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Hotel investment rebounds, but industry needs to improve its ESG credentials to remain attractive, report shows

To comply with increasing requirements from investors, regulators, and other stakeholders, hotels in the CEE region will need to notably reduce their carbon footprint and energy intensity.

International law firm CMS and leading global commercial real estate services company Cushman & Wakefield have published the findings from the fourth edition of their joint report on the hotel investment scene in CEE: Getting Real about ESG in Hotel Real Estate

Hotel investment activity in the CEE-6 region reached 464 million euros during the 12 months ending June 2023, despite a notable increase in financing costs and the ongoing economic and geopolitical challenges. Between H2 2022 and H1 2023, 23 hotels comprising almost 3,000 rooms were sold. With several significant deals in progress, this year’s transaction volume may reach 563 million euros by the end of 2023, nearly 30 per cent more than in 2022. Investor appetite is fuelled by the strong recovery in hotel performance across the region, with revenue per available room (RevPAR) surpassing 2019 levels by six per cent in H1 2023.  

Magsud Rahmanov, Head of Hotel Transactions, CEE & SEE, Cushman & Wakefield commented: “In the hospitality sector across the CEE-6 countries, transactional activity between H2 2022 and H1 2023 was boosted by increasing pressure on owners to dispose of or refinance their assets, and investors to deploy accumulated capital – but also by improving hotel performance.

“Despite lower occupancy than H1 2019, ADR growth lifted CEE-6 capitals’ RevPAR above pre-pandemic levels in H2 2022–H1 2023, and the CEE region’s upward trend is set to continue: while ADR growth will ease, rising occupancy will help sustain positive RevPAR momentum. The combination of stabilising inflation, improving hotel performance and the return of international investors – particularly from Asia and the Middle East – will likely drive a further uptick in hotel sales over the next year. We have several deals in progress that confirm this trend.”  

ESG – an increasingly important factor for investment 

According to the report, half of hotel investors in the CEE already address ESG in their transaction due diligence, and 40 per cent are in the process of including it, presenting the opportunity to increase the value of assets – as well as the threat of potential issues during transactions.

Over 50 per cent of investors encountered ESG-related challenges while conducting hotel acquisitions and disposals. For approximately 35 per cent of investors, this resulted in significant financial consequences, surpassing half a million euros.    

In addition, ESG has become an important standard to measure a company’s long-term impact on the environment and society, as it further supports talent attraction, innovation, brand value enhancement, and opportunities for better financing. Sustainable hotels can also get better commercial terms from operators, who will also be affected by increasing ESG EU regulation.  

Lukas Hejduk, Head of Hospitality, CMS commented: “ESG is not only a moral imperative, but also a key driver of value creation and resilience in the hotel industry. As the expectations of guests, investors, and regulators evolve, hotel owners and operators need to adapt and innovate to meet the growing demand for sustainable and socially responsible practices.

“The EU is dynamically developing legislation to promote the green transformation. Several legal acts have already been adopted to strengthen the effectiveness of reporting on environmental, social and governance issues. These will have a direct impact on the financial sector as well as on the hospitality sector, because stakeholders will increasingly assess the ESG performance of hotels.” 

Lack of formal ESG certification clashes with drive from by international brands and institutional investors  

A wide range of various eco-labels exists in the hospitality sector, with inconsistent quality and reliability. Less than five per cent of hotels across major CEE cities have ESG certifications recognised by Google Travel (BREEAM, LEED, Green Key, Green Globe, Earth Check, GSTC, etc.). In contrast, institutional investors tend to have strong ESG policies, sometimes including compulsory certification of their real estate portfolio.  

To comply with increasing requirements from investors, regulators, and other stakeholders, hotels in the CEE region will need to notably reduce their carbon footprint and energy intensity. According to energy reduction pathways in the latest Carbon Risk Real Estate Monitor (CRREM) tool, which many institutional investors and other stakeholders use, the carbon intensity of hotels across the CEE-6 countries is expected to be reduced by around 17 per cent by 2025 and 53 per cent by 2030.  

David Nath, Head of Hospitality, CEE & SEE, Cushman & Wakefield commented: “Branded and large hotels typically target international corporate and MICE demand that appreciate formal eco-certifications. Also, many renowned operators and tenants encourage owners to get a certification, and some even have their own sustainability programmes.

“However, most hotel markets in CEE have a relatively low brand penetration. Further, most hotels are relatively small and in older properties, frequently historical buildings, which makes it more challenging to achieve a satisfactory certification level. The exception is Warsaw, where many hotels are branded and relatively modern.”   

Bořivoj Vokřínek, Strategic Advisory and Head of Hospitality Research, EMEA, Cushman & Wakefield, added: “The data shows that while the expected energy intensity reduction pathways are challenging, they are achievable. Furthermore, there is also an option to generate renewable energy onsite or purchase green energy, which would reduce the carbon footprint of hotels and help them to comply with the decarbonisation pathways despite higher energy intensity.” 


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