Why Central and Eastern Europe (CEE) remains the hottest growth market for hotels in Europe?
Horwath HTL’s annual European Chains & Hotels Report 2019 brand penetration analysis reveals that not only the international brand presence is lower in the CEE region, the number of hotel rooms per capita is way below that of Western Europe. Global tourism is expected to be on continuous expansion path for the coming decade. The forecasted 3.1% annual growth to 2030 in CEE is the highest in Europe. The picture is quite clear: CEE is the playground for branded and independent hotel development for the next 10 years.
Opportunities are abundant. We are just beginning to see the slow emergence of dual and perhaps triple branded properties. A recently purchased luxury-positioned single asset in Budapest has been approached by 20 brands to flag the property. Lifestyle brands are practically non-existent in the region save the independents, which feature accented design, developed and operated by the owners often without the crucial F&B components, which deliver the vibe and in fact serve as the DNA for such hotel experiences.
Brand roll out across a country or region is waiting to happen, save Poland, which has started to witness the expansion in the limited service segment. While the Polish market is arguably the largest hotel playground in the region, Ukraine is also expected to regain its path to economic re-emergence, which will result in brand roll out on a larger scale. (Russia of course remains an entire region on its own.) Romania is ripe for such opportunities, Hungary as well albeit on a smaller scale, however hotel brands need to take the lead in convincing developers why it makes sense to develop hotels outside the capital cities. One of the bottlenecks is the absence of professional and well capitalized third-party hotel management companies, who can satisfy the needs of developers, most of whom demand leases, which only a handful smaller ones are willing or able to take. Another issue is the absence of experienced and dedicated hotel developers even in one country, let alone ones that have the maturity or vision to undertake cross border expansions. While developers are challenged by soaring construction costs coupled with shrinking labour force across the board (construction, hotel, restaurant operations) putting pressure on employers not only to find workers and staff but to keep them. The source of new supply of labour force is very sketchy, it at all visible, on the horizon.
The opportunities for investment will continue to emerge. While CEE represents 21% of the hotel and travel market of Europe, hotel transactions have represented 8% (without Austria only 5%) of the European hotel transaction market between 2009 and 2018. The reasons are partly due to the lack of properly developed hotels, which could be attractive for the global buyers, who have been standing on the sidelines to acquire assets of a particular size to make it worth their while to enter the CEE market.
Resort investors have no less opportunities as the region offers coastlines, mountains, eco-tourism and unique thermal springs, which have served as the foundation for establishing a booming wellness spa tourism in CEE. Incidentally, themed resorts have yet to emerge, albeit domestic and regional markets are craving for new experiences.
The banking sector over the last decade has also have built up a better understanding of the requirements of funding this industry. Most governments offer some form of incentives for hotel developers. All the ingredients are in place to help fuel healthy growth. With the deployment of capital and development know-how, all the issues can be resolved to professionally build and package hotels to meet the needs of sophisticated investors. This is essential so that the hotel investment activity would continue to grow and reach the levels commensurate with the growth of the CEE region.