According to the latest joint city review of the Bucharest hotel market, by Christie + Co and STR Global, year-to-date results in EUR terms for February 2011 show a further decline in RevPAR of 1.1 % compared to the same period in 2010. Despite a more optimistic macroeconomic environment in Romania overall and a slight increase in guest nights in Romania’s capital city, average room rates (ARR) in Bucharest are still under pressure.
Bucharest is Romania’s largest city and the country’s financial, industrial and economic centre. Impressive GDP growth figures until 2008 and international companies entering the market in the boom years led to increased demand in real estate as well as for hotel accommodation in Bucharest. However, with a declining GDP for two consecutive years in 2009 and 2010, Bucharest witnessed a reversal of fortunes. Being primarily a business tourism destination, Bucharest hotels immediately felt the effects of the contraction in economic growth which resulted in tightened corporate travel budgets and a decreasing average length of stay. Total guest nights decreased by more than 15% in 2009 but showed a slight increase in 2010 (below one percent).
With a general improvement of the economic situation in Central and Eastern Europe, the EU is predicting a positive GDP growth for 2011 and 2012. It appears that Romania and hence Bucharest are on the path to recovery.
Trends in Hotel Market Performance
According to data provided by STR Global, Bucharest hotels recorded an overall decline in RevPAR performance of 3.4% in 2010 compared to 2009. While occupancy levels started to increase in 2010, showing an increase in demand, the drop in ARR of 11.8% to roughly €75 had a severe impact on RevPAR. In local currency (RON) ARR declined by 12.2% in 2010.
Except for May and June and to a lesser extent November, when growth in occupancy was sufficient to offset the decline in ARR, Bucharest hotels recorded decreasing RevPAR figures throughout 2010.
The following table illustrates the year-to-date 2011 results as provided by STR Global. Despite a further positive development in room occupancy, showing an increase of 1.3 percentage points, Bucharest hotels were not able to raise average room rates in the first couple of months of 2011. In fact ARR dropped by more than 4% resulting in a RevPAR contraction of 1.1%.
Trends in Hotel Supply
Bucharest saw significant growth in hotel supply prior to the crisis. However, since the economic downturn and restricted financing conditions, many hotel developments have been put on hold or even suspended. As a consequence, only two smaller hotels were opened during 2010 adding less than 100 rooms to total room supply of roughly 11,400 guest rooms in 131 hotels in 2010.
2010 started with the opening of the 53-room five-star Grand Hotel Continental in January. The hotel is centrally located at Calea Victoriei and is operated by Romania’s largest hotel operator Continental Hotels. Towards the end of the year, in November, another five-star hotel opened its doors. The Epoque Hotel is located close to the Cismigiu Park in downtown Bucharest and features 45 apartments. It is operated by Romanian company Trend Hospitality.
In terms of future hotel supply, we have identified several properties that are expected to be rebranded or opened in the course of 2011. The Doubletree by Hilton Bucharest Unirii-Square is set to strengthen Hilton’s position in the city from July this year. The existing 88-room property, formerly known as Bucharest City Unirii Square Hotel, will be operated under a franchise agreement which was signed between Bucharest-based VIS 7 Import Export SRL and Hilton Hotels. The Europa Royale Bucharest Hotel is a hotel development which is also near Unirii Square. Although the opening has been delayed for a while, the hotel is now expected to welcome guests from the second half of 2011. The 90-room four-star hotel will be owned and operated by Europa Group Hotels, a hotel group based in Vilnius, Lithuania. Another hotel which is due to open its doors after a two and half year revamp of an existing property is the five-star Premier Palace Hotel. It is located next to Ghencea stadium and will offer circa 65 rooms and apartments, dedicated to players.
At the beginning of 2012, Spanish developer Hercesa, who purchased the former Cismigiu Hotel in 2004, plans to open the newly refurbished property on Boulevard Regina Elisabeta. Besides retail and office space, the property will also feature 67 apartments.
The openings of many other hotels, which were originally slated for 2011, are expected to be delayed. Some of the larger ones include the 187-room Courtyard by Marriott, which is located close to the existing JW Marriott. Although the management contract was signed back in 2009, guests will have to be patient for at least two more years. Another midscale hotel development had been planned as part of the AFI Business Park Cotroceni. Even though the AFI group is about to commence with the construction of the first office buildings, the hotel component is of lower priority. In any case, through the purchase of three hotel properties in 2007, — the first hotel portfolio transaction in Bucharest — the group already owns other hotels in the city. Yet another large hotel development that has been delayed is the 144-room Golden Tulip Palladium Hotel, to be developed by Nord Group.
Trends in Hotel Transactions
More than two years after Christie + Co published its first City Review on the Romanian capital, the hotel transactional activity in Bucharest is still in its infancy. Over the last few years hotel transaction volumes have been decreasing in Bucharest, mirroring a CEE-wide trend.
One very recent business deal involved the transaction of a stake in the InterContinental Bucharest Hotel. Businessman Dan Adamescu bought 16.2% from Luxembourg registered RHIC Holidng for €4.1 million in April this year. Combined with previously held shares through other companies, Mr. Adamescu now holds approximately 32% of the 257-room property.
Prior to that, the last significant hotel transaction dates back to 2009: the 150-room two-star Hotel Hello was sold by Romanian hotel chain Continental Hotels to Immorent (real estate arm of Austrian ERSTE Bank). The property was sold on the basis of a sale & leaseback contract for a reported amount of €9M or circa €60K per room. As result of declining hotel performances, restricted bank financing and reduced interest from international players, the city has witnessed very limited transactional activity with no significant hotel transactions since then.
Several hotels of varying standards — from budget to luxury — are currently on the market in Bucharest. However, without significant pressure from lenders we still expect a wide ask-bid gap between owner’s and buyer’s expectations. Consequently the number of transactions is not expected to increase significantly in the medium term.
Outlook
As macro-economic conditions in Romania improve (estimated GDP growth is 1.5% for 2011 and an impressive 3.8% for 2012 according to EUROSTAT), business travel and particularly conference demand in Bucharest is picking up again.
However, for the time being this positive development is only reflected in an increase in occupancy levels, while average room rates continue to be under pressure. Hotels are not expected to be in a position to increase their room rates for quite some time. For 2011 we expect a stabilization or slight growth of RevPAR, driven by improvements in occupancy. The limited amount of hotels under development should support an improvement in trading performance and bring a recovery of the Bucharest hotel market one step closer.
For further information please contact:
Lukas Hochedlinger MRICS
Manager Business Development Austria & CEE
Christie + Co
Direct line: +43 (0) 1 997 1365
Email: lukas.hochedlinger@christie.com
Konstanze Auernheimer
Director of Marketing & Analysis
STR Global
Direct line: +44 (0) 20 7922 1961
Email: kauernheimer@strglobal.com
Andreas Scriven
Director & Head of Consultancy
Christie + Co
Direct line: +44 (0) 20 7227 0782
Email: andreas.scriven@christie.com
Peter Fermoy
Head of Media Relations
Christie + Co
Direct line: +44 (0) 20 7227 0794
Email: peter.fermoy@christie.com
Notes to Editors
Christie + Co uses desk-based research and experienced local industry specialists to produce bi-monthly city reviews. Hotel trading data is provided by STR Global.
Founded in 1935, Christie + Co is the leading firm of surveyors, valuers, consultants and agents specialising in the hospitality, leisure, retail and care sectors. Currently employing close to 350 professional and specialist staff, it has 15 offices throughout the UK — with valuation, agency, investment and consultancy teams focused on its key sectors. Christie + Co’s international operations are based in Barcelona, Berlin, Dubai, Frankfurt, Helsinki, Lyon, Marseille, Munich, Paris, Rennes and Vienna.
STR Global provides clients — including hotel operators, developers, financiers and analysts — access to hotel research with regular and custom reports covering over 40,000 hotels. STR Global provides a single source of global hotel performance data, offering concise, accurate and thorough industry research worldwide.
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