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The Warsaw Voice » Real Estate » September 30, 2009
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Slowdown Hits Hotel Projects
September 30, 2009   
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The Polish hotel market has been hit by a slowdown rather than a full-blown crisis this year, and planned projects that do not adapt to market needs may never be built.

Warsaw, Gdańsk, Sopot, Gdynia, Wrocław, Cracow and ŁódĽ are the cities with the greatest opportunities for development. New investments are expected to reach several hundred million euros a year soon. The pace of investment fell in the first half of the year, both for small hotels and large, luxury ones. This slowing was caused by the policies adopted by banks, which demanded bigger collateral and bigger downpayments from borrowers, and raised the cost of loans considerably. According to experts, the effects will not take long to be felt. Some say that in two or three years the number of new hotels being built may fall drastically, even by half.

Today, foreign companies sending staff to Poland choose hotels of a lower standard. Five-star chain hotels are reporting lower occupancy rates. However, according to Jacek Piasta, owner of Hotelarska Firma Ekspercka (Hotel Trade Experts) consulting company, it is not the crisis that is to blame but failure to adjust to the needs of a shrinking market.

On the other hand, three- and four-star hotels and resort hotels cannot complain of a shortage of guests. "The owners are complaining loudly of a decrease, but sales data suggests a deceleration of the growth rate rather than a collapse, and sometimes there is even growth," Piasta says.

The latest trend is to build hotels next to major transport hubs in the largest cities around Poland. One example is the Hotel DeSilva Express opened in the first quarter of this year next to Katowice-Pyrzowice Airport in the south of the country. One advantage of this type of project is that it is located outside the city center, close to an airport and with good transport links to other cities.

Companies strong in capital are starting new projects or continuing ones begun earlier because it is cheaper to build during a crisis. "This year saw new activity on the part of investors with capital who know this is a good time to invest in the hotel industry," Piasta says. "For example, in 2008 the average cost of building 1 sq m of hotel was about zl.5,000, while today you have to spend zl.3,000. In addition, EU subsidies will never be as high as they are now."

Developers are increasingly considering turning their housing or office projects into hotel space. Such changes in intended use are made even at an advanced stage. It costs comparatively little to convert an apartment building into a so-called apart-hotel. Apart-hotels offer room rental for extended periods usually without providing extra services such as catering, a swimming pool or a gym.

A condo-hotel is a project completed with money that doesn't come from banks. Individual investors buy rooms, and these can be rented out in the owners' absence. The greatest growth in this type of project is reported in tourist destinations relatively close to leading business centers. A similar principle is to be applied in the case of the three-star Puławska Residence hotel. Planned for completion in 2011, the facility will be run like a hotel, but the developer is selling the rooms (20 to 50 sq m) as you would sell apartments. The investor will receive rent regardless of whether the room is rented. The profit on renting will be about zl.3,000 per month.

The decision to hold the European soccer championships in Poland in 2012 is having a beneficial impact on investments, but is not really a key factor. True, the approaching championships mean a more favorable attitude of municipal authorities towards investment processes, evidenced in tax breaks and easier access to funding. Euro 2012 also means a higher profile for Poland and expansion of its freeways, which will result in an increased number of tourists in future. However, investors are aware that Euro 2012 is a brief event, while a return on investment takes several years. Though the hotel sector in Poland is still underinvested (there are about 20 rooms per 10,000 residents, according to Colliers International real estate advisors), investors are afraid that once the championships are over, hotels will stand empty. That's why they prefer to choose safe and longer-term investments.

Hotels in Poland's biggest cities

Planned projects include a three-star Hilton Garden Inn with 250 rooms, a four-star E-System Hotel in the city center with 286 rooms and a hotel of the Marriott Renaissance chain next to the newly opened terminal at Warsaw's airport, with 250 rooms. The completion of the three-star Puławska Residence is scheduled for 2011. This project constitutes stage three of the Albatrosów residential estate. The Orbis hotel group is focusing on expanding its economy hotel chains under the Etap and Ibis brands. The Rezidor Hotel Group plans to open its Park Inn, with 206 rooms, in 2012. The Hotel System chain is suspending new projects and the construction of two hotels-on Wspólna and Sobieskiego streets-hangs in the balance.

The first Park Inn with 152 four-star rooms has opened. The Rezidor group plans to build one more hotel of this type. The three-star Conrad Hotel & Spa, targeted mainly at business customers, will start operating in October. The construction of a new Hilton Garden Inn with 180 rooms has been suspended. The situation is similar with Orbis's Etap and Ibis hotels.

The 121-room Monopol Hotel of the Likus chain is the city's third five-star hotel. Rezidor has planned construction of its business-class Park Inn for 2012. There were plans for a new five-star hotel of the Hilton chain, but this has been suspended. Another halted project is the five-star Rialto II. The Louvre Hotels chain and Warimpex plan to open two economy hotels in 2010, the 150-room Campanile and the 130-room Premiere Classe.

Tricity (Gdańsk, Sopot, Gdynia)
Two new hotels now stand in the center of Gdańsk: the five-star Radisson Blu with 134 rooms and the Qubus with 110 four-star rooms. A Hilton hotel with 150 rooms, a fitness center and a conference center will be completed in the Targ Rybny area in Gdańsk 2010. The Sheraton in Sopot will officially open in September, expanded to include a conference room, a spa center and a restaurant.

The city's first four-star hotel has opened in the Manufaktura complex. The Andel's Hotel has 278 rooms, seven conference rooms and a fitness center. Over the next two years, the Orbis group plans to build a four-star Novotel. A four-star Hilton is also in the works.

Today the city has one five-star hotel, the Sheraton. Plans provide for a Nainver and a Qubus hotel by 2011. Radisson SAS and Giant have applied for a land development conditions decision.

Market trends
The coming years on the hotel market in Poland will bring a growing number of hotels that combine accommodation with office/conference functions, and more congress centers. This will be due to the growing demand for hotel services from business clients. Existing hotels are investing in expanding their premises to include conference rooms, auditoriums and exhibition space. There is also a growing interest in spa and wellness facilities. The most attractive investment locations will still be large and medium-sized cities and tourist destinations. The expansion of infrastructure, airports and railway stations will contribute to the construction of more economy hotels.

Barbara Krastiłow
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