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Hungarian hotel investments drop in 2016, will speed up in 2017

The Hungarian hospitality market saw EUR 27.5 million of hotel investments in 2016, a spectacular drop from 2015’s EUR 76 million, according to data recently published by Cushman and Wakefield. However, the market is expected to boom again in the upcoming years.

Despite last year’s drop, investor activity will be notable in 2017, especially in Hungary, Austria and Romania, where significant assets are set to be put up for sale or are about to be transacted, the real estate firm anticipates.

Last year, the CEE markets — specifically Austria, Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia in this analysis — saw investment volume totaling EUR 1.2 billion with 46 transactions, almost twice as many in value as compared to the preceding year’s EUR 700 mln with 45 transactions, C&W data shows.

Austria was the star performer with almost EUR 800 mln transacted, which made up 67% of the total investment volume, while in other CEE markets, such as Hungary, volume was lower than in 2015 the real estate firm notes.

However, the CEE hotel industry reported growth across all key performance metrics. An increasing number of tourists have chosen CEE destinations, thus occupancy rates returned or even surpassed the pre-crisis levels, reaching 72% on average, up from 69%. As the cost of visiting CEE has gone up along with increasing hotel room rates, profits have been soaring. The average price per room reached EUR 76.6, up from EUR 73.6 in 2015. 

While the Eastern markets achieved double-digit growth in terms of revenue per available room, the more mature markets of Central Europe, including Prague and Warsaw, saw growth of around 6%. Money has been flowing in from Far East Asia, the Middle East, and America as well as Europe. Hence, the region has become truly international.

“In the last few years the region has seen important inflows of capital as wider groups of investors try to take advantage of the strong performance of the local hotel industry. Among the factors driving performance are the continued strength of inbound international tourism into the CEE region, supported by Asian travelers, as well as the refocus of North African and Western European tourism. Moreover, the willingness of banks to finance hotel acquisitions has significantly enticed high investor demand,” says David Nath, head of the CEE Hospitality Team at Cushman & Wakefield.                          

Banks’ appetite for lending is reflected in the return in hotel development activity, with 2017 expected to deliver an additional 4,000 rooms across CEE capital cities, C&W claims. The markets with the greatest development prospects are Warsaw and Budapest. Prague is an exception with a limited pipeline due to planning constraints and few sites suitable for hotel development.      

“Although we expect growth to slow down slightly during 2017, the investment market will remain robust compared to other more established markets in Western Europe. We will also see increasing capital invested in less mature hotel investment markets such as Bucharest and Sofia,” says Frederic Le Fichoux, head of hotel transactions for Continental Europe. “The average daily rate is expected to rise further, generating higher income returns for investors, especially in more mature CEE markets, where the development pipeline is limited,” he added.