Choice of hotel

At first sight the Polish hotel scene should be catching up the wider European sector with the speed of a Pendolino train: we have the least beds per 10,000 citizens (app. 50) in the entire European Union, the number of foreign guests has been gradually growing since 2009 and the development of the BPO sector and the conference market is fuelling domestic markets – and not only in Warsaw and Kraków, but also other large cities in Poland. However, if we take a closer look, it turns out that the situation is rather more complicated. It has to be emphasised, though, that there is still substantial untapped potential in the Polish hotel sector.

Like chalk and cheese

According to a report prepared by Colliers International and Pro Value, the Polish hotel base at the end of 2014 included 2,512 categorised hotels offering almost 240,000 beds in app. 120,000 rooms. The average occupancy rate in these hotels hardly sweeps you off your feet, however. The Chamber of Commerce of the Polish Hotel Industry has reported that last year occupancy amounted to just over 40 pct. The majority of the hotel base includes small private facilities that are individually managed, while the proportion of hotels operating under international brands in the total supply comes to only 6 pct, whereas if we measure it by room number it slightly exceeds 20 pct. This shows the diversity of the hotel base in Poland and as a result the average calculated for the entire market does not correspond to the results generated by chain facilities.

According to figures provided by Hotel Professionals, five-star hotels in the capital city maintained an average occupancy of almost 80 pct last year, similar to 2013. In the same period, Kraków hotels with the highest number of stars registered an occupancy rate of 76 pct, while the best Wrocław facilities had 67 pct. These numbers alone show how heterogeneous the Polish hotel market is, and so before making an investment decision each location must undergo a thorough analysis. In general terms the largest hotel base would mostly be needed in the largest cities and locations attractive for tourists. “The office and retail market in overinvested. Poland has the least beds per 10,000 residents. For a developer who has an attractive plot in the city centre and in a competitive environment, there is no inclination to invest in retail or offices, so a hotel investment looks like an attractive alternative,” believes Robert Szczepanek, a legal adviser and founder of the Causa Finita Commercial Real Estate Law Firm.

From the technical point of view, the construction of a hotel is not any more complicated than an office building, for example. “Hotel projects are a specific part of our business. All the hotels built by our company are ordered by large operators – according to the detailed specifications and standards of that chain. When it comes to hotel projects we are a developer that provides general contractor services. Because of this the construction process is very similar to the standards of the commercial market and does not require detailed specialisation of the team or technology,” explains Waldemar Lesiak, the vice-president of Echo Investment.

However, this does not mean that making money out of a hotel project is easy. The market has its specificity and the experience gained in other market segments, as useful as this is, does not necessarily guarantee success. Franz Jurkowitsch, the CEO of Warimpex, cautions that building a hotel is not easy. There is no guarantee of success. However, this can be achieved. First of all you need to have an excellent location, the right experience and it is worth finding a hotel operator before the construction process starts. Each operator has their requirements and adjusting a finished building to these requirements generates additional costs,” suggests Franz Jurkowitsch. Rudolf Grossmayer, the managing director of UBM, also has a few pieces of advice from the construction kitchen: “We are a developer, so we build hotels from scratch and then lease them. We are not particularly interested in franchising. In Poland our cooperation is based on management contracts. Immediately after choosing the location, our next step is to select the hotel operator,” he says. “We currently have 15 hotels in Europe and are cooperating with a number of operators. Our ideal model is to sell the hotel before the construction process even starts, but this is not always possible. We also require guarantees from operators that would enable us to put in place the right model for the financing of the project,” adds the director of UBM.

A mix...? Perhaps

A hotel investment can also work well as a supplement to a mixed-use complex. By skilfully combing the individual elements of a project it is possible to generate a synergy effect and more stability in terms of revenue from rents. Such projects have included the most recognisable hotels in Poland: “The Marriott hotel in Warsaw occupies only half of the LIM building. The rest is taken up by offices and retail outlets,” says Rafał Gierczak, the general director of LIM Joint Venture. “Our experience, particularly from the crisis years of 2008–2010, shows that a mixed-use facility has a stronger position on the market and can survive better in more difficult times. Even during such unexpected events as the eruption of the volcano in Iceland, which resulted in a dramatic reduction in air traffic, which was strongly reflected in hotel occupancy rates, our property functioned well. The turnover at that time was supported by the other functions our hotel has. This is very significant, particularly for financial institutions, who appreciate stable cash flows,” argues the director of LIM, who goes on to add that multifunctional facilities can also benefit from synergies, such as it has with one of the tenants of the service section – a medical clinic – generating additional occupancy for the hotel. “Such a property also involves additional challengers – for example, LIM is a building that never sleeps, you need to provide it with excellent management all the time, it is difficult to find the right moment to implement the necessary repairs or renovations. They require a lot of care so as not to become bothersome for hotel guests or tenants of the offices and shops,” explains Rafał Gierczak. He is not the only one who is convinced about the strength of such projects. Alex Kloszewski, the president of Hotel Professionals Management Group, believes: “As long as the elements of a project correspond well with the market and the location, you can count on it being a success. There are many examples of mixed-use projects with elements that integrate with each other contributing additional value to the project. Such as Manufaktura and Andel’s in Kraków, which benefit from the proximity of shopping centres.” The location of a hotel near places that generate footfall can be ideal – and this can clearly be seen particularly at weekends. However, a mixed-use project with a good composition requires a great deal of skill. “The marriage of a shopping centre and a hotel is a rare and quite a difficult combination to pull off in commercial facilities. The stiffest challenge is the synergy of completely different functional features, such as the quiet in the residential section and the noise of the shopping centre, as well as independent installations and shared fire protection. The integration of the transport requirements of the individual functions, with a particular emphasis on the combination of a forecourt for hotel guests and a shared multi-storey car park, could be a problem,” argues Ireneusz Hendel, a board member of Galeria Sfer in Bielsko-Biała. “The joint construction of a hotel and a mall makes it possible to reduce the costs of the project while retaining all the functions of the two independent facilities. A hotel and a shopping centre exist in a certain symbiosis: hotel guests also mean additional attractive customers for the shopping centre, who spend more money during their excursions than on an everyday basis. Their presence also has an influence on the recognisability of the mall, not only in the country but also on a European scale. For hotel guests the presence of a retail facility is very convenient – it makes it possible to satisfy their needs and organise their time outside business meetings,” he comments.

To enter the game

Apart from the right location, the standard and the finishing of the building, the choice of whether to have an operator or to operate the hotel individually is also important. Market data shows that much higher room occupancy can be expected in a partnership with a large international chain compared to going it alone. Hotel Professionals’ experts emphasise that the best results are usually generated by hotels under global brands. With their highly developed distribution chains and high marketing budgets used for intensively advertising on OTA platforms (online travel agencies) or social media such as Facebook, TripAdviser, Pinterest and Linkedin, branded hotels have a considerable competitive advantage over independent facilities,” they claim, supporting their thesis by pointing out that the share of OTA reservations in Poland amounts to app. 43 pct. And this is not all. According to Hotel Professionals’ figures, the online reservations market in Poland has been exhibiting fastest growth of any EU country.

However, this does not mean that only large international chains have a bright future. “We have our own hotel brands, such as Angelo, which successfully compete with well-known and popular hotel brands. Smaller chains can react to market changes more flexibly than the largest players. It is also easier for them to implement changes than in a large structure,” argues Franz Jurkowitsch. The next few years will show the direction in which the market in Poland is heading, but one thing is clear. Large players will not give up easily. “We can expect there to be an expansion of renowned global and Polish brands in the budget and midscale segment, such as Hampton by Hilton, Puro, Best Western and Ibis Styles as well as the growth of new global brands, like Moxy,” predicts Alex Kloszewski.