Hotel market looking ever prettier

Average property prices will continue their upward trend in 2018, boosted by the elevated demand and high growth in tourist arrivals. The limited supply of locations for tourist resorts and second home residences in other Mediterranean countries is expected to attract developers to Croatia. Buyers will continue to look for properties with the potential to generate rental income and that will appreciate in price.

In 2017 app. 90 pct. of the total investment volume in commercial real estate were recorded in retail and hospitality & leisure sectors. Most of the investment and development activity came from investors already present on the market. Newcomers mostly focused on distressed/value-add or brownfield opportunities in the hotel tourism and leisure (HTL) sector. The retail and HTL sectors will remain the most active sectors in terms of investment and development volumes over 2018.

According to the Croatian Bureau of Statistics, Croatia saw 17.4 mln tourist arrivals in 2017, up 12 pct y-o-y. Overnight stays increased by 10 pct y-o-y to a record 86 mln. Foreign tourists accounted for 15.6 mln arrivals (89 pct) in 2017. The greatest number of overnight stays were recorded in Istria – 25.5 mln, followed by the Split-Dalmatia County – 16.6 mln and Primorsko-Goranska County – 14.9 mln.

There is a strong demand for hotels in Croatia from existing investors and market newcomers. The investors often face a lack of projects of the necessary quality. The market is currently seeing heavy investment, predominantly from local investors.

Performance of 5 star hotels in Croatia has improved y-o-y according to figures from the Faculty of Tourism and Hospitality Management in Opatija. Occupancy rates in 5-star hotels increased from 51 pct in 2016 to 55 pct in 2017. The ADR rose from EUR 139 in 2016 to EUR 148 in 2017. Total RevPAR in 5-star hotels was around EUR 114 in 2017 compared to EUR 104 in 2016.

Several large hotel developments were delivered in 2017 by local players. Several new hotels will open throughout the country in 2018. Large investments in the hotel sector, predominantly in 4- and 5-star hotels, are expected to continue in coming years. The investors and owners of 2-star and 3-star hotels are expected to continue upgrading their hotels to higher ratings.

There are several large projects under construction in Croatia. Maistra (Adris Group) is developing a new 5-star hotel in Rovinj on the site of the former Hotel Park. The new hotel will comprise 193 rooms and 16 luxury suites. The total investment will come to app. EUR 80 mln. Construction work on tower B in Westgate complex in Split started in H1 2017. The new mixed-use tower will comprise a hotel with 193 rooms. The tower opening is planned for H2 2018 and could become home to a Marriott International Hotel.

In 2017 there were no new large tourist resorts added to the market with investors opting for less risky brownfield opportunities. Construction work on a tourist resort in Brizenica Bay by Arqaam Capital and Four Seasons should start in 2018. The resort will be located on a waterfront site at Brizenica Bay, on the island of Hvar. It will feature a 120-room Four Seasons hotel and 60 luxury suites.

Most of the market development activity comprises small projects. Most frequently waterfront projects of up to 10 units offer less risk and allow quicker returns. The most sought-after regions to develop small projects are Dalmatia (island of Brač, island of Hvar, Rogoznica and the Makarska Riviera).

The demand is strongest for properties in Dubrovnik area, Dalmatia and Istria. Buyers are typically looking for a second-home for their own use and/or as an investment. There is a lack of smaller income-producing luxury villas and apartments on the market. The demand for properties in Istria is predominantly coming from Germans, Austrians and Slovenians. Residences in Opatija are mostly bought by Russians while Dalmatia is attracting buyers from Croatian diaspora, Sweden, Slovakia and the Czech Republic.