Plenty of room at the inn
Warsaw is said to be the worst hotel market in Europe. If somebody were buying a hotel in Warsaw at the moment they would have to pay only EUR 96,000 (zł.390,300) a room. According to HVS International, it is the lowest result for a capital city in Europe. In 2003 the cost of one room in the capital was EUR 111,000 (zł.447,223), and only Istanbul was worse than that.
Last year Poland was the only country in the CEE region where HVS' Hotel Valuation Index did not go up. For example, in Prague the growth was from EUR 202,000 (zł.821,265) in 2003 to EUR 238,000 (zł.967,629) in 2004. On average the indexes grew by three percent as compared with 2003.
Although in 2004 the value of the hotel transaction market in Europe was EUR 8.9 (zł.36.18) billion, which was a 30 percent growth in comparison with 2003, none of the biggest transactions were made in Poland. in the past, the main problem the Warsaw hotel sector faced was a reduction in demand and no additions to supply, especially between 1998 and 2001 as a result of the economic slowdown of the Polish, Russian and German economies. This changed in 2003 when a 16.5 percent increase in hotel supply (from the Westin Hotel, the InterContinental, and the Courtyard by the Marriott at the airport) was met by a 12 percent increase in demand.
Due to the imbalance, the leading hotels in Warsaw had to cut their prices. This was followed by a significant decline, of 20 percent compared to 2003, in average room rates achieved by four- and five-star hotels in Warsaw.
Unlike Prague, which enjoys strong year-round demand stemming from both the business and leisure markets, Warsaw is a typically commercial market - demand is strongest during weekdays, whereas at the weekends hotels have a lot of empty rooms.
In these circumstances, some of the players on the market have decided to change their strategy in order to survive the crisis. One of them is the Orco Property Group, known in Warsaw for its activity in the luxurious end of the hotel market, e.g. Le Regina and Residence Diana. It switched to the residential sector and invested in a small housing estate called Flamenco at ul. Majolikowa in the district of Tarchomin. "Majolikowa is our first [residential] project but this year we want to start another two," Małgorzata Reluga, the company's sales manager, told Gazeta Wyborcza.
The hotel business, however, is looking forward to the end of the decade. The European Construction Research organization predicts that expenditure in the hotel construction sector will reach $580 (zł.1,955) million by 2010. The World Tourism Organization predicts that Central and Eastern Europe will be the fastest developing region as far as tourism mobility is concerned. Also, according to a Jones Lang LaSalle report on the hotel sector, Warsaw has, for the first time since 2000, avoided bottom position in a room yield decline league table, although it still faces further supply increases in the short term.
What is also optimistic is that occupancy levels have increased in 2003 and 2004. In 2004, room yield decreased by only 6.1 percent, compared to double-digit room yield decline in previous years. The report forecasts perhaps not a bright but at least a comforting future: "The growth in new supply is set to slow down over the next few years, and this should allow the market to absorb the excess supply, with the prospect of room-rate stabilization in 2006, and growth thereafter."
However, unless the domestic tourist starts spending their holiday cash, hotels will remain neglected. Experts stress that only a bigger number of Poles staying in hotels will make the occupancy rate comparable to that in the EU. The fact is that since 1999 the number of Poles staying in hotels has been constantly decreasing. Also the room rates will remain under pressure until market occupancy exceeds 60 percent.
Last year Poland was the only country in the CEE region where HVS' Hotel Valuation Index did not go up. For example, in Prague the growth was from EUR 202,000 (zł.821,265) in 2003 to EUR 238,000 (zł.967,629) in 2004. On average the indexes grew by three percent as compared with 2003.
Although in 2004 the value of the hotel transaction market in Europe was EUR 8.9 (zł.36.18) billion, which was a 30 percent growth in comparison with 2003, none of the biggest transactions were made in Poland. in the past, the main problem the Warsaw hotel sector faced was a reduction in demand and no additions to supply, especially between 1998 and 2001 as a result of the economic slowdown of the Polish, Russian and German economies. This changed in 2003 when a 16.5 percent increase in hotel supply (from the Westin Hotel, the InterContinental, and the Courtyard by the Marriott at the airport) was met by a 12 percent increase in demand.
Due to the imbalance, the leading hotels in Warsaw had to cut their prices. This was followed by a significant decline, of 20 percent compared to 2003, in average room rates achieved by four- and five-star hotels in Warsaw.
Unlike Prague, which enjoys strong year-round demand stemming from both the business and leisure markets, Warsaw is a typically commercial market - demand is strongest during weekdays, whereas at the weekends hotels have a lot of empty rooms.
In these circumstances, some of the players on the market have decided to change their strategy in order to survive the crisis. One of them is the Orco Property Group, known in Warsaw for its activity in the luxurious end of the hotel market, e.g. Le Regina and Residence Diana. It switched to the residential sector and invested in a small housing estate called Flamenco at ul. Majolikowa in the district of Tarchomin. "Majolikowa is our first [residential] project but this year we want to start another two," Małgorzata Reluga, the company's sales manager, told Gazeta Wyborcza.
The hotel business, however, is looking forward to the end of the decade. The European Construction Research organization predicts that expenditure in the hotel construction sector will reach $580 (zł.1,955) million by 2010. The World Tourism Organization predicts that Central and Eastern Europe will be the fastest developing region as far as tourism mobility is concerned. Also, according to a Jones Lang LaSalle report on the hotel sector, Warsaw has, for the first time since 2000, avoided bottom position in a room yield decline league table, although it still faces further supply increases in the short term.
What is also optimistic is that occupancy levels have increased in 2003 and 2004. In 2004, room yield decreased by only 6.1 percent, compared to double-digit room yield decline in previous years. The report forecasts perhaps not a bright but at least a comforting future: "The growth in new supply is set to slow down over the next few years, and this should allow the market to absorb the excess supply, with the prospect of room-rate stabilization in 2006, and growth thereafter."
However, unless the domestic tourist starts spending their holiday cash, hotels will remain neglected. Experts stress that only a bigger number of Poles staying in hotels will make the occupancy rate comparable to that in the EU. The fact is that since 1999 the number of Poles staying in hotels has been constantly decreasing. Also the room rates will remain under pressure until market occupancy exceeds 60 percent.
