Location is key for 5-star hotel market

Bosses of five-star hotels downplayed market chatter that an oversupply of top-range accommodations could lead to mass vacancy rates for any new projects in the sector. Christian Gartmann, the general director of the Radisson SAS Centrum Hotel, which opened in Warsaw last week, was optimistic that a strong brand, accompanied by a good location and excellent service, could defy oversupply. "We are quite optimistic about Warsaw because we have a known brand and a strong position in Scandinavia, and we expect to get a large clientele from our homeland," he said. "I think that ul. Grzybowska and ul. Jana Pawła II (the area where the hotel is located) are also set to become the most attractive spots in town in the coming years." The hotel, managed by the Radisson SAS group, a wholly owned subsidiary of Stockholm-based Scandinavian Airlines (SAS), is one of the newest five-star hotels to open in Warsaw, bringing the tally of top-range hotels to six. These include the Marriott Hotel, the Sheraton Warsaw Hotel & Towers, Le Royal Meridien Bristol, the Hyatt Regency Warsaw and the Sofitel Victoria Warsaw. But there are additional five-star projects under construction and on the drawing board: Starwood's Westin, which had its topping out ceremony last week, the Six Continents' Intercontinental Warsaw and the Warsaw Hilton.

Sector analysts said they doubted that the top-range market could remain lucrative for much longer, citing budget hotels as having the greatest investment potential. "When the economy is weak, budget hotels are the sort of products that are often preferred by middle-business travelers," said Adrian Karczewicz, a hotel market analyst at Knight Frank Nieruchomości, a real estate consultancy. "In addition, Poles are not used to good quality, inexpensive accommodations. I do not recommend any more new developments in the four- to five-star segment, as this will be oversupplied in the next two to three years. The hotels built in the 1990s will have to face serious competition from new hotels, such as the Radisson, the Intercontinental and the Westin." The Hyatt's weak performance on the market since its opening last March could be the first clear sign of a saturated market, according to Karczewicz. "But hotels like the Radisson, Westin and Hilton could be more successful because of their better locations," he said. The directors of the Radisson and Westin said their hotels were long-term investments and would reap profits once the economy turned around. Their success is also highly dependent on Warsaw's ability to gain prominence on the international stage, both as a tourist venue and convention and international summit center. "Warsaw has great potential to better its position and attract more people - both tourists and corporate travelers - (by) forging itself as a meeting location," Gartmann said. "The city hasn't been too exposed to this field, and its only handicap is a lack of infrastructure for international standards. Once this is established, Polish delegates could host more conventions in Warsaw." According to Gartmann, business delegates traveling to Warsaw would spend three times as much money as tourists - an obvious benefit for the city. But for the convention business to pick up here, city officials have to start promoting the capital in this way, said Gerd Bauer, the manager of the Polish, Bulgarian and Croatian operations of Starwood Hotels & Resorts Worldwide. Starwood is building the Westin, which is scheduled to open next summer.

PR company needed "The biggest challenge for hoteliers in Warsaw is to identify and approach new feeder markets and new segments to increase demand," Bauer said. "We see a high need to aggressively promote Warsaw worldwide to attract the attention that the city deserves. Through such promotional activities, it should be possible to stimulate additional demand for leisure business, incentive groups and conferences." Once the economic climate improves, the Westin's relatively late arrival could also help its success rate, Karczewicz said. "If according to government estimates Polish gross domestic product is 3.5% next year and 5% in 2003, this will affect the entire business sector," he said. "In that case, hotels under construction now and planned hotels will survive." Starwood expects the Westin to achieve a 50% occupancy rate a year after opening, according to Bauer. The Westin and the Radisson have far greater chances of reaching better occupancy rates than other new projects and existing hotels in Warsaw due to their superb locations, said Elwira Zielska, a research analyst at Jones Lang LaSalle, a corporate real estate firm. "Although the market situation is not the best, it should be stressed that these two hotels have perfect locations, which is perhaps the most important factor for hotels," she said. "(They are) perfectly located in terms of public transport access, near all the main transportation hubs, only a 15- to 20-minute drive to the airport and in the very core of the business district. The fact that the operators are well known with good track records will also attract guests." Both the Starwood and Radisson SAS groups said they plan further five-star hotel investments throughout the country.