Why HVS is bullish on Budapest

In a €75 million-deal, Starwood Capital Group has acquired Sofitel Budapest Chain Bridge Hotel from Orbis Hotel Group.
Sofitel Budapest Chain Bridge Hotel, Hungary. Photo credit: Sofitel

A new study from HVS offers several reasons why Budapest, Hungary, is growing as a hotspot for hotel investment in Central Europe. 

Total visitation to Budapest has shown signs of continuous recovery since 2009. In the past three years alone, Budapest has seen a significant 12 percent growth in visitation, surpassing precrisis levels.

During the economic crisis (2008-10), Budapest’s hotels faced an occupancy decline, leading to price wars. Since then, the market has recovered strongly, with hotel performance continuously improving, making Budapest one of the fastest-growing hotel markets in Central Europe. The increasing number of arrivals to the city provide a positive outlook for average rate and occupancy growth, already evident in 2016 and 2017, with above-average revenue-per-available-room growth in the market.

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Hungary has seen continued growth in hotel supply since 2010. As of December 2017, the country had 1,094 hotels with an estimated 151,000 beds, approximately 35 percent of which are in Budapest.

Developers & Investors

All of this has led to increased interest in the city from international developers and operators, many of which—including Four Seasons, Ritz-Carlton, Kempinski, InterContinental, Hilton, Marriott and Sofitel—are already represented in Budapest. Hyatt and Marriott International’s W and Luxury Collection brands also are due to open during the next three years. Several other proposed new hotels also are in the pipeline, but rising construction costs may limit the number of hotels that actually open. 

Investors, meanwhile, now see the city as a good long-term investment opportunity. The number of hotel transactions and deals in recent years has increased, dominated by Orbis acquiring seven ibis and Mercure hotels that it previously leased. The most recent hotel transaction, in May 2018, was Orbis’s sale-and-manage-back of the Sofitel Chain Bridge, after Orbis had acquired the freehold interest in the same property a year earlier from UniCredit Austria. The new owner is Starwood Capital, which reportedly now will undertake a €16 million renovation of the hotel. 

All of these factors lead HVS to be bullish on Budapest’s hospitality future. While RevPAR levels remain somewhat lower compared to other European cities, the development and increased availability of five-star properties is expected to help increase average rates in the market.