Colliers sees increasing slowdown in Budapest hotel developments

Although in the hotel development field Budapest is characterized by strong activity, projects that are still in the planning phase are becoming more frequently reconsidered and postponed. This property segment will weaken further in the future according to the opinion of Ákos Balla, Director of Valuation and Research, at the Hungarian office of Colliers International. The reason for this is the significant decrease in business tourism and bank financing activity. The property expert expects a development in conference tourism and the reconstruction of the hotel services, already in operation, instead of hotel development.

4 five star and 10 ten star, large sized hotels with mainly 100-200 rooms are being constructed in Budapest at the moment, until the end of 2010. In spite of the fact that in the last couple years hotel development was an especially favorable field for bankers and property developers, in the future un-interest, and in the worst case scenario force sale transactions will appear in this segment, said Balla. According to his international real estate experience, the “atmosphere” that the hotel market is a less preferred territory, what is more, a taboo is already present in bank negotiations. Developers ask for advice more and more often, in connection with their high quality land properties, bought for hotel development originally, and they would like to know how they could use it for a different type of development.

The number of classic business trips has gone through a drastic decrease, since companies with international activities have cut their travelling budget and holiday tourism is represented mainly by less spending, often lewd tourists. The boom of conference tourism that has been envisioned for a long while may be a solution, although for hotels, the development of high quality conference centers for 500-1,000 people might be necessary. In most cases, the capacity of the smaller conference locations for a couple hundred people only might not meet the requirements of the actual market.

There is no case in which a project already in development is put to a stop – which would be a great loss for the financing banks as well – Balla said. However, slowing down the projects and rescheduling their timing is noticeable in the land phase, and in some cases there are five star hotels that are being built in a lower category.

Hotel investments are less expected in the future, since bank financing background is held back, and the hotel industry is mainly characterized by projects that are developed from a bank loan. This is the reason for the caution in development activity, which is even more emphatic when banks face market analysis and news that are about the less frequent occupancy, lower income and operational level.

Summarizing the trends, Colliers expert emphasizes that in the development of hotel real estate a stagnating and decreasing period is starting, that puts a greater weight and responsibility on hotel management shoulders – directors, operation managers, chefs – in the field of service quality development. According to Balla, the expertise of the management will be appreciated more by both banks and guests in the future, than a familiar hotel brand name. Although the latter may secure a more solid occupancy, it cannot adjust so quickly to the fast changing market environment and demands.

For more information:

Boldizsár Horváth, Marketing Manager
Marketing, Colliers International Hungary
Tel: (+36 1) 336-4202
www.colliers.hu