After a sudden growth spurt in 2012 and the subsequent slowdown, the hotel market in Poland is now gaining momentum, fueled by both business and tourism. Safety threats in Western Europe are also boosting the country’s attractiveness
By Beata Socha
P oland’s hotel base has been growing at a varied pace since 2009. In 2015 it reached 32.6 million beds, recording a 9 percent increase on the previous year, according to Cushman & Wakefield. “The market is growing rapidly and many new investments have already been scheduled,” said Šárka Chapman, senior analyst for hotel properties in Poland’s Cushman & Wakefield office.
After a relatively moderate slowdown in 2009, the market recovered quite well over the next two years, with occupancy rising 7.1 percent and the average daily rate (ADR) increasing by 2 percent. Then, thanks to the Euro 2012 football championships, the hotel business saw a sudden surge in occupancy as well as a significant increase in the hotel base. As a consequence, 2013 and 2014 were a period of oversupply and a drop in the revenue per available room (RevPAR) to PLN 187, stated Chapman. Last year the RevPAR figure stood at PLN 205 and continues to grow in 2016. In May it saw a year-on-year increase of as much as 10.4 percent. Both the uptick in occupancy of 5.3 percent and a 4.8 percent higher ADR have contributed to the significant improvement.
The improving figures indicate the hotel business may expect a remarkably good holiday season this year. Conversely, recent terrorist acts and threats in Europe have proven quite beneficial for the hotel industry in Poland as it is seen as a safe destination, both for tourism and business. In 2016 the share of foreigners among hotel guests in Poland is expected to exceed 20 percent, according to the Hotel Sales & Marketing Trends 2016 report prepared by Profitroom and Deloitte, to a large degree due to the “geopolitical changes and other unexpected changes which have decreased tourists’ safety in locations until recently considered safe.”
Chapman agreed. “When choosing a holiday destination, tourists are increasingly concerned with safety and that is why we can expect a growth in occupancy levels, as well as higher ADRs at the Baltic Sea coast,” she said and added that the same trend is seen in the business travel segment. “In the MICE industry, where we can see a drop in RevPARs in Brussels by 13.3 percent, in London by 3.1 percent and in Paris by 12.4 percent (data for April 2015-April 2016), while Warsaw has recorded a 10.4 percent increase over the same period.”
Warsaw remains by far the most popular destination, particularly for business travelers. It is dominated by 3-star hotels (60 projects), with the 5-star segment constituting only 10 percent. “Warsaw remains one of the most popular cities, particularly for business travel. As many as 139 hospitality facilities offer 15,000 rooms altogether,” said Chapman.
In May 2016 Warsaw’s market share in all hotel reservations made in Poland stood at over a quarter (25.6 percent), according to eTravel, which was, however, 1 percentage point lower than a year earlier. Wrocław and Kraków, on the other hand, recorded an increase in their market share: Wrocław was the city of choice for 8.2 percent of travelers (1 pp more than in May 2015), and Kraków – 6.84 percent (a 0.4 pp uptick y/y).
Outside the capital
Wrocław has seen remarkable growth in recent years. According to a 2015 report on Polish major cities by PwC, the city recorded a 45 percent increase in real GDP between 2004 and 2012, as well as the sharpest drop in unemployment figures among all Polish cities, from 12.3 percent in 2004 to 4.3 percent in 2014.
The favorable business conditions, as well as tourist attractions, have made the city a highly attractive investment destination for hoteliers. A brand new Double Tree by Hilton hotel is to open in Wrocław for the summer season in the recently completed OVO Wrocław scheme. It features 189 rooms and suites on five floors of the building.
“Wrocław has been developing exceptionally fast as an attractive destination. That is why the demand for top-notch hotel services in the city is increasing, particularly since Wrocław has been selected as the European Capital of Culture for this year,” said Matthias Herd, CEO of Double Tree by Hilton Wrocław. It is the first five-star facility in the city. “We offer a 317-sqm ballroom and the highest standard of hotel services, as well as many additional amenities, including a restaurant, a bar, a fitness club with a swimming pool, a spa and a casino,” Herd said and added that, “the economic growth will also benefit hotel facilities in other segments, as long as they are conveniently located for business trips and meet the essential needs of business and corporate travelers,” he added.
Developers and hotel chains are also looking at other regional markets increasingly favorably. Warimpex wants to develop its Vienna House Easy chain across the entire country. “It’s in the economy segment which has been very successful in Germany. Now we want to repeat that success in Poland,” said Warimpex’s CEO Franz Jurkowitsch, and added that, “We’re not only thinking of Warsaw, although the capital still offers a lot of room for such projects.”
Hotels delivered by Warimpex operate within the Vienna House chain (previously Vienna International Hotels & Resorts). In Poland the chain operates projects such as Andel’s Kraków, Andel’s Łódź, Andel’s Katowice, Vienna House Amber Baltic Międzyzdroje and Vienna House Easy Chopin Kraków.
Rupert Simoner, the CEO of Vienna House, also stated that “Outside the country’s capital there are interesting destinations with a great potential for both tourism and business travel. … That is why we are looking to invest not only in Warsaw, but also in smaller cities, like Rzeszów and Lublin.” He added that the chain wants to open four new hotels over the next four years in Poland. u
After a historically good 2015, for residential developers the first quarter of 2016 shows no signs of slowing down. Developers sold over 14,300 apartments in Q1 2016, according to a REAS report on the residential market in Poland. Many of them used the MdM government subsidy program, and a significant share were also purchased as buy-to-let investments. Current apartment sales exceed even the hottest pre-crisis years of 2006 and 2007. But market realities have changed since then.
A decade ago, at the peak of the previous cycle, prices were rising at double-digit pace and buyers were willing to buy pretty much anything. “In the early 2000s, people were buying ‘only’ the apartment itself. They weren’t looking for additional amenities or upscale solutions. The architectural design didn’t matter either. The demand for apartments was enormous and many apartments were sold at the ‘hole-in-the-ground’ stage,” said Arei Koren, CEO of Okam Capital.
Post Lehman Brothers, the market naturally needed time to readjust to the new reality. But unlike in some other markets in Europe, like in the case of Spain, price corrections never went beyond several percent at the most. Prices have remained more or less stable since then, growing at a healthy pace of 1-3 percent annually.
Market participants had to readjust as well. With the experience of the first-ever market crash in Poland’s post-transformation history, Poles became more cautious and started exercising due diligence before entrusting a developer with their life savings. “After the crisis, clients are more careful and more selective in their decisions, they would usually prefer to buy comleted apartments or soon-to-be completed,” explained Eyal Keltsh, operational director of ROBYG.
Trust, however, seems to be finding its way back to the market, particularly since a number of legal changes made investing in an apartment safer over the years. In 2011, the Developers Act introduced escrow accounts, protecting buyers’ money, specified the obligations of the developer in more detail and, most importantly at the time, stipulated that in case of a developer’s bankruptcy, the project’s completion and delivery of apartments to their buyers would be top priority.
Given that some projects devalued over the course of the downturn and that the currency risk inherently embedded in foreign currency-denominated loans materialized when the złoty depreciated against the euro and the Swiss franc, the Financial Supervision Authority issued another safety measure called the “S” recommendation that gradually decreased the maximum loan-to-value ratio from 100 percent to 80 percent in 2017.
All these safety measures seem to have done the trick, coupled with stable market growth over the past years. Poles are once again confident in the market and they do not shy away from buying a dwelling at the hole-in-the-ground stage. In fact, as Radosław Bieliński, press officer of Dom Development, pointed out, “in many locations we sell beyond 90 percent of all our apartments at the construction stage, which on average lasts 18 months. People trust developers that have been in the market for many years and that survived the 2008 housing market crash.”
However, some changes in customer behavior seem to be of a more permanent nature. Before the crisis, with easy access to bank loans covering 100 percent of the purchase (or in many cases even more), Poles were eager to buy large apartments, and a two-room dwelling (a bedroom and a living room, as in Poland it is customary to include the living room in the count), of 60-70 sqm was not an unusual occurrence. This changed after 2008. With the additional restrictions introduced by banks and mortgages becoming more difficult to obtain, for the past several years “the most commonly sold flats were studios and compact two-room apartments with a size of some 40 sqm. This was due to the lower availability of loans and strict requirements of banks,” explained Keltsh.
Currently, the most popular units across the country are of 35-48 sqm, with one or two rooms fitted in that space, as well as three-room units of 55-65 sqm. The need to economize has permanently changed the way apartments are designed. Now, being spacious comes second to being practical: a two-plus-two family would rather live in a four-room 80-sqm apartment than in a three-room 75-sqm one. After all, an extra room is always handy.
A wider spectrum
The variety of properties available on the market has also increased. In 2006-2007 the market was more or less uniform with few projects standing out in terms of quality and design. Now there is an entire market spectrum: from popular dwellings, through the premium segment up to luxury skyscrapers in city centers, whose quality is on a par with what top European cities have to offer.
In general, buyers have higher expectations and far more sophisticated taste than a decade ago. They value additional amenities such as their own garden, a swimming pool in the building or a restricted-access playground. Additionally, they pay more attention to the standard of the building and a better quality of construction materials. “We do see that Poles buy more and more turn-key apartments. They also pay more attention to the quality of the materials used in the building, to the facade finishing, e.g. glass, stone, wood are valued more,” said Bieliński.
Today, future apartment owners also want to be a part of the design process. They value practicality and pragmatism and they want their dwellings to be functional. “Our clients pay attention to the practical aspects of the apartment, arrangement possibilities and a general comfort of living in the property,” concluded Koren. As Poles become more worldly, they want their apartments to offer the same interesting solutions or design features that they observed in other countries and, therefore, they tend to be more demanding clients.
Price vs. location
Warsaw, Poland’s capital and its biggest residential market, has probably changed the most. Okam Capital’s market research indicated that the most important criterion for Varsovians choosing an apartment is location (45 percent of all respondents considered it very important and a further 35 percent as important). “Location here involves convenient commuting, access to the necessary infrastructure such as schools, stores, parks and, preferably a quiet neighborhood,” explained Koren. Price, which until a few years ago was always the primary concern in apartment-purchase decisions is now the most important factor for only 40 percent of those polled. The location-price reversal is only true in Warsaw, though. In all other major cities, price still plays the most important role. Warsaw is also where the biggest units (of over 100 sqm) sell the best, although they constitute a relatively small percentage of the market, said Koren.
Interestingly, the layout of the apartment matters more that the total area of the dwelling. Buyers are also willing to pay more for a higher quality of building materials. It is a particularly valid concern if you are buying an apartment with a view to resell it a few years down the road. A quickly deteriorating facade might not fetch you the desired price.