Strong recovery of the Bucharest hotel market

The occupancy of Bucharest hotels increased by 33% in the first quarter compared with the same period of the last year, and remains about 5% below the 2019 level. When compared to other cities across the CEE-6 region, Bucharest recorded the second-highest occupancy rate, just behind Warsaw and ahead of Budapest, Bratislava, Prague and Sofia, according to the real estate consultancy company Cushman & Wakefield.

According to hoteliers in Bucharest, the positive performance trend was driven by a strong recovery of individual leisure demand as well as pick-up of group and corporate travel. The growth was also supported by the increasing quality of hotel offering in Bucharest with opening of luxury hotel The Marmorosch Bucharest Autograph Collection and renovations of Intercontinental Athenee Palace and Radisson Blu Complex.

Sevda Cadir, Senior Hospitality Consultant, CEE & SEE:

“Bucharest hotel market is witnessing a strong recovery post-COVID in terms of KPIs. The first quarter of 2023 draws the idea of a fruitful year ahead, with the RevPAR level overpassing Q1 2019 level. Thanks to the performance recovery, domestic and international investors are renewing their interest in Romanian hotels, albeit remaining cautious due to the high level of uncertainty and high cost of capital. The first transaction already closed in Q1 2023 (i.e. K+K Elisabeta) and we expect that the investment activity should further recover in the second half of the year.”

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According to the hotel industry research firm STR Global, the average daily rate overpassed by 35% the level achieved in Q1 2022 and by 12% the level recorded before the pandemic in Q1 2019. This was despite the recent VAT increase from 5% to 9% (since Jan 2023).

The strong average daily rate and occupancy increase has led to a more than 80% improvement in revenue per available room (RevPAR) within the Bucharest hotel market compared to Q1 2022, consequently, Bucharest recorded the highest RevPAR in nominal terms (EUR) within CEE-6 capitals (Bratislava, Bucharest, Prague, Sofia, Warsaw. This was also the case before the pandemic (in Q1 2019), due to relatively stronger winter season in Bucharest, driven by traditionally healthier corporate demand during this period.

Bucharest along with the CEE market witnessed a healthy performance recovery in 2022. The hotels in the Romanian capital reached in 2022 the second-highest occupancy rate among CEE-6 capitals.

Hotel investment activity was limited during 2022 in CEE, with the transaction volume totalling EUR 409M, reflecting a 70% decline compared to 2019. Numerous factors (including the Russian war against Ukraine, the energy costs, Hungary’s disputes with the European Commission, rising inflation and interest rates, the lack of qualified labour, and concerns of a recession) contributed to a climate of uncertainty in CEE and prompted investors to adopt a wait-and-see approach.

Looking ahead to 2023, transaction activity should start to recover in the second half of the year, underpinned by the investors’ need to deploy capital as well as pressure on some owners to dispose of non-core assets to address their liquidity needs, especially in case of re-financing, fund redemptions or when facing major CapEx requirements. The anti-inflationary nature of hotel real estate and the significant amount of equity raised for investment and solid performance recovery should facilitate the rebound of hotel transactions across the CEE region.

In 2022, Romania recorded a total transaction volume of c. EUR 75 million from which Bucharest registered c. EUR 44 million. The transaction volume showed a growth of 56% on a country level and respectively 91% in Bucharest compared to 2021.

The capital cities in CEE-6 saw a moderate supply growth in 2022, with new openings totalling 18 hotels with 2,420 rooms, while 6 hotels with 1,145 rooms closed for re-positioning.

A more robust pipeline is expected in 2023, with 25 new hotels (3,187 rooms), including several re-openings, such as the Intercontinental Athenee Palace in Bucharest and Almanac X Prague.

In recent years, the Bucharest hotel market recorded only a moderate supply increase at 1.5% CAGR (compound annual growth rate) from 2016 to 2021. Overall, during 2022 no openings took place in the market. Going forward, the hotel room supply in Bucharest is expected to increase at 4.9% CAGR until 2024, primarily driven by the upscale and upper upscale properties, namely Swisshotel, Corinthia Grand Hotel Boulevard, Novotel Baneasa, Ibis Syles Bucharest Airport, among others.