into a further improvement in the quality of the Polish hotel base. Large hotel groups will not be signing management or franchise contracts with detailed analyses of projects. In addition, they will provide consultancy services, even at the project construction stage, making it possible to optimise the size and functionality of a facility. Newly-built independent hotels will also be much better suited to the needs of the market compared to those built 20–40 years ago, many of which were constructed without prior market or competition analysis and merely with the fulfilment of their own aspirations in mind. I believe that the number of upper budget hotels, which are represented on the Polish market by brands such as Hampton by Hilton, Campanile and Holiday Inn Express, will also grow. These hotels represent a very good quality to price ratio and provide a relatively quick return on the investment. The number of hotels applying green solutions will also be increasing, as well as those with ecological certificates. LEED or BREEAM green certification is becoming the standard for office building construction, as holding these is often a decisive factor in the choice of which building to lease space in. Low energy and water consumption costs translate directly into operating costs – and these are borne by the tenant, so it is the economic calculation that determines the choice in this case. For hotels there is no direct correlation with such factors, but more and more guests are appreciating the ecological solutions used in hotels and there is no doubt in my mind that green-certified facilities will be gaining a competitive advantage.
Šarka Chapman
hospitality consultant in the valuation and advisory department at Cushman & Wakefield, Warsaw
Investment on the rise
We have noticed increased investment activity in 2013 compared to the previous year and as the acquisition opportunities in main Western European cities are reducing, investors are now showing renewed interest in key Central European gateway cities. When we compare the major hotel transactions in the CEE region, the number more than doubled in 2013 compared to the previous year and the number of transacted hotel rooms increased by over 290 pct. The countries with the largest number of transactions within the region are Poland and the Czech Republic. The trends we expect to see in 2014 include the continued focus on high profile hotels in the major cities, but also a move towards spa and leisure hotels that are benefiting from a significant increase in international tourism. We are very positive about the future growth in interest in hotel investment. The debt conditions across Europe have improved and there has been an increase in both private and institutional equity targeting the sector. Banks now feel more confident when lending to the hotel sector in the region as they can see key performance indicators (KPI) improving. The highest interest in financing hotels is still generally from local lenders who are well established on their markets. In gateway cities and renowned resort destinations with strong fundamentals there is financing available, even though still primarily for hotel transactions (from 40 up to 60 pct LTV) and/or for the refinancing of existing, well trading hotels. It is still more difficult with hotel developments as the economic growth within the region is not buoyant enough.Depending on the location and type of product, the main players entering the CEE markets this year will be:
- private equity and value add investors (products with significant upside potential, often achieved via necessary injection of capital and/or repositioning)
- high net worth individuals looking at specific assets into their portfolio (usually long term holders)
- owner/operators looking to expand into new destinations (in order to expand in prime locations and with quality products they often need to buy or build themselves)
- real estate funds, both local and international (usually looking for quality assets with good fundamentals yet providing upside potential)
- institutional investors who are very selective and risk averse, usually prefering fixed income deals (sale & leaseback)
- new money (sovereign wealth funds, generally looking at bigger volumes and often trophy assets)
The investors can see that the occupational performance is improving and the nature of the sector allows them to benefit from this. Supply has been restricted over the past five years, which helps to increase the average daily rate. This often directly results in an improved bottom line (if managed properly). The most active investment markets across the region in terms of hotels were for sure the Czech Republic and Poland with seven and six hotel major transactions respectively last year. Bulgaria and Romania followed directly with two deals in each country. We have seen signs of increasing investment diverted away from Russia and Ukraine into the CEE region. However any significant escalation, intention or fall in the economic performance of Russia has the potential to affect the performance of Central European economies.
Beatrice Bouchet
president of the board,
B&B Hotels Polska
According to our research on the Polish market, the most dynamic development over the next few years will mostly involve one-, two- and three-star hotels – in other words, economy class hotels. Poland is no exception to this. Across Europe you can see a clear increase in guests’ interest in such facilities, which are offering an ever-higher standard of rooms at reasonable prices. International chains can perfectly manage the costs of such facilities and sell such services best, so I expect that they will increasingly be strengthening their presence in our country. On the one hand I expect that the brands already present in Poland will expand their portfolios, which is precisely what B&B Hotels is planning; and on the other, completely new players could enter our country as they become aware of the significant potential of the market. The trend will result in small, independent facilities joining international brands. Meanwhile, the chains will undoubtedly also want to extend their offer by building facilities adjusted to their international standards straight away.
Leszek Piotr Nałęcz
president of the board,
Qualia Development
Condohotels strengthen their position
The hotel market in Poland has changed considerably recently and the hotel facilities currently being designed are more guest- and environmentally-friendly. The rapid professionalisation of the hotel market in top locations, which has been noticeable over the last few years, is also not without significance. Even smaller investors are increasingly opting for cooperation with large international hotel brands under the franchise model. This is a promising direction for the market to go in, as it indicates that more mature and conscious investment decisions are being made. In the next few years we will be witnessing dynamic growth on the condohotel market. Poland is one of the emerging markets in this field and, considering what has happened in Western European countries, we have substantial potential for growth. Chain ondohotels, which offer high and uniform standards to their guests, as opposed to many other facilities including those with ‘apart-‘ or ‘condo-‘ elements in their names, will develop the fastest. From the point of view of a guest, a chain condohotel is no different from a traditional hotel, whereas for an investor the business model that characterises chain condohotels represents a safe and stable profit. Being part of an international hotel chain increases the chance for visits by affluent guests from abroad (thanks to their global reservation systems) as well as to provide accommodation to airlines and for business trips – thanks to their cooperation with large corporations.
Alex Kloszewski
managing partner, Hotel Professionals
Waiting for new brands
According to my analysis, in the next few years we will be witnessing a growth in the number of private, non-chain hotels being put up for sale, as well as some hotels in the wrong locations ending their operations. On the other hand, we expect a further expansion of recognised global and Polish brands in the economy and midscale segment – Hampton by Hilton, Puro, Best Western, Ibis Styles, as well as the expansion of new global brands, such as Moxy. Chains that are not present in Poland at this time, including Steigenberger, Choice Hotels with its Clarion brand and Comfort, might enter the market. Hotel projects will be developed alongside congress, conference and exhibition centres, such as at the National Stadium in Warsaw, but also in Gdańsk, Wrocław, Kielce, Kraków and Szczecin. OTA reservation systems, including Google Hotel Finder, Booking.com, HRS and Expedia, will strengthen their position and share of the market. In the next few years we should also expect to see ownership changes of five- and four-star hotels in large cities in Poland, just as was the case with the Sheraton in Kraków and Le Méridian Bristol in Warsaw in 2013.
Janusz Mitulski
partner, Horwath HTL Poland
Embracing modernity
Over the next few years the importance of technology and mobile devices will increase for the Polish hotel business. This is related to the strengthening of the position of reservation portals. In addition, we will see growing competition from apart-hotels and other kinds of accommodation facilities. Hoteliers will be supported by a growing number of foreign tourists visiting Poland and staying overnight in hotels. The requirements of Poles in terms of the quality and diversity of the offer will also be growing.
Gheorghe Marian Cristescu
director, Best Western Poland
Concentration is the key
In the next three years the trends we can already see on the Polish market will certainly develop further. First of all the professionalisation of individual hotels will continue. One of the key features of the trend will be the number of hotels joining international brands. More and more hoteliers in Poland are becoming aware of the advantages that result from being part of a large chain. They are improving all the time at using the tools provided by the chains, such as a well-tried and integrated reservation system, ready know-how in terms of the service and management organisation, as well as promotional packages and support in marketing and sales activities. The trend will certainly be picking up momentum. Another trend is the growth in the importance of apart-hotels and condo-hotels. Their popularity will continue to gradually increase in large cities, which are mainly business trip destinations, and in typical holiday locations, mountain towns, villages and seaside resorts. I also expect a growth in the importance of the loyalty programmes offered by individual chains. The popularity of the ‘Best Western Rewards’ loyalty programme offered to our clients and its impact on the number of reservations demonstrates precisely how important it is to carry out such activities. Clients like to be treated exceptionally well, thus the chains that appreciate the loyalty of their guests and allow them to derive real benefits as a result, will gain the upper hand.
