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30 Sep, 2017

Budapest: One Of The Best Place To Grow

Budapest: One Of The Best Place To Grow

Budapest is increasingly finding its way onto tourist itineraries, bringing robust growth for hoteliers. The industry has a positive outlook as upcoming mega‐events and the government’s targeted tourism developments are expected to attract more visitors, motivating investors to increase hotel capacity. Despite this growth, ADR and RevPAR remain far behind many leading European cities, limiting the sector’s profitability.

Role

Budapest, the «Pearl of the Danube», is starting to take its place as a well- known tourist hub between the East and the West. Recognized for its rich history, diverse cultural heritage, beautiful baths and vibrant nightlife, the city has been voted 10th in TripAdvisor 2016 Traveller’s Choice in Europe (and was placed 25th worldwide). In addition to being the economic, political and cultural centre of Hungary the city is the driving force for tourism, attracting over 60% of incoming international tourists.

Historical trading

The hotel industry had a strong year as both occupancy rates (+2.7%) and average room prices (+6.0%) have increased, resulting in an 8.8% RevPAR growth.

Despite the 14% growth in guest nights over the last four years and a significant 34% increase in RevPAR during the same period (2013−2016), the Hungarian hotel industry’s prices still lag behind its European counterparts, straining hoteliers' profitability.

Supply trends

Hotel supply has not increased on par with the rising visitor flow, as hotel capacity in Budapest has grown by less than 1% over the last two years, reaching a little over 19,300 rooms.

The supply of short-term private apartment rentals, however, has grown rapidly, currently offering an estimated 8,000 rooms. Hoteliers are feeling the pressure, but the local tax authorities' recent move to more strictly control private accommodation hosts' revenues might begin to level the playing field.

In response to the expected growth of tourism, the coming years will be about expansion: in 2017 and 2018, 20 new hotels, with an additional 2,600 rooms are expected to open, indicating investors' faith in the sector’s growth. The majority of the openings will be in the four and five-star segments, providing accommodation to the higher spending visitors, who are the key target of the new national tourism strategy.

Deals

Deal flow over the last two years has been slow, with only seven hotel transactions carried out in Budapest. Owners are valuing their assets high as real estate prices are increasing and the Hungarian tourism sector is performing strongly, with an even more robust outlook for the coming years.

Thus, owners are placing their bets on their assets, and are more likely to be looking for expansion than to sell off their money-makers.

Opportunities

Upcoming mega-events are expected to accelerate tourism developments and attract a significant number of international visitors. Budapest will host the FINA World Swimming Championships in the summer of 2017, along with the now-traditional Formula 1 race and a series of festivals — providing both an opportunity and a challenge for the city to accommodate the sharply increasing number of guests. Budapest will also host the Euro Championship, the European Water Polo Championship, and the European Aquatics Championship in 2020.

Hungarian tourism is expected to benefit from the government’s focus on the sector, which is eliminating administrative burdens, cutting the VAT rate for restaurant services, allocating significant funds for tourism development and creating a new national tourism strategy that shifts the focus to high-end quality tourism service offerings.

Further labour and accommodation service-related tax reductions could enable hoteliers to invest more in their people and their services. In addition, the long-awaited new conference centre (currently planned for 2018/2019) could lead to increased RevPAR by attracting higher spending MICE tourists.

2017−2018 forecast

In 2016, GDP growth for Hungary was 2.5%. The Hungarian economy will continue to grow over the next two years, at a similar pace, with GDP forecast to grow at 2.5% in 2017 and 2.4% in 2018. Growth will be driven by large infrastructure projects, launched in the context of the new cycle of EU structural funding, and strong private consumption.

The positive economic outlook coupled with a series of events such as the swimming championship and the media attention due to the Olympic bid (albeit withdrawn), coupled with increased marketing activity, will contribute to the good performance forecast for Budapest’s hotel market in 2017 and 2018.

Read also: Emerging Trends in Real Estate in Europe 2017 and beyond, European City-hotels In 2017 and 2018, European Hotel M&A Trends for 2017, European Hotel M&A Activity in 2016

Know more about best places to grow: Amsterdam, Barcelona, Berlin, Budapest, Dublin, Milan, Lisbon, Madrid, Frankfurt

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