Budapest – On The Up

This market pulse provides an overview of the tourism and hotel market in Budapest, Hungary. This snapshot discusses recent tourism trends, the impact of new supply on performance and provides a summary of the hotel pipeline.
Magali Castells

Budapest is the capital of Hungary and the ninth-largest city in the EU, with close to 1.7 million inhabitants in 2018. Budapest traditionally had a strong industrial focus, but has since shifted to the service industries including banking, finance and real estate. The city is also a cultural and historic centre, with several renowned monuments including UNESCO World Heritage sites such as the Buda Castle district and the banks of the Danube. The city is also filled with various museums, parks, squares and a variety of restaurants and bars, making it the perfect weekend destination.

 

ECONOMIC INDICATORS – HUNGARY

Sources: Economist Intelligence Unit; IMF

Political and Economic Background

Hungary has been a member of the European Union since 2004, and a democratic parliamentary republic since 1989. Economic recovery following the global economic crisis was relatively slow; however, the Hungarian economy has been growing steadily since 2013, with GDP growth reaching 4% in 2017, one of the highest in the EU and ahead of countries such as the UK, France and Germany. Unemployment is low (3.8% at the end of 2017), which, combined with a steady decrease in the debt-to-GDP ratio of the country, has resulted in increased interest from international investors over recent years. With the corporate tax rate lowered to 9% in 2017 (the third lowest in the EU after Malta and Monaco), this international interest is set to grow further.

EXCHANGE RATE €:HUF
 

Source: Oanda

Tourism Demand

Visitation to Budapest has in the past been made up of international travellers primarily; this category accounted for more than 85% of the total number of visitors in 2017. 2009 marked an 8.8% drop in visitation due to the global financial crisis and decrease in tourism. Since then, total visitation has shown signs of continuous recovery. In the last three years, Budapest has seen a significant 12% growth in visitation, far surpassing pre-crisis levels.

VISITATION

Source: Tourmis

Hotel Performance

During the economic crisis (2008-10), hotels experienced drops in visitation. To remain competitive they reduced rates, resulting in price wars. However, the market has recovered strongly, with hotel performance continuously improving, making Budapest one of the fastest-growing hotel markets in Central Europe. The increased arrivals to the city provide a positive outlook for average rate and occupancy growth, already evident in 2016 and 2017, with above-average RevPAR growth in the market.

KEY METRICS

Source: HVS Research

Hotel Supply

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

Owing to the positive trend in visitor arrivals and the strong trading performance of hotels, there has been increased interest in the city from developers and operators. Several of the world’s leading hotel brands, including Four Seasons, Ritz-Carlton, Kempinski, InterContinental, Hilton, Marriott and Sofitel, are already represented in Budapest. Within the next three years, Hyatt, as well as Marriott’s W and Luxury Collection brands, are also due to open, which will further boost the draw of the Budapest market. Several other proposed new hotels are also in the pipeline; however, we would also note that construction costs have risen sharply and hence some of these projects might not materialise.

HOTEL PIPELINE – CITY CENTRE

Source: HVS Research

Investment Market

Budapest’s tourism boom and improved hotel market performance have drawn significant attention from investors, who now see the city as a good long-term investment opportunity. The number of hotel transactions and deals in recent years has increased, as illustrated in the adjacent table; however, in the past two years this has been dominated by Orbis acquiring seven ibis and Mercure hotels that they 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 will reportedly now undertake a €16 million renovation of the hotel. For the latest value trends, please refer to our European Hotel Valuation Index.

HOTEL TRANSACTIONS

Source: HVS Research

Outlook

The outlook for visitation to Budapest remains positive, with an expected continued increase in arrivals to the city. The recent boost in hotel performance is one of the main reasons behind the growing interest from investors, developers and operators in the market. 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.

VALUE TREND

Magalí Castells is an associate at the HVS London office. Before joining HVS, Magalí gained operational and real estate development experience in Barcelona, Spain. She speaks English, Spanish, Catalan and French and holds an MSc in Hospitality Business from Ecole hôtelière de Lausanne. Prior to gaining her master's, she graduated with a bachelor's degree in Business Administration from ESADE Business School, Barcelona, with a focus on finance and real estate. For further information, please contact Magalí at mcastells@hvs.com.
Arlett Hoff is a Director with HVS’s London office, specialising in hotel valuation and consultancy. Arlett joined HVS in 2006 after experience in the hotel investment industry as well as operational hotel experience. Her consultancy experience includes valuations, feasibility studies, concept recommendations, highest and best use analyses, and strategic positioning. Arlett is a member and registered valuer with the Royal Institution of Chartered Surveyors (‘RICS’). Contact: ahoff@hvs.com or +44 (207) 878-7753 (Work)

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