Source: AG Nekretnine | Thursday, 01.01.1970.| 13:48
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(AG Real Estate) Growing hospitality market in Central Europe

Future hotel in Block 11a, New Belgrade

Investment appetite remains strong for hotel assets across Central and Eastern Europe. Fortunately, the region is being less affected by the current market conditions and the credit crunch, reported by Cushman & Wakefield (C&W) global real estate advisor.

“Hotels investments have become a viable business for all players. Beside the traditional hotel investors, a growing number of local and regional companies are entering the sector, even commercial real estate investors are diversifying to the hotel segment in CEE.” said by Sasha Golubovic, Associate Director, C&W Hospitality.

The positive aspect of the hotel investment market in CEE is lead by consistency in performance and profitability of the sector. Banks have a growing interest to finance hotel projects with some institutions establishing specialist hotel financing departments. Cost of borrowing margins are increasing to a range of 1.6 to 2.5% above EURIBOR due to present real estate market conditions. Investors are demanding higher investment yields due to increasing cost of financing and considered risks/yields vary between hotel management or lease agreements and city within the range of 6,5% to 9.5% within CEE.


On the supply side, the market experiences a lack of quality investment grade hotels for sale. Higher yield expectations by investors have kept away some sellers from the market, which has lead to a limited the number of hotels for sale.

LTV ratios (LTV = Loan to Value) changing from an average of 80% debt vs. equity in 2006 to 70% in some circumstances. However, well established banking clients continue to borrow at higher in LTV rate.

future towers near Hotel Jugoslavija (Photo: b)

Hotel investments considered are major transactions across CEE including Russia. Investment volume increased significantly in 2006 vs. 2005 by c. 85% due to strong real estate market and high investor interest in hotel asset class. In 2007 market stabilised due to onset of credit crunch in H 2. We anticipate sales to be significantly lower 2008 across CEE markets due to owners taking a “hold” position in their existing hotels, increasing financing costs and there continues to be an imbalance in price/yield “expectations” between buyers and sellers.

future towers near Hotel Jugoslavija (Photo: b)


In relation to Hotel sales in Serbia over the past few years, major deals have included Hotel Jugoslavija for EUR 31.3 Million, Metropol EUR 28 Million in 2006. and the transaction of Continental Hotel and office complex for a total combined price of EUR 149 Million in 2008. These transactions were a result of privatisations and not transacted by private companies or individuals, which is a reflection on the current “development” and “convergence” phase the Belgrade Hotel Market is presently experiencing.

Hotel operating performance

Hotels within the main cities of CEE are at different stages of development. Prague and Budapest are considered “mature”; however Bucharest and Belgrade are viewed as “developing” hotel markets. The prognosis is for Budapest and Prague to experience stabilised operating performance over the short-term, whilst we anticipate that Belgrade will continue to perform strongly due to a lack of quality hotel room supply and strong competition.

Year

Average Room Rate €

Occupancy %

Revenue Per Available Room €

Budapest

2008

84.40

61.3

51.80

2007

84.50

61.2

51.70

Prague

2008

118.4

61.3

72.6

2007

117.4

64.8

76.1

Moscow

2008

268.0

65.0

174.3

2007

240.0

64.6

160.6

Belgrade

2008

2007

154

125

62

60

115.5

93.7

We notice that the mature markets in CEE have stabilised in hotel operating performance, whereby Belgrade continues to improve both occupancy and average room rate in 2008 compared to 2007.

Belgrade hotel market

The Serbian hotel market is considered as a “Developing” and viable business opportunity; however there are certain market characteristics that are limiting its full potential. These include expensive land and building prices in comparison to cities in the region, lack of quality sites for a hotel, unresolved freehold land ownership and legal title, which are factors limiting the number of investors. A lack of significant competition in the hotel sector has driven hotel room rates higher in the short-term.

future towers near Hotel Jugoslavija (Photo: b)

Infrastructure development is a key ingredient to improving the attractiveness of Belgrade to international visitors, and the refurbishment of Nikola Tesla airport is a step in the right direction; however entertainment venues, restoration of buildings and rejuvenation programs will assist in attracting the leisure tourism sector to Belgrade, which is a market segment that is lacking at present. The city is primarily catering for the corporate market and hotel operators require an increased focus on the leisure segment in order to increase performance and reduce risk associated to relying one demand generator.

Within the current phase of hotel planning and developments in Belgrade, we know of the Stari Mlin, Block 26, and refurbishment of the Continental Hotel and Plaza centers development. In addition, Slavija and Lux hotels will be privatised. At present, major investors in the hotel sector in Belgrade include Delta and a number of Greek owners in the In Hotel and Metropole. To date, there has not been a diversified number of international developers undertaking hotel projects and a total lack of institutional investors on the market. However, with hotel investment yields converging from 13% in 2004 to 9% in 2008, which indicates a growing interest in the sector by investors we anticipate that hotels will gain investment momentum in the short to medium term future.

NOTE: Cushman & Wakefield Hospitality EMEA - a wholly owned subsidiary of Cushman & Wakefield - consists of over 32 staff based in London, Budapest, Istanbul, Lisbon, Madrid, Milan, Moscow, Prague and Warsaw. They are currently instructed on over 50 key instructions throughout EMEA, have valued over €3 billion in hotel assets since 2007 and are conducting operator selection on over 10,500 hotel rooms. The team are acting on major development projects Bulgaria, Cape Verde, Dubai, Montenegro, Morocco, Mozambique, Portugal, Russia and the UK. They are supported by hospitality teams in Asia Pacific and the United States which means C&W Hospitality can provide clients with an integrated cross border service from over 80 dedicated hospitality professionals.

C&W Hospitality EMEA provides development consultancy advice, valuations, operator selection, investment advisory and agency for the hotel and leisure sectors. The team has extensive expertise in the hotel real estate market with backgrounds in real estate brokerage, banking and finance, hotel operations, hotel marketing and hotel development.

The Budapest team of C&W Hospitality has undertaken work in Hungary, Serbia, Montenegro, Bulgaria, Romania and Latvia so far in 2008. Our aim is to continue our growth and scope of work across CEE. Expand the team to increase capacity and readiness for new projects in the region with a focus on investment sales and operator search projects in Balkan region.

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