CBRE Hotels

40 HUNGARIAN HOTEL MARKET

41

HOTEL MARKET

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BORBÉLY GÁBOR MRICS Director, Head of Business Development and research, Senior Valuer

HUNGARY’S POSITIVE PERCEPTION GIVES FURTHER BOOST TO TOURISM Looking at November figures, commercial accommodation establishments registered a total of 12.5 million guests and 30.9 million tourism nights annual-to-date, showing an increase of ca. 5.5% on November 2017. The overall increase of gross revenues, however, reached ca. 10% in the same period on the back of increasing hotel prices. Foreign visitors accounted for roughly half of the 30.9 million guests nights registered, with a 60-40 split between Budapest and other destinations in the country. Domestic guests predominantly travelled to regional destinations. The capital city registered ca. 10.4 million guest nights annual- to-date by November, up by 4.1%on the previous year. While the increase of tourist arrivals was stronger in regional Hungary, the dynamic price

increase in Budapest hotels resulted in stronger revenue growth in the capital city. The attractiveness of the Hungarian capital is reflected in the consistent double- digit passenger traffic growth at Liszt Ferenc International Airport, which became the fastest growing airport in the CEE region by 2018, with 14.9 million registered passengers throughout the year. This significant increase makes further capacity expansion necessary in the coming years. Budapest is currently undergoing a number of major redevelopment projects which will increase the city’s attractiveness even further. The recently agreed “Budapest 2030” high- level strategy is a clear commitment by the state and the city to transform Budapest into a centre of innovation, culture and a sustainable, green and creative economy. This strategy consists of several major infrastructure developments, capacity increase in sport venues (Budapest will host the 2023 athletics world championships), the multi-purpose cultural disctrict named the Liget Budapest Project, and the renovation and functional transformation of the UNESCO protected Buda Castle District.

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12,0%

10,0%

8,0%

Foreign Visitors in Budapest Foreign Visitors is Rest of Hungary

6,0%

4,0%

2,0%

Domestic Visitors

0,0%

J M Mj

Jl Sz N J M Mj Jl Sz N J M Mj Jl Sz N J M Mj Jl Sz N

-2,0%

2015.

2016.

2017.

2018

Annual Growth of Guest Nights per Type of Visits

Source: KSH, CBRE Research

BUDAPEST AS FRONTRUNNER IN CEE IN TERMS OF HOTEL KPIS Measured by all key performance indicators (KPIs), the Budapest hotel market recorded another remarkable year, outperforming most of the Eurozone’s capital cities and slowly catching up to well established tourism destinations in Western Europe. In terms of ADR (Average Daily Rate), Budapest averaged EUR 132 last year, which indicates a slight slowdown compared to double-digit increases witnessed in recent years. Still, the 7% y-o-y expansion ranks the Hungarian capital second only to Vienna (+7.1%) within Central Europe. Amongst CEE capitals, Budapest registered above average revenue growth and remained less affordable than Bucharest (EUR 103), Prague (EUR 111) and Warsaw (EUR 112), while Vienna is now quoted at EUR 173 on average. The average price per available room rose gradually in frequently visited tourism destinations in the European Union, coupled with decreasing occupancy rates in several CEE capitals: Prague (77.6%, - 1.9pps), Warsaw (75.2%, -2.5pps) and Bucharest (80.8%, -0.4pp) all registered some decline in the number of units sold last year. Budapest hotels also reported a marginal decrease (77.9%, - 0.2 pps) after following a period of continous rise. Vienna was an outlier with more than 4% improvement in overall occupancy. RevPAR (Revenue per Available Room)

figures have also continued to evolve during the past 12 months, which was largely backed by the increasing inflow of wealthy tourists from all around the world. Budapest registered 6.6% y-o-y RevPAR growth, which is less than the level measured in Vienna (+13.2%), but still outperforming Prague (-0.8%), Warsaw (-4.1%) and Bucharest (+2.3%). Revenues fromspecialty income – such as bar and catering services (F&B RevPAR) – grew even faster and showed double- digit growth, ranking Budapest first amongst Central European capitals. TrevPAR (Total Revenue per Available Room) and GOPPAR (Gross Operating Profit per Available Room) indicators also climbed by 8.0% and 8.5% in 2018, reaching EUR 153 and EUR 64, respectively. TrevPAR levels in Budapest are consistently above the average registered

Domestic Visitors 51%

Foreign Visitors in Budapest 29%

Foreign Visitors is Rest of Hungary 20%

Guest Nights in Hungary: 30.9 million / year

Source: KSH, CBREResearch

44

140

90%

80%

120

70%

ADR

100

60%

80

50%

RevPAR

40%

60

EUR

30%

Occupancy rate (right)

40

20%

20

10%

0

0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Occupancy, ADR and RevPAR in Budapest Hotels

Source: HotStats, CBRE Research

STRONG HOTEL PIPELINE BUT CONSIDERABLE DELAYS IN DELIVERIES The final volume of hotel deliveries in 2018 fell extremely short of our earlier forecasts, as only four schemes comprising 360 modern rooms got handed over, all of which are located in the capital. An additional eight hotels with ca. 1,000 rooms were originally scheduled for late 2018 but have been moved to 2019 due to considerable shortages in both the construction sector and general labour

in Bucharest (EUR 129), Prague (EUR 130) and even Warsaw (EUR 125), while Vienna still holds the top position in the CEE at EUR 212. Despite the consistent increase in domestic tourism along with outstanding KPIs in the 4-5 star segment, the total volume of capital invested into hotel assets remained negligible throughout 2018. CBRE registered two acquisitions in the countryside by domestic investors totalling ca. EUR 22 million altogether. However, the strong completion pipeline and favourable market environment creates opportunity for international investors to enter the market in the foreseeable future.

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250

200

Budapest

150

Other cities

100

Average hotel size (right)

No. of rooms

50

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 F 2019 F 2020 F 2021

New Hotel Supply and Pipeline in Hungary

Source: CBRE Research

market. Although we experience significant shifts in completion dates throughout the capital and regional cities, development activity remains strong across the country, with expected delivery of ca. 2,000 rooms in 16 individual hotel schemes until the end of 2019. Budapest accounts for 75% of the overall pipeline volume scheduled for the year, remaining the most targeted region within Hungary. Despite the uncertainty surrounding exact opening dates, CBRE monitors some 2,900 rooms across 20 hotels believed to be under construction at the moment. This is a significant increase compared to the 1,600 rooms in the pipeline a year ago. The overall confirmed pipeline – including projects still

in the planning phase – comprises ca. 4,400 rooms throughout Hungary, out of which 3,800 are in Budapest. Widely recognized international luxury hotel chains are likely to open towards the Hungarian market in the next years, extending their portfolio through the newest brands representing the grade-A category worldwide: Marriott International – who proved to be the most active player on the domestic market – has three ongoing projects totalling 450 premium hotel rooms, each of them situted in landmark locations atfrequented downtown traffic arteries. Another notable development is the Unbound Collection by Hyatt in the renovated Párisi Udvar building, which is set for completion in Q2 2019 with 110 rooms.

CONTACTME IFYOUHAVE ANYQUESTION!

LAURENTLASSIER HeadofHotels LaurentMichel.Lasier@cbre.com +3613473040