Despite hotel development’s perceived complexities and reliance on short-term stays compared to the more established market sectors, the hospitality sector is successfully attracting players from more traditional commercial property sectors.
Investors are concluding long-term leases and franchise partnerships with leading branded international hotel operators, who provide the expertise needed for the day-to-day operation of the assets, while the owners can concentrate on asset management.
Several hotel projects have been put on hold due to the complexities of development, concerns over financing and rising construction and operational costs; however, Horwath HTL estimates around 22 new hotels with 3,000 plus rooms could open in Budapest in the next three to five years. Budapest hotel supply had reached 224 properties as of the turn of the year. There was a total capacity of 23,000 rooms and more than 50,000 beds.
“Following last year’s significant boom in hotel openings, the Budapest market is expected to stabilize this year. The projected supply increase includes up to six new hotels with 544 rooms, but due to investment delays, we expect about half of this to materialize,” comments Attila Radvánszki, senior director at Horwath HTL Hungary.
“Key hotel openings from 2023, such as W Budapest, Dorothea Hotel, Ibis & Tribe Budapest Stadium and Gin Hotel, a sister property of the Rum Hotel, will see their first full year of operation in 2024. Other notable projects are Kimpton Hotel Budapest, Radisson Collection, and Jo & Joe. Three Corners Hotels will open a new hotel close to Andrássy út, and the owners of BO18 and BO33 are opening a new hotel in Csengery utca as well,” Radvánszki lists.
“Landmark projects like the refurbishment of the Gellért Hotel, to reopen as a luxury Mandarin Oriental Hotel, and the Lagoon City Project with the region’s first Swissotel will also improve the attractiveness of the Hungarian capital,” he says.
“Over the long term, Budapest is likely to see sustained growth due to continuous investments in tourism infrastructure, increasing international connectivity, and the city’s strategic marketing initiatives. With increasing geopolitical tensions in the region and across the globe, Budapest will not be immune to potential black swan events,” Radvánszki adds.
Budapest’s popularity as a tourist destination remains robust, and it continues to be one of the most popular cities in the region, alongside Prague and Vienna, according to Robert Székely, hospitality and leisure expert at the consultants Newmark VLK.
“Notably, in 2023, the RevPAR [revenue per available room] in Budapest was higher than in Prague, its main regional rival. According to forecasts, passenger traffic at Ferenc Liszt International Airport will return to pre-pandemic levels in 2024,” Székely says.
“The largest impact on tourism in Budapest could come from the state’s purchase of Ferenc Liszt International Airport. Meanwhile, hotel supply development is continuing: hotel brands such as Kimpton, St. Regis, Radisson Collection, Voco, Vignette Collection, Moxy, Mandarin Oriental, So, and Swissotel – just to name a few – are entering the market, resulting in a differentiated supply,” he adds.
In a new mid-level Budapest project, IHG Hotels & Resorts has announced its first Holiday Inn & Suites property in Europe in the 170-room Holiday Inn & Suites Budapest Centrale.
The hotel market has been attracting developers who operate across different sectors. As mentioned above, Wing delivered the 12,000 sqm Ibis & Tribe Budapest Stadium Hotel within its 42,000 sqm Liberty office development in Budapest. The hotel has 332 rooms that are equally shared between the three-star Ibis and four-star Tribe brands and will aim for Breeam in-use and Access4you accreditation.
“The Liberty reflects our ambition to create a dual-branded hotel with a wide range of services and an outstanding guest experience as part of an internationally acclaimed mixed-use development,” says Noah Steinberg, chairman and CEO of Wing.
The developer is also constructing a new hotel in cooperation with the airport operator at Budapest Ferenc Liszt International Airport. The new 167-room Tribe Hotel, which will target Breeam “Good” certification, is being built next to the Ibis Styles Budapest Airport Hotel, which Wing also developed and opened in 2018. It is aiming for Breeam in-use and Access4you accreditation.
A notable trend in Budapest, a Central European city with a wealth of fin de siècle buildings, has been for the purchase and redevelopment of heritage-listed palaces into hotels in prominent protected locations, giving the buildings a use-value while at the same time maintaining the classic feel of the historic city center.
W Hotels, part of the Marriott brand, opened the 150-room and suite luxury W Budapest after renovating the UNESCO-listed Drechsler Palace opposite the Opera House on Andrássy út. The reconstruction was undertaken by the DVM group with Bánáti + Hartvig Architectural Office as the designers and the London-based consultancy Bowler James Brindley as the interior designers.
Another redevelopment of a turn-of-the-century heritage building into an upmarket hotel is the five-star Matild Palace, a Luxury Collection Hotel, by Melis Investment, owned by the Turkish Ozyer Group. The regeneration of the Southern Klotild Palace, originally built in 1900, was designed by Puhl and Dajka Architects with the interiors by MKV Design. The project won the “Hotel of the Year” title at the 2023 FIABCI Hungarian Real Estate Development Awards.
While not on the same scale in terms of saving an architectural gem, but a significant feat of engineering non-the-less, the BDPST-owned Equilor Asset Management acquired the 360-key Sofitel Budapest Chain Bridge overlooking the Danube in March 2023 and is currently redeveloping the building. Scheduled to open in 2026, the asset will be re-launched as the fashion brand SO/, part of the fast-growing lifestyle hospitality company Ennismore, which is majority-owned by Accor.
“Budapest and the countryside present a dynamic and evolving hotel market with significant growth potential. With the right mix of modern amenities, sustainable practices, and strategic investments, the market is well-positioned for continued success. However, increased focus on destination marketing combined with effective promotional activities by the congress bureau will be essential to unlocking its full potential,” adds Radvánszki.
This article was first published in the Budapest Business Journal print issue of June 28, 2024.
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