Outlook uncertain for hotel investment in CEE despite unprecedented boom in 2019

CEE

A new report on the hotel investment scene in CEE reveals that in 2019 the CEE6* markets were rapidly catching up with their western neighbors, both in terms of investment volumes and sophistication. The second annual report by Cushman & Wakefield and international law firm CMS explores the underlying investment trends across CEE6 countries and looks at the various innovations that have shaped the hotel industry in recent years.

Key findings include:

  • In the last five years (2015-2019) CEE has experienced EUR 4.2 billion worth of transactions – nearly half of the total hotel transaction volume (EUR 9.4 billion) achieved by the region in the last 20 years.
  • Capital cities remained magnets for investment, experiencing 72% of transactions in CEE between 2015-2019.
  • CEE hotel sector peaked in 2019, experiencing unprecedented investment levels of EUR 1.4 billion. Total of 55 hotels changed hands last year, comprising over 10,000 rooms.
  • The average deal size in 2019 was EUR 31 million and average price per room at about EUR 142,000.
  • The region has been experiencing growing persity of investors in recent years, although in 2019, European investors secured 84% of the total transacted volume.
  • Czech Republic remained region’s hotspot, securing EUR 620.4m of investment in 2019 and capturing 43% share of CEE6* market – however investment scenes in Bulgaria and Romania recorded a robust increase, with markets seeing 490% and 212% YOY growth respectively.
  • The most popular hotels among investors in 2019 were upper-midscale and upscale hotels, accounting for 42% of transacted volume.
  • In 2019, the largest transaction in the CEE region was the purchase of the InterContinental Prague for EUR 225m.
  • Nearly EUR 2 billion of transactions where initially expected in 2020, underpinned by several major deals already in progress across the CEE-6 region. However, the completion of these deals is becoming more unlikely due to the growing COVID-19 pandemic.

Looking ahead

Initial expectations for 2020 were bullish, underpinned by several significant deals already being in various stage of progress at the beginning of the year. However, with the unprecedented COVID-19 pandemic still unfolding, it’s becoming increasingly challenging to make investment predictions for 2020. Several deals that were expected to close in 2020 are now being put on hold. Nevertheless, a number of deals already completed at the beginning of the year – totaling approximately EUR 297,000,000 across 6 assets, primarily located in Budapest – and there are still some investors choosing to continue with their acquisitions and due-diligence processes.

Undoubtedly the ongoing pandemic will have a notable impact on CEE’s hotel industry in 2020. However, the robust investment recorded in 2019 indicates the level of activity the region is capable of achieving, which may well be repeated when the current crisis is resolved and the hospitality sector in the CEE-6 region recovers.