The volume of hotel investment activity in 2013 has surged within the EMEA region, increasing by 38% in the first half of the year as compared to the same period in 2012. This increase is mostly led by major portfolio and single asset transactions occurring especially in Western Europe. However, with reducing acquisition opportunities in main Western European cities, investors are now showing renewed interest in the Central European key gateway cities, according to Cushman & Wakefield, the world’s largest privately held real estate advisor.
The Czech Republic recently saw the sale of the 5-star, 124-room Palace hotel in Prague and Poland the 3-star, 288-room Mercure in Zakopane. According to Cushman & Wakefield estimates another two 5-star and two 4-star hotels in the Czech Republic, one 5-star hotel in Hungary and at least one 5-star hotel in Poland are expected to transact in the next six months.
“While Poland is now seen as the key investment market within the region, we are also seeing interest from investors for prime hotel properties in Prague and Budapest,” says Frédéric Le Fichoux, head of Cushman & Wakefield’s CEE Hospitality Team.
Improved investor sentiment for the Central European region follows a continual growth in trading with RevPAR levels for the first half of 2013 still up in Bratislava (10.7%), Budapest (8.4%) and Prague (2.4%) compared to the same period last year. Warsaw saw a surge in performance in 2012 due to the UEFA European Championship and is now undergoing a period of correction with RevPAR levels understandably lower than 2012. (RevPAR or Revenue per Available Room is a measure of performance for hotels obtained by multiplying the average daily rate with occupancy).
“As the domestic market fuels growth, trading is expected to recover in Warsaw in the fourth quarter of 2013 and the first quarter of 2014,” says Sarka Chapman, Consultant Hospitality for the CEE region.
Limited development activity in the region has further contributed to the increase in performance of existing hotels. Investors are now focussing on purchasing income producing assets as they are typically sold below replacement costs. The limited availability of bank financing for development projects, higher costs and additional risk bearing is further pushing investors to focus on existing hotels rather than development projects.
Poland remains an exception to this trend as several new hotels continue to open including the Doubletree by Hilton in the Wawer district of Warsaw and the Renaissance Chopin airport hotel, both due to open by the end of 2013. The market is expected to remain buoyant in terms of new hotel developments as Warsaw, Lodz, Poznan and Wroclaw offer several opportunities, especially in the economic and mid market segments.
Prague has seen a very limited number of hotel opening over the past three years and the only substantial hotel openings are in the budget and midscale segment with the recent opening of the B&B hotel in 2013 and the planned Motel One in summer 2014. Although several other hotel projects still exist within these cities, the lack of financing and a difficult political climate have resulted in a significant reduction of planned openings in the coming years. Since the opening of the 5-star Buddha Bar and 4-star Park Inn by Radisson, Budapest has seen no substantial hotel openings. Bratislava had no hotel opening in 2012 and the 4-star Linder hotel was the only hotel opening in 2013.
„As the European economy recovers and interest in hotel investments increases, we expect greater transaction activity within the Central European region in 2014“says Frédéric Le Fichoux.