Hotel Market Increasingly Seen as a Mainstream Investment Option

Ibis Styles Budapest Airport Hotel by Wing.

Last year was a record for tourist visits again and the demand absorbed the 1,200 new hotel rooms delivered in Budapest; the current pipeline stands at 3-4,000 rooms according to Attila Radvánszki, director of the hotel, tourism and leisure consultants, Horwath HTL Hungary.  

However, due to the complex development process and labor issues, delivery dates are difficult to estimate as many completions are slipping. Supply is seen as very much demand driven in Budapest.

With a current hotel stock of about 20,000 rooms in the city, Budapest still lags behind Prague, which boasts more than 33,000 rooms while offering a very similar product, hence the need for new development.

The new supply will bring a much welcomed sophistication to hotel products from hybrid-hotels to five-star luxury properties and everything in-between, increasing the attractiveness of the destination in the process.

The wider CEE region is also attracting an increasing number of development projects, as evidenced by the annual HOTCO Hotel Investment Platform CEE & Caucasus which ran at the Kempinski Hotel Corvinus Budapest from January 20-21.

Established European investors such as Deka and Invesco have become increasingly active in the hotel sector against a background of growing tourism visits, concerns about the retail sector and the limited availability of investment grade assets. In Budapest the Hungarian investor, Indotek Group, has purchased the Gellért Hotel and the Sofitel Budapest Chain Bridge.

HOTCO 2020 was attended by more than 350 developers, investors, brand managers, financers, hotel managers, architects, and specialist hotel industry journalists, consultants, and researchers from almost 40 countries, the organizers say.

Hilton Garden Inn interior.

Growing Interest

More than 60 speakers examined the process of hotel development: From site assessment, feasibility through concept design, branding, financing, construction, staffing, operation and eventual exit.

Marius Gomola, managing director of Horwath HTL Hungary and founder of HOTCO, came up with the concept of the event as he saw a growing interest in hotel development and investment in CEE and the need for informed information regarding the hotel sector as it is seen as a mainstream rather than niche investment option.

With regard to the investment model, Arik Ramot, lawyer and investment banker at Ramot & Co Investment House, sees hotel development debt finance as more difficult to source the further a developer is from the management of a project.

He presented an examination of financing issues in a discussion with Bálint Erdei, founder and CEO of Redwood Holding, an office and residential developer who has moved into the hotel market, and László Hirt, head of department at OTP Bank, who is providing finance for the EUR 50 million, 140 key Hard Rock Hotel Budapest in Nagymező utca in District VI that Redwood Holding is developing.

The project is due to be completed in spring. The 4-5 star “life-style” hotel and Hard Rock Café, located in a party hub in Budapest, reflects the growing sophistication of the hotel market and the need for different models of development.

“Hotel operation is a completely different skill to office operation and, therefore, we are developing the project and, upon completion, the hotel will be operated by Hard Rock International,” commented Erdei.

Key Driver

Such “life-style” approaches are seen as increasingly central for a successful hotel development project. Tim Mutton, founder of the food and beverage consultants and designers, Blacksheep, sees a high quality and well-conceived F&B offering as a key driver for the success of a development.

This can also attract customers to a city center hotel in the quiet period between breakfast and dinner. The restaurant/bar is thus seen as central to increasing the value of a hotel. One challenge related to this is that F&B requirements are changing very quickly and, therefore, continued capital investment and long-term planning is required.

From a wider design and property management perspective, hotel owners and operators are showing a growing concern about sustainability issues such as the use of plastics. For now, however, accreditation to third party sustainability organizations such as LEED or BREEAM is still not the norm for new-built hotels, unlike, for example, the office market sector.

As a sign of the increasing attractiveness of the hotel sector in Hungary, Wing, which is active in all commercial development markets has three ongoing hotel projects.

This follows the company’s successful delivery of the 145-room Ibis Styles Budapest Airport Hotel in 2017, the only hotel with direct access at Ferenc Liszt International Airport.

“Over the 20 years of its operation, Wing has gained extensive experience in all areas of property development, created world-class buildings for international companies and proved particularly successful in meeting special requirements. Building on our existing expertise, we have launched our hotel business to leverage the significant dynamic growth potential of the segment,” commented Noah Steinberg, chairman & CEO of Wing.

“As a leading Hungarian property developer, we are committed to further cementing our position in every segment of property development, becoming a key professional player also in the hotel market and strengthening our ties with major international hotel actors,” he explained.

“In this spirit, approval is pending for a hotel next to MÜPA [formerly known as the Palace of Arts] with 179 rooms and a panoramic view of the Danube, and another hotel only minutes away from the Ferenc Liszt Airport with 187 rooms, and preparations for a 300-room hotel are also underway. Wing will also continue to be on the lookout for potential projects and partners,” Steinberg added.