MRP hotels - Hoteldevelopment

CEE hotel market - What has been happening? Which markets are growing?

02/10/2013 Vienna
After difficult years for many cities in the CEE region, some markets are starting to stabilise - in some cities, however, no growth can be seen. The Caucasus, Russia and central Asia offer exciting new prospects.

After the onset of the so-called financial crisis, many cities in the CEE region saw a large decline of business travellers and overnight stays (for example, in Bucharest). In many cities (for example, Bratislava and Budapest), the oversupply that originated during boom-years did not reduce as markets hardly grew or didn’t grow at all.

Since 2011, the average occupancy rate in many hotels in certain capitals has been able to at least stabilise; however, growth in average occupancy rates has not been possible (again in Budapest, for example). One exception is Bucharest, which saw no or very little recovery in 2013.

The table linked here shows an overview of development in certain CEE cities (source: STR Global)

Investors and banks are financing few hotel projects in this region and are acting very cautiously. Especially challenging for the development of new projects is the low willingness of leading hotel groups to sign leasing contracts in these markets. These, however, are preferred by investors in order to - supposedly - reduce risk. Only few operators are prepared to lease in these regions at the moment (often in combination with franchise agreements).

Some operators have ambitious roll-out plans in large CEE nations such as Poland and Romania. In addition to core brands (i.e. Hilton, Sheraton), they plan on introducing many focused service or budget brands (i.e. Hilton Garden Inn, Aloft). Current examples of this development are both Hampton by Hilton hotels in Warsaw, scheduled to open in the next six months.

International hotel operators have a strong interest in the Caucasus and central Asia, especially in cities such as Baku, Astana, Almaty and Tbilisi. The majority of all top segment hotel brands have recently settled in Azerbaijan’s capital, Baku. The city is well on its way to oversupply in the top segment (while the mid-scale segment has not yet been developed). In addition to the existing Kempinski, Hyatt Regency and Park Hyatt Hotels, a Hilton, a Four Seasons, a JW Marriott and a Jumeira have opened their doors in the last 18 months.

At the moment, Astana is also rapidly developing and is quickly becoming not only the political but also the economic centre of Kazakhstan. Business and corporate travellers are flocking here even more than to Baku, meaning hotel occupancy rates are lower on weekends, but higher average occupancy rates can be reached during the week.
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