Economic challenges and transactional dynamics

The tough stuff

Within the CEE market, the hospitality sector has been battered by the twin threats of increased financial costs, and geopolitical risk. From the onset, it should be said that in 2024, one would be hard pressed to find anywhere on earth that is not experiencing the same two concerns. Within the region, transactions dropped by 18% in 2023 compared to 2022 partially due to the rising cost of debt which impacted projects from Warsaw (+0.25%) through Sofia (+0.75%). Ultimately, some projects became unfeasible from the onset.

The good news

As for the good news, there’s a few to cover. One is the meteoric rise of foreign interest in the market. At 197% growth year over year, the staggering rise in foreign investment into the region demonstrates the appetite for good quality projects in the CEE, lack of local funding solutions, and strong market fundamentals.

Along with the rate of Revenue per Available Room, rates grew by 12% in the region despite hotel occupancy levels were still below pre-pandemic levels.This suggests that along with a 20% increase in international tourist arrivals and better connectivity within the region, there is much promise for the sector in the years ahead with room for further growth. Supporting this optimism is the example that Prague’s hotel market demonstrated when in 2023, the city’s RevPAR and ADR surpassed even pre-COVID levels.

One word of caution though is the reminder that the CEE as a region is not a singular block. Within the group there has been vastly differing fortunes in the tourism industry. When using 2010 levels to represent 100%, countries such as Albania, Slovenia, and Bulgaria have seen tremendous growth in the number of international tourists at 442%, 227%, and 209% respectively. Whereas Slovakia (9%) and Romania (28%) have a long way to go before their tourism sectors recover.

Strategic expansion and market confidence

One firm in particular is going all in on the region: Marriott International. The hotel group has not only committed to developing over 10 properties in Poland, on top of its existing 24 assets, but also in a variety of classes as well. Ranging from budget options through premium and luxury stays, the investments demonstrate the group’s strong belief in the market’s current demand and future potential.

The ESG imperative

Another key consideration is the increased emphasis within the European hospitality market on Environmental, Social and Government (EDG) factors. From an investor’s perspective, the demand has been fuelled by a need to increase the share of highly rated assets in their portfolio – something the region has been starting to catch up with in recent years. For those portfolio managers, the path towards a high-grade in the future requires both divesting from low scoring assets while simultaneously investing in more environmentally friendly buildings. It won’t happen overnight, but on an asset by asset basis.

From the developer side, the heightened attention to ESG factors has been focusing more on a building level by increasing the operational performance of the assets, and aiming to reduce costs (heating, cooling, etc.).

Concluding thoughts

While the hospitality sector in the CEE has been experiencing a number of mixed fortunes, there is still a proven demand for the assets across the region, showing signs of substantial areas for growth and opportunity.

At Holocene, we are expertly positioned to work with project owners and developers in order to get their projects off the ground. Working with over 120 funding partners that specifically focus on the region, we can help get your hospitality project off the ground.

If you need help securing financing for your projects in the CEE region, feel free to reach out to us at [email protected].