Investors turn gaze on Central Eastern Europe's secondary cities

According to a new joint Christie + Co and STR Global report, competition and low yields in some Western markets are pushing investors toward secondary Central Eastern Europe (CEE) markets, where less competition for deals is enabling them to negotiate more attractive asset prices.

While Bucharest, Sofia and Belgrade are among the largest cities in the CEE, their respective hotel markets are considered immature when compared to their European counterparts.

Lukas Hochedlinger, managing director of Germany, Austria & CEE at Christie + Co said, "Through our day-to-day conversations with our clients, it is apparent that investors are keeping an eye on the peripheral markets of Bucharest, Sofia and Belgrade. Western European players in particular are attracted by the cities' strategic geographical positions, Western style cultures and their highly educated yet affordable workforce."

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The report revealed that the hotel markets of Bucharest, Sofia and Belgrade are chiefly dominated by privately operated hotels which account for a share of 61% in Bucharest, 67% in Belgrade and 84% in Sofia.

"International travelers to any of these cities will have been struck by the lack of international hotel brands. As Bucharest, Sofia and Belgrade are not considered tier-1 cities in Europe, they are not high on international hotel groups priority lists and as a result, branded hotels in these cities are scarce," Hochedlinger said. "However, we expect hotel groups will actively be addressing this shortfall as the economic climate improves and the number of inbound visitors to these cities increase.

"In the past five years, Bucharest, Sofia and Belgrade have all witnessed growth - albeit from different starting points. Belgrade is facing the most difficult environment as the hotel sector is suffering from oversupply; Bucharest continues to draw opportunistic foreign investors, attracted by the growing potential of the business and leisure segments, and Sofia is charming more international players thanks to government steps to attract more foreign capital and promote tourism."

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