Experts from the international consulting firm Cushman & Wakefield expect an increase in transaction activity of investors in the Polish hotel market in 2024 – due to improving key performance indicators and increasing pressure among investors to place capital. Even though the volume of investment transactions in 2023 finished below those of 2019, its value last year was around 83 million euros, which is an 82% year-on-year increase. Warsaw, Vilnius, and Edinburgh are the only three cities among the major European hotel markets that saw an increase in occupancy last year. At the same time, Warsaw ranked third in terms of Average Daily Rate (ADR) increase (in EUR), rising by 20.1%.
The further improvement in local demand, as well as Poland’s continued key role in providing humanitarian, military, and diplomatic support to Ukraine, contributed to increasing hotel occupancy in Warsaw to 73% in 2023. Thus, Warsaw maintained its position in the top 10 largest European hotel markets with the highest occupancy rate – the Polish capital was in 9th place. Simultaneously, the capital’s hotel market recorded the highest occupancy rate among CEE countries, also higher than the European average – 73% vs. 69%.
According to Oxford Economics data, in 2023, 64% of accommodation demand in Warsaw was domestic – an increase compared to 2019 when this figure was at 61%. In 2024, the trend of growing demand from Poles for hotel stays is expected to continue and could even be 30% higher than pre-pandemic levels. Meanwhile, overseas demand will be comparable or slightly higher than in 2019. “It is worth noticing that there has been a significant increase in tourist visits by guests from outside the country – from 44% in 2019 to 72% in 2023,” says Maciej Prończuk, Consultant, Hospitality CEE & SEE, and hotel market expert at Cushman & Wakefield.
The steadily increasing number of flights between Polish airports and various countries, especially the ones offered by low-cost airlines, positively affects the number of people visiting the country. The number of passengers at the two Warsaw airports (Chopin Airport and Modlin Airport) grew by 25% year-on-year in 2023. At the same time, the number of passengers has returned to pre-pandemic levels. Forecasts indicate that passenger traffic will continue to grow in 2024, albeit at a slower pace. This upward trend at Warsaw airports may be disrupted by the recently announced information from Ryanair about transferring some of its flights in the summer season from Modlin. However, this will provide an opportunity for other airports in Poland to expand their flight network in 2024.
Proper Profitability Despite Rising Costs
HotStats data shows that in 2023, hotels in Warsaw recorded an average percentage of gross operating profit in total revenues of 35%, which is worse than in competitor destinations such as Prague (37%) and Budapest (36%), but better than in Vienna (26%) or Berlin (26%). Hotel owners have focused on increasing the ADR to mitigate any negative effects of rising operating costs.
ADR growth in Warsaw of almost 25% (compared to 2019, in EUR) is lower than in Budapest (34%) and in Europe overall (27%), but higher than in other CEE-6 markets such as Prague, Sofia, Bratislava, and Bucharest. It is worth noticing that while Warsaw hotels still have the lowest ADR among the CEE-6 capitals, RevPAR – average revenue per available room (in EUR) – for Warsaw in 2023 was higher than in Bucharest, Bratislava, and Sofia due to the high occupancy rate.
Gradual Return to Investment Activity in the Hotel Market
The landscape of transactional investments in the Polish hotel market is returning to stability following COVID-19, and energy crises, despite ongoing geopolitical and economic challenges, such as the Russian war in Ukraine and conflicts in the Middle East. The volume of transactions in the Polish hotel market reached around €83 million in 2023. While this is still below 2019 levels, it’s decidedly more than in 2022.
“Although we are still far from the volume of investment transactions on Poland’s hotel market noted before the pandemic, undoubtedly 2023 was a good omen for the coming months. We have recorded four transactions involving a total of over 760 hotel rooms. While some related to purchases made by Polish investors, the climax of the year was undoubtedly the acquisition of Crown Plaza and Holiday Inn Express hotels in The Warsaw HUB by a French fund, mediated by Cushman & Wakefield. This is a harbinger of further transactions involving international capital,” says Maciej Prończuk.
Capitalization rates in the Warsaw hotel market in 2023 increased by 25 bp compared to 2022. The negative impact on property values was mitigated thanks to a marked improvement in revenues.
“In 2024, with predictions of a slowdown in inflation rate increases, which can have a positive effect on interest rates, we expect a stabilization of capitalization rates in the hotel market,” summarizes Maciej Prończuk.
