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Hotel Developers, Investors
RISING TOURIST NUMBERS DRAWING HOTEL DEVELOPERS, INVESTORS
The number of tourists visiting Hungary is continuing to rise, with more than 30 million guest nights registered in 2018. Indeed, overall there was growth of around 3% in tourist visits across the CEE region last year and this growth trend is expected to continue.
By Gary J. Morrell
Developers, investors and hotel operators therefore see a strong potential for hotel development; CBRE has traced a pipeline of 2,900 hotel rooms in 20 hotels under construction in Hungary. However, due to the complexed development process and labor issues, delivery dates are very difficult to estimate, with many completion dates slipping. Despite this, the hotel sector in Hungary is continuing to flourish.
“The attractiveness of the Hungarian capital is reflected in the consistent double-digit passenger traffic growth
at Budapest Ferenc Liszt International Airport, which became the fastestgrowing airport in the region in 2018, with 14.9 million registered passengers throughout the year,” says Gábor Borbély, head of business development and research at CBRE Hungary.
Budapest is regarded as part of a Central European “golden triangle”, along with Prague and Vienna, from a hotel investment perspective by many analysts.
The CEE hotel markets are no longer the Cinderella to the more established office, retail and industrial market sectors; according to Rolf W. Schmidt,
founder and general manager of TopHotelProjects, Austria is the leading Central European hotel development market with 68 projects, followed by Croatia with 25. Hungary and Czech Republic are fourth and fifth in the region, each with ten projects. An interesting comparison reflecting the development potential in the markets is that is that Germany alone has 373 projects.
“It is exciting to see the evolution of the CEE hotel market with a growing number of sophisticated investors and arrivals of new brands tailoring their concepts to the needs of new generations of travelers (affordable life-style hotels, soft-brands, new generation of hostels and innovative serviced-apartments concepts),” says Bořivoj Vokřínek, head of Hospitality Research, EMEA at Cushman & Wakefield.
“The relatively low brand penetration across the region provides space for expansion of innovative products and therefore present a tremendous opportunity for the CEE hospitality market to propel itself into a leading position as the most progressive market in Europe. Hotels are currently moving from alternative to mainstream investments as investors get increasingly comfortable with the CEE becoming a maturing hotel market,” Vokřínek adds.
LIMITED AVAILABILITY According to Marius Gomola, managing director of Horwath HTL Hungary and HOTCO, the major problem with the development of the hotel investment market has been the limited availability of stock to meet the growing needs of investors.
“Despite this low availability of investment grade assets, established European investors such as Deka and Invesco have become increasingly active in the hotel sector against a background of growing tourism visits and concerns regarding the retail sector,” he said at the third HOTCO Hotel Investment Platform CEE & Caucasus conference in Budapest in January 2019.
Despite the number of delivery dates slipping, the strong completion pipeline and positive hotel market indicators are seen as creating opportunities for major international investors to make acquisitions in the hotel market. According to CBRE four
Intercity Hotel Budapest.
schemes totaling 360 rooms were handed over in Hungary in 2018.
“An additional eight hotels with circa 1,000 rooms were originally scheduled for late 2018 but have been moved to 2019 due to considerable shortages in both the construction sector and general labor market,” Borbély concedes.
“Although we experience shifts in completion dates throughout the capital and regional cities, development activity remains strong across the country with expected delivery of circa 2,000 rooms in 16 individual hotel schemes by the end of 2019. Budapest accounts for 75% of the overall pipeline volume scheduled for the year, remaining the most targeted region within Hungary,” he adds.
and Germany’s Meininger Hotels have delivered 184 three-star rooms at the 6,500 sqm Meininger Hotel Budapest in Fővám tér, directly opposite to the Nagycsarnok (Great Market Hall) food market in District IX.
CEE FIRST The hotel will be operated by Meininger Hotels based on a 20-year lease, and is its first CEE project (it has a portfolio of 16 hotels in European capitals). The development is the first hostel-hotel complex in Budapest aimed at urban travelers.
“We are somewhere between a threeand four-star hotel in terms of quality but we have also taken some ideas from the hostel concept and therefore we have a guest kitchen and a lobby. We also provide multi-bedrooms as we feel that families are somewhat neglected in hotel markets. If you travel with children it can be difficult to find suitable hotel accommodation,” says András Holczer, feasibility manager on the project for Meininger Hotels.
Meininger Hotel in Budapest.
The company achieved 88% room occupancy last year across its portfolio and 91% in 2017, the slight drop due to new openings, Meininger says.
“When we target a city we require at least three million overnight stays per year, the city needs to have both strong leisure and business tourism to benefit from our concept and Budapest is certainly one of these markets,” Holczer explains. “We are a pure operating company and we do not own the assets or carry out construction so we always try to find a local partner,” he adds.
With regard to further expansion, the company says it is looking to source a site for a hotel in Prague and possibly a further site in Budapest.
In the next scheduled delivery at the top end of the Budapest hotel market, Hungary-based, Jordanian-owned hospitality developer Mellow Mood is due to complete the long-awaited, 110-guest room and suite Párisi Udvar Hotel in the historic center of Budapest. ART DECO The complex, in an Art Deco building dating back to the 19th century, has been designed by Hungary’s Archikon and a franchise agreement has been reached with Hyatt Unbound Collection.
The project has been under development for several years, reflecting the difficulties associated with the redevelopment of historic, listed buildings in the heritage protected center of Budapest. However the large number of historic buildings in key central locations does provide the opportunity for the redevelopment of boutique and medium-sized hotels in the historic center, providing a use-value and an opportunity for the renovation of class turn-of-the century listed buildings.
With this in mind, Horizon Development has acquired a building in the central business district for the redevelopment of a building into a circa 150-room hotel. Attila
Kovács, managing partner of Horizon, describes the project as transferring the skills learned from the company’s development of the Eiffel Palace office project to the hotel sector.
In another high-end pipeline project due for delivery this year, Accent Hotel Management is constructing the four- to five-star 210-room Hilton Garden Inn Budapest in District VI. Accent has agreed a franchise agreement with Hilton Hotels for the complex, located 100 meters from the Hungarian State Opera.
Similarly, Matild Palace, another reconstruction project involving a 19th century building, this time by the Turkish Özyer Group, is scheduled to deliver the first 130-room Marriott The Luxury Collection branded hotel in Budapest in District VI.
In the mid-range segment, the German Deutsche Hospitality in conjunction with the B&L Group has acquired construction permits for the 300-room 16,000 sqm InterCity Hotel Budapest at the Keleti Railway Station. The company has the policy of developing its InterCity Hotel brand at what it sees as key train station and airport locations. The Budapest project, the first in the region, is scheduled to complete in 2020. A contract with DVM group has been agreed for the design and construction management of the development.
MANAGEMENT STRATEGY With regard to management strategies, the pros and cons of the choice of a management contract, lease, franchise or hybrid by a developer is seen as depending on the type of business and location, and the extent to which a developer wishes to be hands on in the business, according to Arik Ramot, lawyer and investment banker at Ramot & Co Investment House. It is seen as more difficult to source debt finance the further a developer is from the management of a project.
Hungarian developer Redwood Real Estate Holding has agreed a management contract with Hard Rock International for the operation of the 136-room Hard Rock Hotel Budapest in Nagymező utca in District VI, due to be completed in the fourth quarter of the year.
The four-star “life-style” hotel located in a party hub in Budapest reflects the growing sophistication of the hotel market and the need for different models of hotel development. The hotel and leisure complex, designed by the Hungarian Studio 100, will include a Hard Rock Café restaurant with up to 120-seating capacity.
Wing, which is active in all commercial development markets, has agreed a forward development contract to develop a hotel in Boráros tér in District IX for the French hotel chain B&B Hotels.
The project is a reconversion of a former office building with a view overlooking the Danube. Wing delivered the 145-room Ibis Styles Budapest Airport Hotel in 2017, the only hotel with direct access at Ferenc Liszt International Airport, and also developed a hotel project in Székesfehérvár (64 km southwest of Budapest).
“The airport hotel project is a very unique property and in this way it works a little bit differently from the way other hotels work, but we feel that we now have sufficient knowledge to continue,” says Noah Steinberg, chairman and CEO of Wing.
