From refurbished palaces in Budapest and Bucharest to gems on the Baltic coast, hoteliers who are seeking higher returns in Eastern Europe are venturing outside the region’s saturated hubs.
With yields in Prague and the business districts of Warsaw dropping close to levels in Germany’s largest cities, it’s the capitals of Romania, Hungary and Serbia — as well as large secondary cities in Poland — that are increasingly attracting developers and investors, hotel executives said.
“Bucharest is what Warsaw was 10-15 years ago,” Adam Konieczny, development director for Europe at Paris-based Louvre Hotels Group, said at a recent hotel-industry conference in Budapest.
Goldman Sachs Group Inc. was among the sellers of a portfolio of 10 hotels, including four-stars in Budapest and Prague, to Indian conglomerate InterGlobe last year. There were 4.2 billion euros ($4.6 billion) in hotel deals in the region’s six main markets in the past five years, a third of it in 2019, according to CMS and Cushman & Wakefield.
Cranes dot the skyline in the Romanian capital, with projects including two Ibis hotels by Warsaw-listed Orbis SA. Apex Alliance, a Lithuania-based independent operator, recently completed a four-star Marriott in Bucharest and it has been turning an iconic bank building in the city’s Old Town into a five-star asset.
Major Polish cities outside of Warsaw are also booming. Over the next three years, nine hotels with a total of 1,900 rooms are scheduled to open in the Tricity area that includes Gdansk, Gdynia and Sopot on the Baltic Sea, increasing the local stock by 30%.
Bialystok, a university town in eastern Poland, is meanwhile a favored location for Warimpex, another major developer, because it has more fresh workforce available than Warsaw, CEO Franz Jurkowitsch said.
Krakow, Poland’s second-biggest city, has for long been a popular tourist destination though a surge in business centers there and across the region has also boosted demand for hotels.
“Poland and Romania are key because these are the two countries in Eastern Europe which have strong domestic markets,” said Gilles Clavie, chief executive officer of Orbis, which develops hotels in the region under Accor SA’s brands such as Sofitel.
“Economic growth over the coming years is expected to stay bullish in the region; if not for any serious geopolitical issues, I can’t see investment activity slowing down,“ he said.
There is ample room to boost the presence of international brands. The share of hotel chains is just 15% of the total in Hungary, 14% in Poland and 6% in Serbia, compared with more than 20% in many western European countries, advisory firm Horwath HTL said in a 2019 report.
Al Habtoor Group on Wednesday announced it would set up a regional office in Budapest to service its existing European operations, which include The Ritz-Carlton and InterContinental in the Hungarian capital in addition to hotels in London and Vienna.
“The less-explored markets in Europe are now gaining momentum, offering a competitive edge, an attractive investment climate and higher yield possibilities for foreign players,” Al Habtoor said in a statement on its website.
Budapest has about 3,000 new rooms scheduled for completion by the end of 2021. The Hyatt Regency will occupy a former post office building dating to the 1870s and W Budapest by Marriott will open in a palace that used to house Hungary’s state ballet school.
Last month, French real estate investment trust Covivio bought the iconic five-star New York Palace hotel in Budapest, part of a $685 million acquisition blitz of eight emblematic hotels across Europe, including the Carlo IV in Prague.
The group in November also purchased three hotels in Lodz, Warsaw and Krakow in Poland from B&B Hotels. Apex Alliance meanwhile is looking to buy in the Hungarian capital.
“There are three or four opportunities for us in Budapest, if I look at what we potentially have in the pipeline,” said Apex Alliance CEO Gerhard Erasmus.
IHG® (InterContinental Hotels Group), one of the world’s leading hotel companies, has signed a franchised agreement with Borealis Hotel Group for Holiday Inn Express® Budapest City Centre. The 189-room hotel will be the first Holiday Inn Express in Budapest and the first IHG hotel to enter the Hungarian market in over 20 years. Expected to open late 2022, Holiday Inn Express Budapest City Centre will bring a high-quality three-star experience to the heart of the city. The project will be developed by the company Big4.
The expansion of IHG’s presence in Budapest brings a new offering to the local guests and those visiting for leisure. The hotel offers convenient access to Blaha Lujza square, once home to the original Hungarian National Theatre, which is soon to be transformed into a modern community space. Situated in the liveliest part of the city, the Holiday Inn Express Budapest City Centre connects locals and guests to the heart of the inner city in just 5 minutes. Various restaurants and bars are located in close proximity to the hotel, creating an ultimate insight into the true Hungarian culture.
Banner Photo: JW Marriott Bucharest Grand Hotel has completed the renovation of the last four floors (220 rooms and 13 suites) after an investment of approximately EUR 4 million, as the hotel marks its 19th anniversary in Romania this fall. (photo Marriott Hotels & Resorts)