Brighter Times Ahead for Quality Hotels

THE hotel market in Hungary, which has been through a difficult patch since 2000, is expected to improve in the next three years as growth in demand outpaces new capacity. This, in turn, will make the market more attractive for investment, senior executives of Jones Lang LaSalle Hotels told the press last week in Budapest.

The flow of new hotels on the market in Budapest, coupled with the downturn in tourism worldwide after 2001, means that occupancy of four- and five-star hotels stands at 65% and average room rates – despite the improved recent demand – are a mere e79 per night.

This compares with Warsaw and Prague, where rates are at e86 and e103 respectively, the agency said.

’The hotel market here went through a difficult time between 2000 and 2004, but has been performing very well in the last 18 months. In 2005, the number of international tourists rose by 14%, and we believe the worst time is over in terms of new hotels coming [onto the market].

’The supply pipeline is beginning to slow, and if the visitor numbers continue to grow as in the last couple of years, the market has got to improve,’ said Christoph Härle, head of Jones Lang LaSalle Hotels for central Europe.

While the supply of hotel rooms in Budapest has risen 25% since 2000, the next three years should see annual growth at 3%, meaning occupancy and room rates should show steady improvement, Härle argued.

Budapest is also seen as a strategic city for hotel brands, meaning industry leaders see a need to be present in order to serve overseas clients coming in, and to make Hungarians aware of the brand when they go abroad.

JLL’s latest Hotel Investor Sentiment Survey revealed that 50% of respondents interested in Europe wanted to acquire operations in Budapest.

’If you don’t have your brand here, your regular clients will stop elsewhere, maybe even liking your rival more, meaning you risk losing that customer,’ Härle said.

All this means that the hotel sector in Hungary, especially at the high end of the market, is likely to become more profitable and increasingly attractive to investors in the next few years.

’There is strong interest in the region from a variety of investors, and not an awful lot of product about, [but] with easier movement of capital following EU membership, and with the hotel sector being seen as cheaper compared to the office segment, there will be further capital flows into central Europe over the next two-three years, definitely,’ he concluded.

In spite of the optimism, JLL has concerns that high charges at Ferihegy airport were hampering the development of low cost airlines, and advocated further infrastructure developments for the capital and the regions.

However, the agency expects the recent street violence in Budapest, assuming it is not repeated, will represent only a temporary blip in otherwise positive visitor and tourism trends.