CEE hotel sector remains popular with investors

Hotel investments in Central and Eastern Europe are on the increase, as investors adapt properties to cater to the changing demands of leisure and business travelers.

According to the first edition of a joint Cushman and Wakefield and CMS report looking at hotel investments across the CEE region, transaction activity was especially strong in 2017, totalling a record 944 million euros. The Czech Republic (with Prague already boasting the 10th largest hotel market in Europe), attracted the highest amount of investment (38 per cent), followed by Poland (28 per cent) and Hungary (12 per cent).

“In recent years, Hilton’s focused service brands have witnessed rapid expansion in the region, with strong growth in Poland, Germany and Russia in particular,” said Magdalena Sułkowska development director for Eastern Europe at Hilton.

“New, low-cost international air routes have opened up destinations, and we are seeing more appetite than ever for our brands. Our aim is to cater to every guest, wherever in the world they want to travel, for any travel needs they have. In order to achieve this goal, we are continually evolving our existing brands, and introducing new brands when appropriate.”

Healthy demand and supply fundamentals across key markets, an increase in RevPAR (revenue per available room) of nearly 40 per cent and the relatively low price of hotel assets are the key factors behind the robust growth.

With the millennial generation now becoming a major travel group, it is not surprising that hostels are growing in popularity and consequently garnering far more attention from investors and major operators than ever before. The big money pouring into the sector, combined with escalating competition, is driving the evolution of the concept.

Hotels too are seeing changes, especially those below the luxury price range which are frequently referred to as affordable lifestyle hotels. Typical features of these hotels are design-led but relatively small rooms combined with ample public space, open animated lobbies and facilities attracting not only visitors but also locals to play, work and mingle, such as co-working spaces.

“The CEE region is and will remain one of a&o’s focuses in terms of development. We completed an acquisition in Budapest in September and will have another acquisition completing this month in Poland. We will refurbish both assets and convert them into new a&os with an opening foreseen for next year,” commented Henri Wilmes, chief investment officer at the German hostel company a&o Hotels and Hostels.

“The CEE market is interesting to us mainly because of demand characteristics, strong trading results achieved over the last few years and availability of assets that fit our search criteria at prices that allow us to achieve our financial returns,” he added.

However, a lack of hotel assets on the market may reduce investment volume. There are still large amounts of capital in search of healthy returns, and attention has therefore turned to hotels in CEE that frequently offer superior yields compared to many other regions in Europe and/or other asset classes.