Contributing Thought Leader

Ruzica Herceg

Senior Partner, HD Consulting Where do you see the best opportunities for hotel investment or development? 

Ruzica Herceg: Demand for hotel investments in Croatia remains high from both local hotel companies and international investors. Investments in operating properties are in major investment focus. Local investors are dominating transaction scene, supported by strong local partnerships and synergy effects with their existing operations, allowing them to provide market premiums on transactions. Privatisation of the existing (and usually outdated) properties along the coastline has been intensive during the last few years, fuelled by the new entrants on the market - pension funds partnering with local hotel companies. In the forthcoming period we can still expect investment opportunities related to non-privatised properties, however they are already limited and expected to be nearly exploited. For the upcoming period we forecast continuation of the ongoing consolidation process with several hotel portfolio sales, as well as single asset sales driven by high realized transaction prices and high expectations. We anticipate transaction interest to remain high, driven primarily by buyer’s availability of financing and overall expectations of hotel performance improvement. With regards to the regions in focus we are experiencing above average interest of investing in capital city Zagreb, where we expect additional 1,500-2,000 hotel rooms in the mid-term, followed by Split with slightly lower pipeline. Greenfield hotel and resort development along the coast remains stagnant, due to lack of investors’ confidence in developing greenfield projects. However, pioneering role has been taken by local investors that have initiated several greenfield investments. Unlocking future potential of greenfield hotel & resort developments will lay in the hands of the Government, providing attractive business environments and investment incentives. Montenegro as a country with one of the lowest corporate and capital gains tax rates in Europe, low barriers to entry for new businesses and property rights, continues to attract investors for both brownfield and greenfield investments with its attractive business environment. Alongside with developments of ongoing high-profile projects (Porto Novi, Porto Montenegro, Luštica Bay), we are expecting further tendering of other multi-million projects along the cost as well as on the mountains. Ongoing and announced hotel and resort developments with renowned investors are expected to contribute country's repositioning and fuel new investor entrants. Since the new hotel entrants in the upper upscale and luxury segment will need longer time to stabilize their operation, investors will continue to rely heavily on the mixed use component in projects. As such, hotel companies are intensifying efforts to grow their presence in the region. Such developments have been enhanced by Government program of obtaining a citizenship-by-investment program. Considering all of the above, for the next years we forecast phased developments of the existing mixed-use resorts and further efforts of Montenegro government in attracting high profile investors in other large-scale projects. Other countries of the Western Balkans are in terms of internationally competitive hotel industry concentrated to capital cities with a few additional destinations. Most of the regional capital cities have seen entrance of major hotel brands, where we envisage more investment opportunities in contemporary hotel concepts in budget and midscale, than for flagship brands in upscale / upper upscale where market has been nearly saturated through the investment cycle in the last 5 years. 

Co-written with Branko Bogunović, Partner, HD Consulting