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The Warsaw Voice » Real Estate » March 5, 2008
HOTEL CONSTRUCTION
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Bright Future Ahead
March 5, 2008   
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With Poland set to co-host the European soccer championships in 2012, a good economic situation in the region, the influx of European Union (EU) funds for developing tourism and also earlier under-investment, the hotel construction market in Poland will more than double over the next five years, its value significantly exceeding zl.1 billion.

After a period of downturn, 2005-2006 brought improvements in the hotel construction market. The value of this sector of the economy, measured in companies' revenue from building hotels and other tourist accommodation, grew by 3 percent in 2006, to zl.439 million. According to market research company PMR, the value of the hotel construction market will grow by an average of 17 percent annually over the next five years, reaching almost zl.1.1 billion in 2012.

PMR analysts estimate that between 2008 and 2012, the hotel base will grow by 7 percent per year on average, the equivalent of building over 20,000 hotel rooms over the four years. During this period, an average of 110 hotels will be built every year, a substantial increase on the 50 per year built between 2001 and 2006. Growth in the number of newly-built hotels will occur in all categories. The greatest number of new hotel rooms-around 15,000-will be built in the three-star segment, while roughly 12,000 will be built in the one- and two-star segment. Despite strong growth, the value of the hotel construction market will not exceed zl.660 million until 2009; this is the value recorded in 2001, an excellent year for the sector.

The largest chains on the Polish market in terms of the number of hotels are Orbis, Start Hotel, Grupa Hoteli WAM, Gromada, Qubus Hotel System and Interferie. Eight of the world's 10 largest hotel groups are present in Poland and almost all of them plan further expansion in the region. Serious investment plans are also being announced by international hotel chains who do not yet have facilities in Poland, including Wyndham Hotels & Resorts, Choice Hotels and NH Hotels. In addition, following the news that Poland will host the European soccer championships in 2012, some operators and developers have revised their strategies and increased the number of hotels they plan to build.

According to PMR estimates, the largest number of hotels over the next five years will be built by the Orbis chain, the consortium of Louvre Hotels and Warimpex, and the InterContinental, Chaber and Comfort Express chains. Investment is planned in all types of hotels, both luxury and economy standard, mostly in larger cities and coastal towns. Hotel operators also plan to expand their conference base and recreational facilities. A report prepared by European Construction Research says that outlays in Poland's hotel construction sector will reach about $580 million by 2010.

Poland is a country where investors still have room to expand. Only a small percentage of existing hotels match international standards, although some are already being modernized. New facilities are scarce, and the shortage is seen especially outside Warsaw. There are few cheap rooms of a basic standard. Many foreign companies have decided to leave a strong mark on the Polish market, while others have been observing developments and limiting their plans mainly to Warsaw and other large cities like Cracow, Poznań, Wrocław, ŁódĽ, Katowice, Szczecin and the Gdańsk-Sopot-Gdynia Tricity.

Over the next few years, the number of tourists staying at Polish hotels will continue to grow. Tourist arrivals in Poland will increase from 15.7 million in 2006 to more than 20 million by 2013, PMR estimates. This rapid growth will be due to factors such as the good economic situation in Central and Eastern Europe, further development of budget airlines, improved road infrastructure, a rise in the number of conferences held in Poland, and increased EU funding earmarked for tourism development.

The development of tourism is sure to have a serious impact on the expansion of economy-class hotel accommodation (maximum three stars). The prospects for this market look promising. WTO forecasts say that global revenue from international tourism will quadruple by 2020. The fastest-developing regions of our continent will be Central, Eastern and Southeastern Europe. The average growth in the number of tourist arrivals in Poland over the next 20 years will be about 4.4 percent per year. Apart from visitors from EU countries, forecasts predict a growing number of tourists from Russia, Canada, the United States and South Korea.

Poland's Institute of Tourism is also looking at the hotel market. Its report states that from 2000 to 2005 the number of hotels in Poland grew by 30 percent. The first years of this century, though, were tough for hoteliers, as the number of people using their accommodation dropped significantly. Today an upward trend can be observed. Occupancy rates are growing all over the country, particularly in cities with their own airports.

Occupancy rates are also higher thanks to Polish tourists who increasingly choose domestic vacations over foreign trips. The report also notes that the average number of rooms in hotels is growing. However, the average number of beds in Polish hotels is about 60, while foreign chains have an average of 200.

Recent years have seen growth in the Polish operations of chains such as Radisson SAS, Starwood (the Sheraton brand), Holiday Inn, Best Western and Qubus. Among lower-standard hotels, there has been expansion of the Campanile and Ibis brands, which have increased the popularity of two-star hotels in Poland. The two-star sector is recording the greatest financial success. Between 2000 and 2005 alone, the overall number of hotel guests grew by 36 percent, but two-star hotels reported up to 46-percent growth. Poland's largest hotel group, Orbis, is also making the most money on its two-star Ibis hotels. The average occupancy rate for all Orbis hotels in the first three quarters of 2007 was 53.1 percent, whereas it was 69.5 percent for Ibis facilities. Average revenue per room for all Orbis hotels stood at zl.110.10, an increase of 10 percent on the previous year. Though Ibis hotels are among the cheapest of Orbis hotels, they reported a higher revenue per room, zl.130.90, 12.5 percent more than the previous year.

Three-star hotels are still the most popular in Poland. Last year almost 4 million people stayed in them. This is also the category with the largest number of hotels-about 460, followed by two-star hotels which number about 420. There are only 16 five-star hotels in Poland.

One important index in evaluating the development of the hotel base is the number of beds per 10,000 residents. In this respect Poland is close to the bottom of the list in Europe, with just 50 hotel beds per 10,000 residents, while Slovakia can boast more than 100 and the Czech Republic 200. The most developed hotel base is found in Greece and Austria, which both have over 600 beds per 10,000 residents.

The future
After a few bad years, Poland's hotel sector is slowly recovering. In 2002, the profitability of the sector fell to 0.3 percent, and by 2005 five-star hotel rooms were on offer for just 80 euros per night, the standard price at a three-star facility. Now, however, major chains want to spend billions on building new hotels. They are focusing on foreign businesspeople staying in luxury rooms priced at around 400 euros per night but are also planning cheap economy hotels for Poles.

According to the Central Statistical Office (GUS), the general market mood index in the services sector grew in January compared with the previous month. In the "hotels and restaurants" section, an improved mood was reported by 20 percent of surveyed companies (21 percent in the previous month) and a worsened mood by 13 percent (14 percent in the previous month).

Substantial growth was also reported in the financial services sector. The mood index for this group in January was 60 points, compared with 57 the previous month. An improved mood was reported by 63 percent of surveyed companies (58 percent in the previous month), and a worsened mood by 3 percent (1 percent in the previous month).

Hoteliers say the market has accelerated thanks to Poland joining the European Union. The influx of billions of euros from EU funds and foreign investment translated into growth in the business tourism sector. Last year, almost 17 million foreign tourists visited Poland, leaving $3.7 billion in the country. In the coming years, the growth in arrivals and spending is expected to exceed 4 percent. Visits from foreigners, especially businesspeople, bring revenue for four- and five-star hotels, where foreigners account for almost 80 percent of guests.

Forecasts say that Poles will start taking advantage of cheap hotels for tourist purposes in large numbers in future. Occupancy of these facilities is also expected to grow thanks to customers of budget airlines dropping in for a weekend in Poland. One example is the recently opened flight connection between Warsaw and Lille in France. About half a million people of Polish descent live in the area, and in spring and summer a sizable number can be expected to visit Poland.

The Polish Tourism Organization (POT) also predicts growth in shopping tourism (in 2006, the number of such arrivals was 14 percent higher than a year before). Spa hotels are another attractive niche for investors. Guests stay there for a few days to relax, with services including therapeutic massages, mud baths and so on.

Hotel investments will total billions of zlotys. Construction of one room in a one-star hotel costs about zl.120,000, in a two-star hotel zl.200,000-240,000, and in a three-star hotel zl.400,000-500,000. Almost all market players, large and small, plan to build new hotels or expand existing ones. Most of these will be outside Warsaw. The cities at the focus of attention are Wrocław, Cracow, Gdańsk, Szczecin and Poznań, as well as towns where there is little competition, like Białystok, Rzeszów, Bydgoszcz and Kielce. Orbis alone has plans to build several dozen hotels.
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