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Hotel investment in CEE: new hotel concepts; the millennial generation and the new wish list

10 December 2018

  • CEE hotel sector continues to boom, with investment levels expected to exceed EUR 800m by year end 2018
  • The investors ongoing appetite for hotels in the key CEE cities is not being satisfied due to lack of quality assets and portfolios on the market
  • There is a growing diversity of buyers’ origin. During the first three quarters of 2018, the overall cross-border investment accounted for 67% of total volume.
  • Institutional and listed investors are playing an increasingly dominant role in the hotel investment market, accounting for 74% of total transaction volume in 2017 and 54% in the first three quarters of 2018
  • The opportunity for international brands remains strong, with only 42% of room stock within the CEE-6 capitals being branded
  • The moderately priced hotel tiers are experiencing the fastest growth with the majority of new openings across the CEE-6 region being within the Upscale, Upper-Midscale and Midscale hotel class. Together they account for nearly 60% of new supply. 
  • Millenials are increasingly key consumers within the hotel industry and have a range of expectations that investors and hotel operators need to consider.

London, 10 December 2018 – A new report by Cushman Wakefield and international law firm CMS explores the underlying investment trends across CEE6* countries and looks at the various innovations shaping the hotel industry.

Hotel sector in CEE continues to boom

Attracted by healthy demand and supply fundamentals across key markets in the CEE-6 region, strong performance growth and relatively low prices of hotel assets, investors continue to flock to the region.

With approximately EUR 412m already transacted during the first three quarters of 2018, and several major deals in advanced stages across the region, the total volume of hotel investment is predicted to pass EUR 800m by year end 2018.

“Due to historical and political factors, the CEE hotels market has faced a 30-year catch-up with the West,” says Lukas Hejduk, CMS Partner and Head of Hotels & Leisure in CEE“This pace of change has been reflected in the rate of sector development and investment across the region. Despite investor appetite contracting slightly in 2018, growth across the sector over the last five years has been remarkable, with 2019 set to be another strong year. There are still large amounts of capital looking for healthy returns - and hotels in CEE offer superior yields compared to many other regions in Europe or indeed other asset classes.”

Hospitality investment cycle to push new assets on the market

It is the stage of the cycle when the opportunistic and value-add investors are typically looking to sell their repositioned hotels to institutional investors with long-term holding investment strategy, seeking stable cash-flow generating assets. This leads to fundamental changes in the operating structure of hotels in the region with more hotels being operated under long term leases, especially for the newly developed hotels.

“Hotels are currently moving from alternative to mainstream investments as investors get increasingly comfortable with the CEE becoming a maturing hotel market. The share of CEE-6 markets on total hotel investment volume in Europe has more than doubled since 2010, reaching approximately 4.5% in 2017. However, there is still lots of room to grow, considering that the region is capturing over 8% of nights spent across the continent and has nearly 10% of hotel room stock. We should therefore see transaction volumes over 2 billion EUR each year. The main challenge of the region is the lack of quality and large hotel assets on the market. As price per room is exceeding pre-crisis levels and debt financing costs are increasing making us believe that yields are reaching the bottom, we should see more owners realizing it is the good time to sell and harvest their investment,” says Bořivoj Vokřínek, Partner, Strategic Advisory, Head of Hospitality Research, EMEA at Cushman & Wakefield.

Growing diversity of buyers

The report reveals that recent years have seen a growing variety of investors acquiring assets across the region. While private investors once dominated the market, institutional and listed investors have become increasingly active. 

During the first three quarters of 2018, the overall cross-border investment reached healthy levels, accounting for 67% of total volume. However, there was a notable decline of investment from non-European countries, especially from Middle Eastern and Asian investors.

New trends and blurring lines

The changing consumer trends and evolution of accommodation concepts over recent years has resulted in a blurring of lines between traditional hotel classes. While historically ample public spaces, multiple Food & Beverage outlets and trendy designs featured primarily in Luxury and Upper-Upscale hotels, these features are now more commonly seen across the accommodation spectrum. There are also blurred boundaries between short-term and long-stay accommodation. In the report we examine these changing concepts in the industry, and feature interviews with new market entrants.

The CEE Millennials wish list

Millennials – people born between the 1980s and 2000 – have a range of expectations regarding the hotel industry; investors and hotel operators must take their views seriously. During the first half of 2018, CMS, in conjunction with FTI Consulting, created and ran a business-to-consumer poll which attracted 5275 responses from millennials (aged 18-35) in 18 countries across the world. Over 800 millennials from the Czech Republic, Hungary and Poland took part in the survey. We have included the CEE Milennials’ wish list.

*Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia