Rooms for expansion

The hospitality business in Poland enjoyed a remarkably upbeat 2014. Is this growth likely to take root or is it set to peter out? By Alex Hayes With a growing economy and over 15 million tourists visiting Poland in 2014, the Polish hotel sector has an evident spring in its step. “We are very excited about Poland. We were initially drawn to Western Europe, but now Eastern Europe, specifically Poland, is becoming increasingly attractive due to its vibrancy and its continued growth. Hilton Worldwide has been here for many years,” says Phil Cordell, the global head for focused services and Hampton brand management, Hilton Worldwide. He’s not the only one to gush at the prospects for the Polish hotel market. “I would say that Poland is one of the most attractive markets in this region. Development of the Polish hotel industry stimulates our business and we are confident that Best Western can continue penetration of the hotel market in Poland,” says Gheorghe Marian Cristescu, Best Western Country Director for Poland. The Orbis hotel chain also sees the current market in rosy terms: “The hotel market in Poland is growing, it is maturing and getting stronger together with the Polish economy, as the hotel business is closely connected with a country’s GDP. Thanks to the positive business environment, we can see increased demand for hotel services. The prospects for the hotel market in Poland are positive in the short and medium term as long as there is no political or economic turbulence,” says Ireneusz Węgłowski the vice president of Orbis. Indeed, according to Alex Kloszewski, the managing partner of Hotel Professionals, this connection between a country’s GDP and the success of its hotel industry is steadily becoming even stronger. “Generally the hotel industry is pegged to the GDP of the country, and this will soon be the case in Poland as well. We are adding around 10 percent of new branded rooms each year. This means 1,200 to 1,500 rooms per year. Corporate room demand is a phenomenon, due to BPOs setting up in most cities in Poland recently. Of course, we also had 2011, 2012, and 2013, years that were especially positive for the hotel sector due to Poland’s EU presidency, the EURO 2012 championship and the COP 19 Climate Conference in 2013,” he explained. Not quite there yet However, when compared with Western European markets, Poland still has a lot of catching up to do. “You cannot compare Poland’s hotel sector to Germany or certainly not to the UK or the more established Western countries – established in the sense that they’ve been at this business a lot longer than we have. The example is that we have around 60 or 70 rooms per 10,000 inhabitants and in Germany it’s around 250 to 300 rooms,” Kloszewski said. He added that, “Although we’ve grown by about 50 percent in the last six to seven years, catching up with the likes of Germany would take us a few more years.” He also admitted that he doesn’t expect Poland to get to that level any time soon. But despite this, the trend is still positive: “The Polish hotel market is definitely going up. We can see an increase in sales, boosting room occupancy and a growing supply of hotel rooms. ... These positive trends in the industry in the CEE region should be maintained over the nearest two to three years at least,” said Cristescu. But what is it that’s driving the growth? According to the Hotel Professionals Year End Report for Poland 2014, much of it has been due to the rapid expansion of the Business Process Outsourcing sector, which has “grown in medium-sized cities such as Łódź, Kraków, Wrocław, Szczecin, and Poznań. Over 100 new service center projects are being developed in Poland. The BPO sector will add approximately 25,000 new jobs per year for the rest of this decade.” In 2014, Wrocław saw the opening of the Ibis Styles Wrocław Centrum hotel near the city’s main railway station with 133 rooms, while in Kraków, the Hilton Garden Inn at the John Paul II International Airport opened in November with 155 rooms and conference facilities for up to 350 people. Poznań saw the opening of a Puro hotel with 136 rooms. Other openings included three hotels in Warsaw: the four-star, 367-room DoubleTree by Hilton in Wawer and the three-star, 300-room Hampton by Hilton City Center and the four-star Warsaw Plaza Hotel with 146 rooms. Openings planned for 2015 include three hotels in Kraków: DoubleTree by Hilton (232 rooms) and Hampton by Hilton (161 rooms), which will both share the same building, as well as the Best Western Plus Q with 154 rooms; two hotels in the Tri-City: The Gdynia Courtyard by Marriott – 201 rooms) and the Almond hotel in Gdańsk in May 2015. In Szczecin, the Dana textile factory is being converted into a 102-room hotel. No room for amateurs One of the major trends seems to be the decline of independent operators, many of whom are either being forced to join up with the major brands or are simply going out of business. The main reason for this trend appears to be largely the current dominance of online travel agents (OTAs). “The unbranded hotels have no chance,” said Kloszewski, explaining that “fifty percent of all non-branded hotels in Poland are under water. The proliferation of OTAs will continue squeezing independent hotels out of contention. The branded hotels have the top positions and the top pages on the internet, and they can afford to invest in digital marketing and positioning like none of the independents can.” Best Western seems to agree. When independent hotel operators start to cooperate with the large hotel chains, “they receive new and very useful tools such as their own booking system (and sometimes a call center) which represents big added value. This is because using one’s own booking system enables hoteliers to reduce costs, since this solution is definitely cheaper than cooperation with online travel agencies. In addition, the loyalty program is also a very big profit,” says Cristescu. It seems unsurprising that the trend is clearly for the big hotel chains to move away from owning their own hotels and to start depending ever more on franchise arrangements. “We can observe a growing interest of independent hoteliers and investors in cooperation with international hotel networks. Operating under international brands via franchise or management agreements is becoming more and more popular in Poland. This for sure is impacting, in a positive way, the development and professionalization of the industry,” said Węgłowski. Kloszewski agrees: “We’re going to see a lot more of the franchising model over the next ten years,” he said. Health and well-being Yet another trend that can be seen on the market is the growing interest in spa hotels as evidenced by the December 2014 opening of an 85-room Dr. Irena Eris Hotel Spa in Polanica Zdrój. “The spa hotel market is dominated by small unbranded hotels. However, Dr. Irena Eris hotels are the most recognizable in the Polish market and constitute a benchmark for other spa hotels in Poland,” stated the Hotel Professionals Year End Report for Poland 2014. Many of such hotels resulted from the privatization of a number of sanatoriums in 2013. However, according to Kloszewski, this remains a niche market. “The spa hotel is a complicated niche, but there are good operators and established brands in Poland, that will continue to dominate and expand, i.e. Dr. Irena Eris, Narvil, Bryza and Mera,” he said. Nonetheless, there is some evidence of foreign investment coming onto the health and well-being market with UK-based company MD Nursing teaming up with Angel Poland Group to build a nursing home in Wrocław. Most of the experts appear to agree that the prospects for the Polish hotel industry are rosy, but they don’t look stellar. After all the overall occupancy rate for Polish hotels in 2014 increased by 1 percentage point, to 65.9 percent, according to STR Global. But this coincided with a 1.5 percent drop in the average daily rate to €61.