Vienna’s position as the leading conference destination in the world was once again reaffirmed in 2010 through the International Congress & Convention Association’s city rankings. The city also remains a popular leisure destination attracting an increasing number of visitors from markets such as China, the Middle East and Russia.
After a strong performance in 2008, the city’s hotels suffered in 2009, as the number of visitors declined. In a sample of 5-star hotels in the city, occupancy fell by five percentage points to 69%, and average room rates declined 11% from €175 to €156 (US$222 to US$199) resulting in a revenue-per-available-room decline of 17% to €107 (US$136).
The limited volume of new supply entering the market in the coming years and the broad demand base for accommodations should mean the city’s hotels are well placed to continue on the road to recovery and start to recover declines in average rates.
Vienna is a mature, stable hotel market benefitting from strong demand in all segments. The city has a good level of base demand from the leisure and corporate sectors and also derives significant volumes of business from its position as a global destination for international congresses.
According to the ICCA city rankings, Vienna has been the most popular city in the world for meetings for the past six years. Fluctuations in the frequency and size of these conferences held each year has a notable effect on the performance of the city’s hotels, particularly with regards to average room rate.
As a leisure destination, Vienna is well established. The main demand generators for this segment include the city’s architecture, art, cultural and music programs, shopping, bars and restaurants. Over the past eight years, visitor numbers and the number of roomnights in Vienna have continued to grow steadily (other than a small decline in 2009) with compound annual growth rates of 3.9% and 4%, respectively. International visits to the city account for more than 75% of the total.
The effect of the global economic crisis on the volume of visits to Vienna is limited to a small drop in the total number of visitors during 2009. This also is reflected in the number of roomnights. However, by 2010 visitor numbers had recovered to levels in excess of those achieved in 2007. There are a number of mitigating factors that help explain Vienna’s relative resilience to the crisis. First, as described above, the city has a strong level of demand across all segments and is therefore not overly reliant on one in particular. Secondly, Austria co-hosted the Euro 2008 football tournament that attracted significant volumes of people to the country, as well as the capital. Finally, the strength of Vienna’s congress and conference market helped to offset some of the decline in other types of corporate travel experienced elsewhere.
Visitors to the city come from a variety of international source markets, the largest of which include Germany, Italy, the United States, Russia and Great Britain. Russia, the CIS countries, China (including Hong Kong), and Central and South America have shown strong year-on-year increases in the last few years.
In addition, Vienna will attract visitors from the Middle East, as it will continue to be an important and growing market, especially during the summer months.
Demand in Vienna is not particularly seasonal due to the city’s broad appeal across all segments. Demand tends to peak in May and August while March, April, September and October benefit from strong demand due the conference season. Demand is weakest during the months of January and February.
On the supply side, Vienna’s hotel stock increased only modestly during the past eight years, lagging behind growth in the volume of arrivals to the city. A compound annual growth rate of 3% in the total number of rooms (across all classifications) has been driven primarily by the increase of rooms in the limited-service, 3-star sector (6%). The volumes of 4- and 5-star rooms over the same period increased by compound rates of 2.6% and 1.6%, respectively.
The total number of rooms available in these sectors fluctuated slightly over the years, due to refurbishment programs and some notable entrants into the market, such as the 184-room Sofitel Stephansdom, which opened fully during the second quarter of 2011. The Sofitel is Vienna’s most striking new development and was designed by the renowned French architect Jean Nouvel.
Significant projects in the pipeline include the 150-room The Kempinski, which is due to open in October 2012, and the 160-room Four Seasons opening in 2013. Following Shangri-La’s termination of a lease contract for a newly refurbished hotel on the Schubertring, we expect this hotel to open sometime in 2012 once a new operator is found.
Hotel market performance
Given the favorable supply and demand dynamics of the Viennese market, hotel performance in the city is robust. The effects of the global economic crisis were less pronounced in Vienna than in a number of other major European cities. During 2009, modest declines in occupancy were apparent across all classes of hotels in line with the decrease in visitor numbers. Average room rates were the main casualty of the crisis and decreased more sharply than occupancy.
Colliers International analyzed the performance of a sample of 5-star hotels in the city with a total of 1,647 rooms. The analysis took account of the occupancy, rate and RevPAR achieved over the past three years and subsequently a five-year forecast was prepared, taking into account the effect of new supply entering the market.
The occupancy of the sample averaged approximately 72% from 2008-2011 year to date, despite the challenging conditions resulting from the global economic crisis, consistent with the rest of the market the hotels in the sample benefited from favorable trading conditions in 2008. During 2009, occupancy suffered as visitor numbers declined, falling by five percentage points. This, combined with a 10.9% fall in average rates, resulted in a RevPAR decline of 16.9% for the year.
Even as occupancy levels began to recover in 2010 (increasing by four percentage points to 73%), downward pressure on rates remained as hotels had to accept lower-value business and corporate travelers remained price-sensitive. Average rates fell by 2% during 2010, but the rise in occupancy resulted in a 4% increase in RevPAR.
There likely is little opportunity for any real increase in average rates in 2011, as the economic backdrop remains weak and hotels continue to focus on maintaining the levels of occupancy achieved in 2010. During 2012, the general economic climate will continue to improve (albeit slowly), and higher-value corporate business will return (see risks to this scenario below). Crucially for Vienna and hoteliers’ ability to increase rates, the outlook for the congress business in 2012 and 2013 appears to be strong especially in the associated congress segment. The corporate segment for congresses is harder to quantify as lead-in times typically are much shorter. While demand growth at the higher end of the market is not expected to be significant, the relatively small amount of new supply entering the market at this level likely is to be absorbed over the short term. Growth in visitors to Vienna will continue, and a number of emerging markets will be increasingly important drivers of demand for hotels rooms across the city. The 3- and 4- star sector of the markets appears to offer the greatest scope for growth during the next five years.
In the short term, downside risks likely will dominate. The protracted political process of agreeing and implementing a credible plan to address the euro debt crisis will continue to undermine confidence in the European Union. The fragile recovery and sluggish growth in many important source markets including the United States will, to some extent, constrain the ability for hoteliers to recover rates to levels achieved before the crisis. However, Colliers International’s view is that the hotel market in Vienna is well placed to at least maintain the gains in occupancy achieved during 2010 and 2011 and to start to increase rates in 2012.
Tim Jones is a Senior Consultant at Colliers International Hotels in London. Colliers International Hotel provides dedicated hotel and resort property expertise to accelerate the success of our clients around the globe. Colliers International has over 45 people specialising in hotels and resorts based in the UK alone. The team of international experts in London work alongside colleagues around the world to provide a network of hotels teams covering Europe, the Middle East and Africa, the Americas, Asia and Australia Colliers.
Disclaimer: This report gives information based primarily on published data which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to the forecasts, figures or conclusions contained in it and they must not be relied on for investment purposes. This report does not constitute and must not be treated as investment advice or an offer to buy or sell property. December 2011
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