Though significantly affected by the COVID-19 pandemic and its impacts, the hotel market sees activity and interest from hotel operators. In the CEE & SEE regions, they are showing interest in Prague, Budapest and Warsaw, with a number of smaller regional cities – mostly Polish – also making the top 30. Operators are confident about market recovery, predicting that smaller cities will bounce back in 2022, followed by capitals in 2024.
Cushman & Wakefield is releasing its Hospitality OperatorBeat Q4 2020, a survey among major international hotel operators active in the CEE and SEE regions. This latest survey investigated hotel operators’ preferences, plans and developments, as well as their views on the impact of COVID-19 and their expectations of market recovery. The purpose of this survey is to gain a deeper insight into the CEE & SEE hospitality markets and prospects for sector recovery and thus support industry stakeholders in their business activities across the region.
Prague leads the way, Budapest and Warsaw follow
Despite being the city hardest hit by COVID-19, reporting an almost 85% year-on-year drop in average revenue per room (STR), Czech capital Prague found itself at the centre of hotel operators’ interest. Over 81 per cent of respondents said that they were “very” or “highly” interested in this major tourism destination. Of those who were just “moderately” interested, most already maintain a sufficient presence on the market.
“Prague has long been a focus of attention for all hotel market players, and it seems that the COVID-19 crisis is not going to change this. The Czech capital offers unique tourism products and experiences that unceasingly attract very high visitor numbers, so there is no reason why we should not see a return to pre-crisis levels once the restrictions are lifted. The willingness and appetite to travel have not dimmed and Prague remains a preferred destination. That is why we are seeing this ongoing interest among prominent market players in buying, leasing or operating some of the local hotels – the demand definitely exceeds supply,” says David Nath, Head of the Central & Eastern European Hospitality Team at Cushman & Wakefield.
Poland: the country of choice when it comes to key regional cities
With four cities – Warsaw, Kraków, Gdańsk (Tricity) and Wrocław – scoring among the top 10 out of the 30 destinations in the list, Poland is the most attractive country for hotel operators in the CEE & SEE region. Other Polish cities singled out as target markets by international operators included Poznań, Lublin and Łódź.
Capitals are key targets, but some regional cities on the rise
The survey shows that operators’ preferences may vary, depending on their scale and regional coverage. While smaller players are focusing primarily on the capital cities of major countries, larger operators have cast their net further, also expressing an interest in second- and third-tier cities across the CEE & SEE region and in resort destinations.
Two regional cities made it to the top-10 list: Poland’s Kraków, closely followed by Dubrovnik in Croatia, beating the likes of capitals such as Sofia, Zagreb, Kyiv, Tallinn and Belgrade. The sixth-place achieved by Dubrovnik, a relatively small Mediterranean city, indicates that seaside destinations are rising in popularity among operators.
Recovery between 2022 and 2024
In its survey, Cushman & Wakefield also explored operators’ expectations of market recovery from COVID-19-related impacts. Most expect the market to recover to levels similar to 2019 between 2022 and 2024, depending on the size and importance of the destination. Recovery is forecast to take longest in capital cities: almost half of respondents think that they will return to pre-crisis levels in 2024. These expectations are consistent with the Oxford Economics predictions of tourist demand, according to which Prague, for example, will recover by 2024.
The larger and more important regional cities should fare better than capitals, with more than half of respondents expecting them to recover in 2023. The best prospects lie in smaller regional cities which, driven by domestic demand, should recover even faster: the majority of respondents expect them to bounce back in 2022.
Needless to say, the COVID-19 pandemic has affected development projects in CEE & SEE. While the majority of them are still going ahead despite the crisis, some are being delayed or even cancelled. This will slow down the growth of supply over the next few years and should facilitate faster market recovery.
The primary reasons for deals being delayed or cancelled are issues with debt funding, and alternative uses have become more viable.
“Hotel markets understandably face challenges. It is now particularly difficult to secure financing, but not impossible, as evidenced by the refinancing we have successfully arranged recently for a big five-star hotel in the centre of Prague,” David Nath adds.
Preferred contract type changes
The COVID-19 crisis is also prompting amendments to the commercial terms of deals, with 75% of respondents indicating certain changes and 31% stating that notable amendments have stemmed from the pandemic. Nevertheless, operators are continuing to seek expansion opportunities in the region, with about 47% of respondents still offering leases, although some have narrowed this down to selected markets and prime locations. In addition, nearly 35% of operators are willing to consider investing equity (ownership / JV deals), although two-thirds indicate that they would do so only in selected markets and prime locations.
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