Hungarian hospitality market falls dramatically in 2016

The Hungarian hospitality market saw EUR27.5m of hotel investments in 2016, a large drop from 2015’s EUR76m, according to data published by Cushman and Wakefield.
Hungarian hospitality market falls dramatically in 2016

Despite last year’s drop, investor activity will be notable in 2017, especially in Hungary, Austria and Romania, where significant assets are set to be put up for sale or are about to be transacted, the real estate firm said. Last year, the CEE markets – specifically Austria, Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia – saw investment volume totaling EUR1.2bn with 46 transactions, almost twice as many in value as compared to the preceding year’s EUR700m with 45 transactions, C&W data showed.

Austria was the star performer with almost EUR800m transacted, which made up 67% of the total investment volume, while in other CEE markets, such as Hungary, volume was lower than in 2015 the real estate firm said.

Meantime Deutsche Hospitality informed it will enter the CEE market with the IntercityHotel being constructed in the center of Budapest. “Budapest is a city with a great past and lots of potential. We are delighted that our brand will soon be able to offer a centrally positioned and modern hotel in such an attractive metropolis,” said Joachim Marusczyk, Managing Director of IntercityHotel GmbH.

However, the CEE hotel industry reported growth across all key performance metrics. An increasing number of tourists have chosen CEE destinations, thus occupancy rates returned or even surpassed the pre-crisis levels, reaching 72 per cent on average, up from 69 per cent. As the cost of visiting CEE has gone up along with increasing hotel room rates, profits have been soaring. The average price per room reached EUR76.6, up from EUR73.6 in 2015.

While CEE markets achieved double-digit growth in terms of revenue per available room, the more mature markets of Central Europe, including Prague and Warsaw, saw growth of around 6 per cent. Money has been flowing in from Far East Asia, the Middle East, and America as well as Europe.

“In the last few years the region has seen important inflows of capital as wider groups of investors try to take advantage of the strong performance of the local hotel industry. Among the factors driving performance are the continued strength of inbound international tourism into the CEE region, supported by Asian travelers, as well as the refocus of North African and Western European tourism. Moreover, the willingness of banks to finance hotel acquisitions has significantly enticed high investor demand,” said David Nath, head of the CEE Hospitality Team at Cushman & Wakefield.

Banks’ appetite for lending is reflected in the return in hotel development activity, with 2017 expected to deliver an additional 4,000 rooms across CEE capital cities, C&W claims. The markets with the greatest development prospects are Warsaw and Budapest. Prague is an exception with a limited pipeline due to planning constraints and few sites suitable for hotel development.

“Although we expect growth to slow down slightly during 2017, the investment market will remain robust compared to other more established markets in Western Europe. We will also see increasing capital invested in less mature hotel investment markets such as Bucharest and Sofia,” said Frederic Le Fichoux, head of hotel transactions for Continental Europe.

“The average daily rate is expected to rise further, generating higher income returns for investors, especially in more mature CEE markets, where the development pipeline is limited,” he added.

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