Capital confident in Eastern Europe, but markets vary
 
Capital confident in Eastern Europe, but markets vary
30 JANUARY 2020 8:27 AM

With yields being squeezed in Western Europe, international and local capital is looking to Eastern Europe, but markets and opportunities vary, as does demand and segment placement.

BUDAPEST—Owners and investors are clamoring to buy hotels in Eastern Europe and the former Soviet nations now part of the Commonwealth of Independent States, and while opportunities are there, competition is heating things up, according to sources.

Interested parties come from both international and local markets, the latter becoming increasingly sophisticated within the hotel asset class, sources added.

“Yields in Western Europe are being reduced, hence the increased interest here,” said Ilan Rudich, managing director at IR Hotels & Resorts.

Przemysław Wieczorek, investment director and management board member at Puro Hotels, said international capital remains flexible and sizable.

“You have tentacles all over the world depending on where the yield is,” Wieczorek said.

Institutional investors from Western Europe are showing huge interest in the region, said Rudolf Krizan, COO and member of the board of directors at Best Hotel Properties, which is a Bratislava-based owner with assets in Moscow and Bratislava, among others, but also operates as a third-party management company.

Rudich added the region already has passed the phase of owners mostly interested in trophy assets.

There is less room to house owners’ friends when there is so much global travel demand, panelists said at the session titled “Who are the buyers?” during HOTCO.

“These are important cities for Chinese travelers. For example, Minsk (Belarus’ capital) has a lot of Chinese investment,” said Adam Konieczny, director of development for Europe at Louvre Hotels Group, which is owned by Chinese firm Jin Jiang Hotels.

“What we see from our partners is there is a larger interest from institutional funds, but it is difficult for them to find the right property that fits their codes and strategies,” Konieczny said. “Also searching are private, local investors, especially for assets between €100 million ($110.2 million) and €150 million ($165.3 million) that offer something different. The strongest platform, though, in Eastern Europe is Poland.”

Positive cycle
Fueling the region are healthy metrics, panelists said, but pitfalls remain everywhere.

“Being two or three years in Russia has made us more conscious of how we should look at all the economic data,” Krizan said. “Two examples are that Slovakia is very dependent on the European Union, to where 80% of its exports go, while even though Germany is so important, we still have to look at what is happening there all the time, such as with the (2015) scandal at Volkswagen.”

Konieczny said while he thinks trading is good, he has seen signs of a slowdown.

“We will be good for the next 24 months—maybe not at the same growth, but there is a lot of capital looking, and regional businesses are developing fast. There is a lot of outsourcing in Poland, for example, which has created additional demand for hotel services,” he said.

Puro Hotels’ Wieczorek, whose company is based in Poland and currently only operates there, said his firm bought its first property two weeks before the Great Recession. That crisis resulted in upside for Puro, he said.

“If you do things right, crisis can be opportunity,” he said. “Right now, operating is good, but developing is expensive, and (Puro does) all of it. Costs are high but capital and banks are available. We do not perceive a slowdown as we can see the opportunities as a shopping window for us to expand.”

Segment arrivals
Best Hotel Properties’ Krizan said more lifestyle brands are coming to the region, because there is demand for new products, depending on the market.

“Bratislava, though, there is no lifestyle,” he said.

Konieczny said, “All hotel segments need to adjust to the new, younger guest.”

“Building needs to be more playful, and there is a bigger demand for the long-stay concept,” he added.

Social media is pushing these shifts, Wieczorek said.

“The big drive of everything is the internet,” Wieczorek said. “Guests see the experience they want and what other people have had through this medium, and that creates pressure and opportunity for hotels.”

Krizan said a market’s infrastructure is fundamental to growth, and that varies significantly across the region.

Konieczny agreed and cited Krakow, Poland, as an example.

“Krakow is very important now to American travelers, and there is space there, especially for luxury, while Warsaw, secondary to U.S. travelers, already has a lot of luxury hotels, so (average daily rate) is lower,” Konieczny said.

Other destinations have matured or are close to maturing, he added.

“Prague is the first choice, as demand is high, and actually supply is not so high. Costs are, though,” he said. “Second is Budapest, and we can (during this conference) all see how much it has developed, especially with Asian and Middle East travelers. Third is Bucharest, but also consider regional cities with good flights, especially for (meetings, incentives, conventions and expositions) business.

“Romania is like Poland 10, 15 years ago,” he added.

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