As Croatia continues to build on growing interest from consumers, the country’s hotel rates increased 4 percent to 5 percent in May, according to HD Consulting. At the same time, rising visitor numbers have piqued the interest of global investors and brands.
Investment in Croatia's hotel industry was predicted to reach €1.2 billion by 2022, according to report from Ernst & Young. The country was set to add 6,000 new hotel rooms to its inventory by that year, with an additional 3,700 being renovated.
HD Consulting reported that hotels and campsites in Croatia saw stronger bookings for May this year against 2017, with revenues 10 percent to 15 percent higher for the month, in addition to the rate increases.
“Our survey shows that Croatia is experiencing booking growth this year, despite the fact that the prices are going up, and some of its tourism competitors—such as Turkey, Egypt, Tunisia—in the Mediterranean are coming back with huge growth rates of booking,” said Sanja Čižmar, senior partner at HD Consulting. “Since in Croatia a lot of hotels are under refurbishment, and the quality is going up each year, and Croatia is a safe country near its major originating markets, we believe the overall tourism volumes in Croatia in 2018 will be higher up to 10 percent compared to last year.”
Čižmar said that the market for hotel investment in Croatia was dominated by large domestic hotel groups, with the five largest companies owning more than 60 percent of capacity in the country. “They are investing in upgrading the quality level of their present hotel portfolios, and buying new hotel assets or hotel companies consisting of several hotels,” she said. In addition, Croatian pension funds are investing in tourism because it assures long-term financial stability—the target for pension funds.
“Large international investment funds are scanning the Croatian hotel investment market and showing an interest to enter,” Čižmar said. “Their primary targets are existing hotel companies with larger hotel portfolios in Zagreb, the capital, or at major city destinations at the Adriatic coast.”
Attracting Equity
International equity investors are interested in Croatia, as well. “Their target is mostly focused on greenfield investments in mixed-use resorts—hotels, villas and apartments with a real estate component which increase return on investment,” Čižmar said.
Interest has not been limited to real estate investors. German tour operator TUI purchased 50 percent of Punta Zlatarac Tučepi company from Tučepi Hotels, part of Sunce Group, for €31.5 million in the second half of last year. Punta Zlatarac owns and operates the 161-room TUI Blue Jadran.
“Although they are usually pursuing light-asset strategy, during the last couple of years a few global hotel operators are intensively searching for right investment targets at attractive locations in the Croatian hotel market,” Čižmar said.
HDC said that, in Croatia, 24 percent of total hotel rooms were internationally branded, either through management or franchise agreements with hotel operators, or as part of international hotel marketing alliances.
Out of 10 top global hotel operators, five of them were present in the Croatian market, mostly in Zagreb and in major cities along the Adriatic coast. “International operators are highly interested in entering Croatian markets; however, there are not enough targets since the market is dominated by large domestic hotel groups,” Čižmar said. It may be a case of pay to play for those wishing to be in Croatia.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.