Despite dismal 2009, international hotel chains focus on local expansion

After two good years for the local hotel industry in 2007 and 2008, last year saw the market decline. However, this has not deterred existing chains from planning their expansion throughout the country, buoyed by lower land and construction costs. New players have also put Romania on their map.

By Corina Saceanu

At least five new hotel brands will enter the Romanian market in the next two years, some of which have already announced their precise intentions. The expansion involves names in the portfolio of hotel groups that are already present in Romania with other properties. And at least one new hotel player will enter the Romanian market, Paul Marasoiu, president of Peacock Hotels, tells Business Review.

Hilton Worldwide chain, which already has two affiliated units under the Hilton brand in Romania, will bring its mid-priced Double Tree and Hampton brands. Sheraton, which comes under the Starwood Hotels and Resorts umbrella, is expected to open a 202-room facility but not until 2012.

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By the end of the year, Days Inn, a lower cost brand in the portfolio of hotel group Wyndham, will choose a provincial location in Romania and open a site by the end of this year. And Rezidor Group, which is present through the Radisson Blu brand in Bucharest and very soon in Brasov, is planning to expand with a new name, Park Inn.

Clearly, the budget and economy segment has remarkable potential across the country, says Marasoiu. He also sees potential for five-star units in larger Romanian cities and three-star facilities in classic tourist regions. “Both from the standpoint of the necessary investments and from the availability of management and franchise solutions with international hotel operators, the local market has tremendous potential,” predicts Marasoiu. The new openings scheduled for this year are mostly expected in cities outside the capital, where the market is tipped by some to stabilize. “The biggest change was certainly the increase in market supply with the opening of several new big hotels in Bucharest and the decline in demand. We are not aware of any significant changes to the hotel supply in 2010, hence we expect the market to stabilize,” Friedrich Niemann, general manager of the Athenee Palace Hilton in Bucharest, tells Business Review.

The most recent such opening in Bucharest was that of that of Grand Hotel Continental, a five-star unit run by the Continental hotel chain, owned by Romanian businessman Radu Enache. It was revamped with an EUR 8 million investment.

As many as 42 facilities have been announced for this year across Romania, according to consultancy company IBC Focus. Each would require EUR 1 million in investment. Most of these hotels – about 25 units – are under construction, nine are in the design phase and eight already being fitted out, according to IBC Focus. Only three of the 42 have been announced for Bucharest, the rest being scattered elsewhere around the country. Mid last year, only ten hotels, making up 2,100 rooms in total, were under construction in Romania, according to data from the International Hotel Construction Project Database. The new internationally branded hotel openings scheduled for the next two to three years should bring at least 1,000 more rooms onto the market, according to Business Review’s calculation.

“The market is being evaluated with a long-term view of the hotel industry, being a business which settles and consolidates in at least two years. The forecast for the next two years, in our view, is upwards from the midway point of this year,” says Marasoiu.

For existing hoteliers, the opening of new units in their cities may spell further bad news, coming after a tough year for the industry as a whole. “For owners and managers, this will be a year which will show how coherent and solid their businesses were. The crisis is a moment of opportunity and consolidation, but only for those who took their business seriously to begin with,” Marasoiu explains.

Despite a fall of around 28 percent in occupancy rates, according to the hotelier, there were facilities that not only maintained their rates from the previous year, but even slightly increased them. There were falls in the net average tariff as well, but it is a different picture on various classification segments, in different areas in the country.

“Last year, the Athenee Palace Hilton was in trend with the market so business slackened off. The occupancy rate was around 65 percent, down 3 percent from 2008. But then again, 2008 was the best year the hotel has ever had,” Niemann told Business Review.

Lower down the scale, the three-star hotel market saw a slump in occupancy from 59 percent in 2008 to 37 percent last year, while the average tariff fell from RON 240 to RON 213, according to the Benchmarketing report by Fivestar Hospitality. Four-star units had an occupancy rate of 41.5 percent, down from 54.5 percent the previous year. The average room rate for these hotels slid from RON 314 to RON 271. There are 10,000 hotel rooms in Bucharest, out of which 5,200 are four-star and 2,900 three-star.

Despite the slowdown in this sector of the hospitality industry in the last year, international hotel groups are preparing for when the market picks up. With several countries in Europe having already emerged from recession, hotel chains are betting on a market rebound in the next two years. In other good news for the sector, the cost of buying land and building a hotel nowadays is considerably lower than two years ago.

What is opening where?

The Hilton Worldwide group has signed a management agreement with Calipso S.A, a listed company owned by the investment company SIF Banat Crisana, to launch a Doubletree by Hilton hotel in Oradea, Romania. Scheduled to start operating by September 2010, the facility will be Hilton Worldwide’s third hotel in Romania and the country’s first Doubletree by Hilton. The move follows the opening of the Hilton Sibiu in July 2009 and Hilton’s entry into Romania in 1997 with the Athenee Palace Hilton in Bucharest. All in all, the hotel group plans to expand with 25 new units in Romania in the next five years, either through management or franchise contracts. It is targeting cities such as Cluj-Napoca, Timisoara, Brasov, Iasi, Craiova and Arad, according to previous announcements.

Meanwhile, Accor Group, which runs the Pullman, Novotel and Ibis hotels in Romania, is planning to expand its Novotel chain to Timisoara and bring the economy brand Etap into the country, with Brasov and Timisoara as targets. The group is planning to establish 10 to 12 hotels in the next two to three years in Romanian cities such as Timisoara, Cluj-Napoca and Bucharest.

Starwood Hotels & Resorts Worldwide will bring its first Sheraton hotel to the country, with a 202-room unit in Cluj-Napoca. The hotel will most likely open in 2012, within the first Sigma tower, a project built by Sigma Towers. The investment in this unit will reach EUR 60 million, according to estimates.

Another big name on the local scene, the Marriott hotel chain, which has an operational unit under the JW Marriott brand in Bucharest, is planning to launch a site in Bucharest under the Courtyward brand. The international chain had previously said it was planning to expand with new concerns in Bucharest, Cluj-Napoca and Timisoara.

The Wyndham chain, known for the Howard Johnson and Ramada units in Romania, will continue to expand these two names and will bring the three-star Days Inn brand to Romania by the end of this year. The first unit will have 120 rooms and will be located in a provincial city in Romania.

Rezidor, which operates Radisson Blu hotel in Bucharest, will add another unit of this type in Poiana Brasov in the first half of this year. The opening of the hotel has been delayed, after being initially scheduled for the last quarter of 2009. The 186-room unit required a EUR 60 million investment.

Bucharest will also have another five-star hotel, the ninth such unit in the city, after Marvel Group launches Vendome Palace & Galerie. The hotel developers have not yet announced an operator. The 120-room hotel will require a EUR 20 million investment.

corina.saceanu@business-review.ro