No room at the inn
With only 1,200 hotels, Poland is a desert on the European hospitality market. The country comes bottom of the league when it comes to hotel beds. Cyprus, the European hotel leader, has 1,250 hotel beds per 10,000 citizens. Poland, with 35, is behind even Lithuania and Latvia in the tourist stakes. However, this gap could be an opportunity ripe for exploitation.
The first boom of investment on the Polish hotel market was in 1994-1998, which was to a large extent a result of growing demand from foreigners coming to the country. "The period of real growth of demand in Poland and particular in Warsaw was in the late 1990s. A lot of international companies came to Warsaw and opened offices, creating a lot of demand for hotels," explains the vice president of Jones Lang LaSalle Hotels, Christoph Härle.
The years 1999-2001 saw a slowdown in hotel development. "In 1998-1999 hotels were full but later the demand went down as fewer people needed rooms. Educated and trained Poles replaced foreigners in their positions. Besides, we had 9-11, which generally made business slow down and we had a slower market over the last couple of years. In the last five years the constant slowdown in demand increased supply and it was only last year that it changed," says Härle.
Demand in the pipeline
While opinions are divided as to when the next investment boom is going to start, the industry is confident that demand will grow. "The question is - do we need a lot more hotels in Warsaw at this point to meet the demand, as the existing hotels are not full?" asks Härle. Investors seem to be aware of this as, at the moment, there is only one hotel coming onto the market this year, which is the five-star Warsaw Hilton and Convention Center by Hilton Hotels. Tomasz Dziedzic, a hotel analyst from the Tourism Institute, says that growth in the top end of the Polish hotel market has been minor, with just 50 four- and five-star hotels opening their doors here in 11 years. The biggest growth was recorded in the mid-class sector, and demand is expected to increase in this sector at the fastest rate.
According to Härle, in recent years investors that concentrated on the regional cities were more successful than those who built in Warsaw. "However, this is in a short-term perspective. Investing in a hotel is an investment for 30 not for three years," he adds. Outside the Warsaw region, the greatest bed-count was recorded in the Małopolskie voivodship (16,200), followed by the Dolnolšskie and Wielkopolskie regions. The number for the Mazowieckie region was 22,800, with 19,000 counted in Warsaw. The least active regions are Opolskie, więtokrzyskie, Lubelskie and Podkarpackie. The biggest supply and demand growth on the hotel market was recorded in regions that have already been better developed than others.
Capital investment
With 1.3 million visitors in Warsaw in 2004 (which is a 7.4 percent increase on 2000), the capital of Poland has a lot of potential for the hotel sector. Still, experts are skeptical about the market's current condition.
"There is no point in being optimistic about where the market is today," says Härle. He claims that with a room yield (i.e. average room rate multiplied by occupancy) at EUR 50 (zł.196) it is difficult for four- or five-star hotels to turn a profit. According to Jones Lang LaSalle, supply in Warsaw is likely to decrease and room rates will remain under pressure, with occupancy under 60 percent. It says demand will be mostly driven by business travelers from abroad. "Warsaw can be compared to Frankfurt - both cities are very much driven by business and have not developed a leisure market. Warsaw is not a romantic weekend destination," says Härle. He also emphasizes how volatile the market is: "If a new hotel opens in Warsaw it has an impact on the whole market."
Kraków calling
On the opposite pole to Warsaw is the capital of the Małopolskie region - Kraków. "Kraków is outperforming Warsaw by miles," observes Härle. Indeed the city has better room rates and occupancy levels than Warsaw, and is both a leisure and business destination. In 2004, 1.45 million hotel beds were occupied, 655,000 by foreign tourists. The bulk of them (44 percent) stayed in three-star hotels, which constitute 48 percent of the total market. The number of three-star hotels is one of the advantages of Kraków over Warsaw - it is more or less three times higher than in the capital. What is specific about the Kraków hotel market is that most of the hotels are concentrated in the historical heart of the city. The bulk of hotels are small objects, usually owned by private individuals or local companies.
Building barriers
Specialists point to a number of barriers in developing hotels. "At this stage one reason why there aren't any new projects in town [in Warsaw] is that it is very difficult to justify construction costs - you do not get average rates or occupancy. At the moment the market is not supporting the kind of investment you would need to make in a five-star hotel," says Härle.
Waldemar Lesiak, the director of office and hotel investments at Echo Investment has his own list: "Firstly it is the lack of master plans and the complicated process for getting administrative decisions. The lack of good infrastructure is also a significant factor influencing the slow growth of new hotel investments."
Lesiak also points to a purely business factor, namely management agreements. "International hotel chains often prefer a business model based on an agreement concerning asset management, according to which the investor in the project bears 100 percent of the risk. The hotel chain provides the brand and manages the hotel. When the hotel does not achieve results agreed on in the business plan, it is only the investor who has to bear the consequences."
Hidden promise
Despite the numerous problems the hotel market in Poland has to face, the market players and analysts see plenty of potential. "The sector of hotel construction in Poland has dynamic growth ahead," says Lesiak.
