Tourism growth attracts hotel investors to Budapest

Corinthia Hotel Budapest. Photo credit: Corinthia Hotels (Corinthia Hotel Budapest)

According to the latest stats from STR, Budapest reported its highest absolute ADR and RevPAR levels for any September, thanks to rising inbound tourism.

Analysts attributed the Hungarian capital's strong performance to a continued lack of supply growth in the market and, with the pipeline growing and the sharing economy thriving in the city, Budapest was looking to attract more visitors to meet demand. 

STR reported occupancy was up 0.1 percent on the year to 90.5 percent, with ADR up 14.8 percent to HUF33,065.71 ($115.94) and RevPAR increasing by 15 percent to HUF29,938.14.

According to HVS, a 6-percent increase in new rooms was expected by 2020, demonstrating hotel investors’ interest and trust in the sector’s growth. Within the next three years Hyatt, as well as Marriott International's W and Luxury Collection brands, are due to open at the top end of the market, with other brands like Meininger, Hilton Garden Inn and Hard Rock also in the pipeline.

HVS said historically, visitation to Budapest had been made up of international travelers, which accounted for more than 85 percent of the total number of visitors in 2017. In 2009 an 8.8-percent drop in visitation due to the global financial crisis and decrease in tourism marked the year. Since then, total visitation has shown signs of continuous recovery and in the past three years, Budapest has seen a significant 12-percent growth in visitation, surpassing pre-crisis levels.

The number of hotel transactions has increased in recent years, with the one of the most high-profile being Orbis’ €75 million sale-and-manage-back of the Sofitel Chain Bridge, to Starwood Capital, which will reportedly now undertake a €16-million renovation of the hotel. 

“We are delighted to be acquiring this iconic European hotel in this high-demand hospitality market, while partnering with Accor and Orbis on this transaction,” said Keith Evans, VP, European Hotels, Starwood Capital Group. “With its irreplaceable location and strong cash flow, the hotel has attractive growth and significant repositioning potential.”

Growing Interest

“The recent boost in hotel performance is one of the main reasons behind the growing interest from investors, developers and operators in the market,” said Magali Castells, associate, HVS London. “Although RevPAR levels remain somewhat lower compared to other European cities, the development and increased offer of five-star properties is expected to help increase average rates in the market.”

Hotels were not alone in targeting the city. Colliers International reported Airbnb in Budapest showed strong growth in overnight stays in 2017, reaching almost 1.5 million, an increase of 35 percent year-over-year.

Airbnb’s market share of overnight stays in Budapest rose from 10.2 percent in 2016 to 14.3 percent in 2017. As a result, Airbnb market share was among the highest in Budapest compared to other major European cities, with Paris at 15.2 percent, Barcelona 13.2 percent and London 6.9 percent.

Colliers International indicated around 65 percent of listings were offered by hosts with at least two listings, much higher than the 40 percent to 50 percent average multi-listers' ratio across most other European cities, suggesting the Budapest Airbnb market was driven by professional operators

However, hotels could fight back. The study concluded: “We expect that the Airbnb market will continue to grow further in line with the expanding tourist market. However, we note that the development pipeline in the hotel segment is quite strong for the upcoming two years [and] that may offset the increasingly larger market share of Airbnb.”

The country’s government is determined to fill all available beds and this year launched its first Budapest-centered foreign advertising campaign, marking the start of a four-year push. The Hungarian Tourism Agency said it would like Budapest to be treated as a must-see European capital, like Paris. Recent activity suggests it is a must-have for brands and, increasingly, a must-own for investors. 

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.