As real estate capital continues to flow into Eastern Europe - hotel investors are targeting, Hungary's capital, Budapest. 

Jones Lang LaSalle Hotels' latest Hotel Investor Sentiment Survey (HISS) revealed that 50% of respondents who are active or based in Europe want to acquire in Budapest. Christoph Härle, Head of CEE, Jones Lang LaSalle Hotels said: "Budapest is of particular interest to hotel investors at the moment.  The hotel market has been going through a difficult time between 2000 and 2004, but has been performing very well in the last one and a half years and visitor numbers have been increasing by an average of 6% per year.  In 2005, the number of international tourists rose by 14% on 2004 to 2.2 million."

He continued: "The low cost carrier boom in the last two years and the increase in international routes, most notably the introduction of Japanese Airline's flights from Tokyo, Nagoya and Osaka, have added to international arrivals.  Budapest's principal airport expects to see 12 million annual visitor arrivals by 2012. Next to being a sought-after leisure destination, Budapest is also becoming an important business destination and currently ranks as the 8th best conference destination worldwide, overtaking fellow European cities, London, Paris and Brussels."

Since 2000, the number of hotels has risen by 25%, putting pressure on hotel performance.  There are currently an estimated 140 hotels with 15,600 rooms; 3,300 of which fall into the five star category.  The slowing supply pipeline combined with an increase in demand has released some of the pressures on hoteliers. Room rates however remain under pressure as occupancy levels are currently still below 65%.  Average room rates in Budapest stand at approximately €78.88 whereas in Warsaw and Prague they are at €86.08 and €103.42 per night respectively.

Hampering Budapest's upturn could be the current political situation and also the high airport charges. In the first half of 2006 Budapest has registered less tourism demand compared to the same period in 2005 and tourism officials state this is a direct result of the high airport charges and the recent decrease in low cost carriers to Budapest.

Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels said: "Budapest is an important emerging market and investors are taking notice of the turn in trading environment.  It's not only the capital city that has potential; locations such as Lake Balaton, a popular leisure destination, Miskolc with its vast array of international companies and Debrecen which has the largest airport outside Budapest and its proximity to Romania and the Ukraine are increasing in popularity. It is a very exciting time for Hungary and its growing hotel industry."