Hotels in Eastern Europe give the West a run for its money - hotel room rates up, room supply up, visitor numbers up
An increase in demand for rooms in Eastern Europe has boosted the hotel investment market in the last couple of years. Last year saw a massive € 500 million transacted in hotel deals across the region up from €285 million in 2004. "With a massive influx of foreign visitors, an increase in low cost airlines and the expansion of the EU; Eastern Europe has been placed firmly on the map for hotel investors", said Christophe Härle, Head of CEE for Jones Lang LaSalle Hotels.
Room Rates
Moscow's average room rate rose by a third from 2004 to 2005, coming in at an average €187.50 per night, not far behind its Western European counterparts. Milan tops the chart with average room rates of €294.13 followed by Paris at €281.75 and London at €277.26. Other Eastern European markets are seeing strong rates – Prague at €101.40, Warsaw at €81.27 and Budapest recorded €74.91. The region's hotel markets have seen a massive growth in demand. Budapest for example saw a 32% growth from 2000 to 2005, 14% of that was for last year alone. Warsaw experienced similar growth (32.8%) between 2000 and 2004.
Christophe Härle, Head of CEE for Jones Lang LaSalle Hotels said: "Budapest is an example of another destination growing in popularity. Last year saw its budget airline passenger numbers double to a staggering two million. As a result of such growth, many hotel operators wanted to secure a presence in Eastern European cities and in some markets this has made an imbalance between supply and demand with a negative effect on room rates."
Room Supply
With demand for rooms rising, hotel developers have reacted accordingly. Room supply in Warsaw has increased by 60% since 2000, Prague by 33% and Budapest by 25%. Warsaw has fallen victim to oversupply whereas Prague and Budapest, with their well-developed tourist industries are able to compensate for any oversupply with their relatively low room rates and high occupancy levels, which tip over 70%. Prague ranks third in Europe for its high occupancy levels with 75.3% only topped by Amsterdam (78.5%) and Edinburgh (76.4%). Budapest also featured in the top ten with an impressive 72.3%.
Christophe Härle said: "Warsaw's room occupancy rates are at 61.3%, only Milan's hotels show a weaker level of 60.6%, however with a room rate almost hitting €300 per room per night, this compensates for the low occupancy levels. Unlike Prague and Budapest, Warsaw did not succeed in establishing itself as a tourism destination with its perceived lack of character and tourist offering. Like Frankfurt, Warsaw has a reputation as a business destination, and is dominated by business travellers who stay during the week and vacate by the weekend."
Room Yields
London and Paris top the rankings as last year's average room yield (revenue per room sold) winners with London achieving €204.47 closely followed by Paris on €199.38 and Milan was in third place with €178.18 followed by Eastern Europe's highest contender, Moscow at €135.75, an increase of 30-4.4% on last year. St Petersburg came in eighth position with an average room yield of €123.72. Prague got the 20th spot with €76.36 and Budapest with its strong occupancy rate, exceeded the €50 mark. Warsaw registered €49.80, one of Europe's poorest performers despite a 15% rise on the previous year.
The Future
Christophe Härle, commenting on the future of the markets said: "In order to generate more demand in the Eastern Europe hotels market there must be a commitment to invest in the local infrastructure. This is already happening in Budapest, with the recently opened conference centre, and in Prague with the new airport terminal.
Moscow has a limited room supply, 35,000 rooms in total; between now and 2010 this is set to increase by 14,000. As room rates are so high and old Soviet state hotels are beginning to close, it would make sense to increase the supply of three and four star hotels. The situation is similar in St Petersburg; out of the 17,000 hotel rooms, only 4,000 meet international standards."
"Prague and Budapest will see growth in the luxury sector, with a number of four and five star hotels springing up in the city centre. Warsaw still has to absorb the additional supply which came onto the market in the past couple of years; room numbers have doubled in the past ten years, now standing at 10,000. A pause in supply growth is highly recommended", continued Härle.
Secondary Markets to watch include Gdansk, Krakow and Poznan in Poland which are making their way on to the tourist map thanks to the number of low cost carriers serving these destinations. Interest in the Ukraine's capital, Kiev is also gaining momentum. "Hotel operators and investors should also look closely at the secondary markets as they offer good investment opportunities for the future", concluded Christophe Härle. |
