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The Warsaw Voice » Real Estate » February 25, 2011
COLLIERS HOSPITALITY DEPARTMENT
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2010 AGAINST ALL ODDS…
February 25, 2011   
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GLOBAL HOSPITALITY SECTOR
2010 was a year of worldwide hotel trading recovery, most regions including Russia, Latin America, USA, Europe and Asia participated in a pronounced improvement in occupancies and ADR growth.

In Europe we noticed remarkable economic turnarounds, cities like Munich, Frankfurt, London, Zurich, Berlin, Istanbul fared very well in the post recession year.

Most of the aforementioned cites enjoyed remarkable growth in Revpar, anywhere from 19% in Munich, 17.5 % in Istanbul, to 13% growth in Berlin. To be added to this positive outcome for 2010, Warsaw can also be mentioned, with the increase of Revpar of 7.5 %, and occupancy growth of 8% YOY. The ADR’s are still under pressure, especially in the oversupplied 5 star branded hotel category in the capital of Poland. We consider the past year to have been a miraculous year for Europe and Poland, factors such as the EU debt crisis, the currency wars, the Greece and Ireland bailouts, the lackluster GDP performance of the EU, the pan European volcano ash business interruptions, and specifically for Poland, the historic April 10th tragedy in Smolensk, where extraordinarily negative business influencers. These events followed by unprecedented floods in the south of the country were true impeding forces on the nation’s economic recovery.

POLISH HOSPITALITY SECTOR
As mentioned, the Smolensk tragedy had a dramatic effect on commercial activities in Poland for at least two months. Poland was shaken to its core and the actual survival of the relatively new democracy was at stake after the Presidential airplane accident.

Then the Eyjafjallajökull eruption in Iceland wreaked havoc on the air traffic network in Europe had a negative impact on hotel trading in Poland. In fact the first 5 months of 2010 were below 2009 performance throughout the same period. It all started to work again after the volcanic eruption. It was the month of May that finally showed great resilience in revenues in the hotel sector in Poland.

Two consecutive elections and their emotional campaigns, also affected the normal economic progression in the country.

Some of the positive influencing factors in Poland where, the GDP growth of 3.2%, the strong exports and manufacturing sectors, the relatively well positioned Polish Zloty, and domestic demand grew by 3.5%. The Polish merchandise exports grew a whopping 15.5% YOY. Inflation for the year was recorded at 2.6%. The continuation of the infrastructure investments in roads, stadia, railway, and airports, has a helping factor to the economic development we experienced throughout the year. There are presently 1,400 KM of new roads and highways being constructed in Poland. FDI projected for 2010 is ca. 10 Billion Euros. Paradoxically the economic crisis has actually elevated Poland’s image for investors and commercial partners around the world. Reality shows that Poland only suffered a slowdown in GDP, but certainly never fell into a recession. The past three years showed the resilience of the Polish economy as well as the relatively mild negative impact on the banking sector in the country.’ The Polish stock exchange performed at a 19% equity appreciation YOY. The WIG also overtook the Vienna stock exchange for the first time in its short history.

The year round Chopin 200 year anniversary and the related festivals and activities also helped the Polish market with transient visits. The government spent over 15 million Euros in promoting and activating the Chopin special events.

HOTEL SECTOR IN MAJOR CITIES IN POLAND
Warsaw (UEFA EURO 2012 VENUE). As mentioned previously, the hotel sector in the capital enjoyed a very good year. The strong demand for room nights in the business and small conference segments were noticed throughout the last three quarters. The 5 star hotels performed with occupancy of 69.9 % and ADRs of circa 98 Euros.

The 4 star hotels also enjoyed a good trading year, occupancies were reported at the level of 68% and ADRs of 73 Euros were achieved.

All the rest of the branded hotel products had circa 5% YOY growth in occupancies as well as ADR’s.

New hotel inventory was not added in Warsaw in 2010. The same projects we mentioned in last year’s report continue on being on the realization map. The 367 room Doubletree by Hilton Conference Centre, the 250 room Renaissance by Marriott at the Chopin Airport, and the ex Warszawa hotel building is being built as a Luxury Class Boutique Hotel by the Likus family is due to open in the middle of 2012.

The only transaction was the Mercure Hotel which was sold for 31 Million Euros by ORBIS/ACCOR as an office development site.

The facts are, that Warsaw performed well under all of the undercurrents and devastating Political and Government tragedy that shook the Polish country like nothing in its recent history.

Interesting, crisis related change of tactics, two 5 star hotels in Warsaw, actually reclassified their hotel to 4 stars. This gives them the ability to pursue some of the largest pharmaceutical, and medical conferences which after the economic slowdown, made it their policies not to book upscale hotels for their MICE and corporate business. We have doubts this tactic has any legs.

Cracow. The city of the romantic history of Poland also performed well versus 2009. The branded hotel products fared well, the occupancy in that segment was circa 64% at an ADR of 67 Euros. 5 star hotels showed growth in occupancy to a 72% with a final ADR of 97 Euros.

The city enjoyed a favorable summer season, which is predominantly leisure based travel. The hotels did a pretty good job in staying busy and competitive against most cities in Poland. The city still struggles with their international promotion strategy, which is able to attract a greater amount of international travelers. The city enjoys a rich offering of cultural events such as the Jewish Cultural Festival, and plenty of LCC service the Cracow airport, hence the city should be adjusting their Pan European approach for the promotion and marketing of this beautiful city.

The BPO business is creating new corporate room nights, and a new Conference Centre is being built next to the Park Inn hotel, which will bring new MICE sector room nights to the city. Cracow quietly is becoming the most popular destination for BPO activities. Also some global companies have established their operations, such as IBM, Shell, Hitachi, Google, BAYER, Lufthansa, and Electrolux.

The new hotels opening as we write this report is the Hilton Garden Inn, with 157 rooms, the 154 room Economy hotel at the Balice Airport (as part of the multi scope project developed by the MPL in Cracow). This hotel is scheduled to open in September 2012.

The IBIS-ETAP development by ORBIS/ACCOR was put on hold in 2010, but we have reliable information about these two hotels opening in the second quarter of 2011.

Tri-City (Gdańsk, Gdynia, Sopot). These three cities did relatively well, when you consider that the Radisson Blu, as well as the Hilton was added to Gdańsk’s accommodation offer.

Gdańsk faired 58% occupancy through all hotel categories, with an average daily rate of 55 Euros. The 5 star branded hotels finished the year at 64% occupancy and an ADR of 87 Euros. Sopot’s hotels also enjoyed a better year than 2009, we estimate that the 5 star hotel segment is performing at the level of 57% in occupancy at an average achieved rate of 112 Euros. The lower segment none branded hotels finished the year at 61% occupancy at circa 64 Euros. Gdynia’s occupancy was 49%, and an ADR of about 47 Euros. Gdańsk is also a UEFA EURO 2012 VENUE, and here is where we see great things happening to the city’s hotel related trading in the coming three years. Scandic took over the Holiday Inn hotel in early January, and has been a part of the accommodation offer in Gdańsk ever since. There are no new branded hotel projects in the pipeline for 2011 in Tri-City as of the date of writing this report.

We still see promotional and marketing opportunities for this region. All cites should consider the development of a “Tri City” product that encompasses a serious unified promotional strategy rather than each city enacting its own ad-hoc marketing activities.

Poznań (UEFA EURO 2012 VENUE). The city of Poznań has been trying to turn around its poor hotel trading performance. 2010 showed some improvement for a few hotels there. The Sheraton, the IBB Andersia, the IBIS and the Campanile are the city’s best performers. The city in all categories managed to do 49% in occupancy and achieved an ADR of 61 Euros.

One bright side to this city’s attempt to improve its competitiveness was its commitment in promoting and advertizing the city for leisure travelers. The challenge for Poznań is continuing to be the MICE market, and we believe Poznań should do all it can to re position itself in this very lucrative segment. The campaign of Poznań this year is:

“Poznań, the City of Know How”…so with this said, they should follow their own slogan.

No new branded projects in the pipeline.
Szczecin. 2010 was a better year for this city, and occupancies climbed to 58%, with an overall ADR of 49 Euros. The Radisson Blu, still the market leader, fared well in the city, with the introduction of renovated rooms and conference areas.

There is a rumored Hilton Garden Inn project in the works in the city of Szczecin, and possibly an Express by Holiday inn.

Now that elections are over, and the incumbent President won the election, the city council under his direction provides an opportunity to solidify promotional and strategic development programs for the city.

£ód¼. The city experienced challenging times with the expulsion of the Mayor of £ód¼ in the early part of the year. This situation caused a noticeable slow down in development and marketing activities for the city. Most of 2010 was spent campaigning and aligning new candidates for the new mayoral term.

During these difficult months, some of the festivals were either canceled or relocated to other cities. Camerimage was in fact moved to the city of Bydgoszcz. Adding to these failures, the city also lost an opportunity to move to the final stages of The European Capital of Culture for 2016.

The hotel segment had a slightly better year, only due to regional and local conferences held in the city. The leader in the market continues on being the Andel’s Hotel in Manufaktura, which practically owns the small to medium size MICE segment in £ód¼.

The city did 57% in occupancy across all branded hotels, and an achieved rate of 64 Euros.

No new hotels opened in 2010, but we can confirm a new 4-star, 197 room Doubletree by Hilton hotel is to open in the short-term in the city. We also envision the Holiday Inn to come to its successful completion and opening by third quarter of the new year.

Now that the elections are over, Colliers believes the future for this city is bright. Taking into consideration the planned David Lynch, Frank Gehry designed Culture, Film and Arts Centre in the EC 1 section next to the to be built Fabryczna railway station.

Wroc³aw. The city finished the year with a very small improvement in Revpars. The branded hotels leading in occupancy rates which finished at 2009 levels - 65%, and an achieved ADR of 57 Euros was achieved across all categories. The 5 star branded hotels managed to deliver circa 86 Euros in ADR and a 69% occupancy rate.

The city continues to develop multifaceted projects and infrastructure improvements. The government is managed by a very capable group of politician’s including the Mayor of the City – Rafa³ Dutkiewicz.

There were no new hotel openings throughout the year, and the pipeline has a Hilton 5 star project which has been delayed for some time now due to the lack of financing. The same issue is affecting the Hilton Garden Inn development in the center of the city. A Park Inn and dual branded Campanile and Premier Classe have been announced and are currently being developed.

Other Polish cities. Bydgoszcz is progressing very nicely. A new 137 room Holiday Inn was opened in October, and a Campanile is also being planned in the city.

Katowice is developing rapidly into a well diversified city, catering to the trade, investment and shared service center sectors. We saw two hotels opening in 2010. The Angelo, and the 168 room Best Western hotel.

FORECAST, GUIDANCE AND TRENDS
One bad thing about written predictions is that you can always go back and read them. With that said, we continue to prognosticate what the hospitality industry in Poland will be like in 2011.

Some factors to consider - the GDP growth for Poland next year, will be one of the strongest in the EU. We estimate this to be 4.5%. Poland will continue to rollout infrastructure projects all over the country, with more than 12 Billion Euros being spent in 2011.

The EU Council Presidency will be taken over by Poland in July, and in this prestigious period of six months, the country’s economic activities will be enhanced. We estimate over 100.000 room nights will be used in conjunction with this event. The Polish government is spending over 100 Million Euros for the preparation of this tenure, and an extremely important Public Relations and promotion of the country during the last months of 2011 is expected to become reality.

The ongoing preparations for the UEFA Euro 2012 championships will be accelerated during this coming year, with a positive impact on railroad, highway and airport grids. A strong and stable government, as well as the Polish currency the zloty. Lower construction costs, and banks lending for blue ribbon commercial developments, will be very important factors for the continuing growth of the hotel industry.

As we mentioned in last year’s report, the 4 major cities in Poland need to develop world-class multi-functional congress, conference and exhibition venues. These facilities are in fact required to help all sectors grow, not just hospitality, providing places where people can meet, show, trade and network. This is where we envisage the hotel industry being encouraged to invest and develop new facilities to cater to the MICE sectors. We understand that the city of Wroc³aw, Warsaw and Gdańsk are considering our suggestions. These will be realized next to the new stadiums being built.

We continue to support our last year’s recommendations, seeing optimistic horizons for globally branded 1, 2-, 3 star products in most regions, towns and cities. The impetus will be accelerated with the take-up of the EU infrastructure funds. History clearly shows that our industry grows successfully when there are efficient modes of communication available, such as: road, rail and air networks.

The next four years Poland will be all about this impetus! Have a hospitable 2011!

Alex Kloszewski
Director Of Hospitality Department Partner, Colliers International Poland Mobile Telephone: +48.605 590 160
Mail: Alex.Kloszewski@Colliers.com
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