WROCLAW, POLAND IN FOCUS: Pavlos Papadimitriou, MBA Senior Associate. Panagiotis Verykios Analyst.

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1 OCTOBER 2014 PRICE 400 IN FOCUS: WROCLAW, POLAND Pavlos Papadimitriou, MBA Senior Associate Panagiotis Verykios Analyst HVS ATHENS 17 Posidonos Ave. 5 th Floor, Alimos, Athens, GREECE

2 This market snapshot focuses on the current situation and trends in the tourism and lodging market in Wroclaw, Poland. In writing these articles we utilise the expertise of HVS for each market to the full extent combining our inhouse data and research together with published information regarding each of the examined destinations. Highlights Like many other countries, Poland experienced a slowdown in economic growth due to the global economic crisis in However, the Polish economy is considered to be one of the most stable, dynamic and transparent anywhere in Central and Eastern Europe and it has succeeded to avoid recession; The country s strategic location, large domestic consumer market, stable and balanced economy, well educated labour force and the availability of European Union funds are some of the factors contributing to Poland s popularity amongst foreign investors; In 2012, Poland was, along with Ukraine, the co host country of the UEFA European Football Championship Euro 2012 which helped at a large scale in the country s further development and international exposure. The hosting of the Volleyball Men's World Championships in the first weeks of Sepetmber 2014 has also contributed to the further development of sport tourism in the country; The most notable economic challenge in 2014, is the preparation of the economy (through continuing structural reforms) to allow Poland to meet the economic criteria for entry into the Eurozone. According to government officials the country could be prepared to join the Eurozone before Towards that direction, Brussels has imposed ambitious deficit procedures aimed at maintaining public deficit below 3.0%. The main risk to economic growth is the sluggish euro area demand, but this is mitigated by the local banking sector's strength; Poland experienced a substantial increase in inbound tourism in A spike in international visitation can be mainly attributed to the hosting fo the UEFA Euro 2012, which drew large number of tourists and contributed substantially to the promotion of Poland as a tourist destination. Altogether, 14.8 million tourists visited Poland in 2012, an 11% increase compared to 2011 generating 10.3% more overnights; International tourism arrivals by air in Wroclaw have risen by 8.0% over the last four years after a period of fluctuation while total airport arrivals have recorded a 16.9% growth rate over the same time spectrum; Region Overview Wrocław is the capital of the Lower Silesia region and the fourth largest city in Poland, with a total surface of 293 km², 634,000 inhabitants in the city and approximately one million when suburban areas are included. In terms of a geographical location, the city authority often uses the term genius loci, which refers to the city s proximity to five European capital cities. The city was lost by some sovereigns and regained by others, and the diverse cultures and traditions have left their mark on the city. Following the country s transformation to a post communist state in 1989, the city authorities began creating a local identity and the feeling of belonging to the city based on the different traditions and cultures that are a part of its history. Wroclaw constitutes an academic center featuring 22 institutions of higher education with more than 140,000 LOCATION OF WROCLAW IN FOCUS: WROCLAW, POLAND PAGE 2

3 students enrolled. The region offers a competitive and dynamic setting for prominent foreign investors and leading Polish companies. Major industries of the city include automotive, household goods, electrical engineering, finance, medical industry and logistics. Major foreign investors include LG, Hewlett Packard, Google, Allied Irish Bank, Toyota, Whirlpool, Fagor Electrodomesticos, Volvo, Bosch, Siemens and 3M. The city of Wroclaw is already a major transport hub, and has many potential to evolve even further, since it lies on the 3rd Pan European Transport Corridor, linking Brussels with Kiev, it is well connected to the likes of Dresden, Berlin, Vienna, Lviv, and Kiev by rail, it boasts an international airport, and is linked by the river Odra to the Baltic sea and to the European inland waterway systems via Berlin. The city is also considered to be one of the most rapidly developing cultural centers in Poland and Europe in general. Wroclaw is assigned to be the European Capital of Culture in 2016, which will bring numerous cultural events to the city and increase the city s international exposure and the awareness of the destination. Major Tourist Attractions in Wroclaw Wroclaw is a city that offers its visitors numerous attractions as well as points of business interest. There are three areas of major tourist interest in the city: the Old Town, Ostrow Tumski and Centennial Hall. Old Town is home to the majority of Wroclaw s historical monuments, museums, university buildings and the city s famous gnomes. The District of Mutual Respect is part of Old Town, it is an area which includes sights of worship of four different denominations, also including the city s only surviving Jewish Synagogue. Ostrow Tumski was the first place settled by Slavs some 12 centuries ago, and has been a place of religious and royal significance for more than one thousand years. It is also where the city s most important cathedral is situated. Centennial Hall, completed in 1913, was built when Wrcolaw was still part of the German Empire, and celebrated 100 years in The Hall s space can be utilised in hosting a variety of events, ranging from sports, to conferences, to conventions and expos. It is situated right by Wroclaw Zoo, the Japanese Gardens and the Pergola. Tourism and Visitation Airport Traffic The Wroclaw Nicolaus Copernicus Airport provides its services to network carriers which offer flights to major European hubs, low cost carriers, like Ryanair and Wizz Air, which have their operational bases at the Wroclaw Airport, and also charter airlines hired by tour operators as part of a packaged deal which can include accommodation, rentals, and other activities. In March 2012 a new passenger terminal commenced operations. Its capacity is almost four million passengers per year while it is predicted to reach as much as seven million in the midterm future. CHART 1: AIRPORT ARRIVALS WROCLAW (000s) 2,500 2,000 1,500 1, Domestic International Total Source: Eurostat, Wroclaw Airport Total passenger movements at Wroclaw Nicolaus Copernicus Airport grew at a Compound Annual Growth Rate (CAGR) of 19.0% during the past nine years, primarily attributed to the increase in international passenger movements. International airport passenger traffic was constantly increasing since 2005 with an exception of 2009 when the global economic crisis escalated. The vigorous increase in total passenger traffic recorded in 2012 can be mainly attributed to the demand emanated from Euro 2012 Cup since Wroclaw was amongst the cities hosting the matches of the tournament. Domestic passenger traffic also recorded a rapid CAGR during (9.3%) reaching approximately 400,000 in For the first eight months of 2014, total passenger traffic at the airport record already a healthy increase of 6.1% as part of the general increase of tourism inflows in the city. IN FOCUS: WROCLAW, POLAND PAGE 3

4 CHART 2: HOTEL BEDNIGHTS WROCLAW (000s) Visitation 1,200 1, The number of total tourist arrivals at hotels experienced significant growth over the period , declined thereafter during due to the global economic uncertainty that was prevailing back then, and achieved a total growth of approximately 40.0% for the period exceeding the level of 600,000 arrivals. Domestic travelers have been steadily accounted for 55 65% of total arrivals revealing the city s tourism close connection with the national economy. International Visitors Domestic Visitors An average of slightly less than 50% of the total accommodated bednights in Source: Central Statistical Office of Poland hotels in Wroclaw has been of international nature. The number of total bednights has experienced significant growth of 38.0% driven by the significant growth of both domestic and international tourism by 67.9% and 13.0%, respectively. Tourist visitation has shown a steadily increasing pattern during when it increased by 20.5%, whereas it shrunk steeply during the period of global economic uncertainty ( ) to bounce back to 2007 levels in Years 2012 and 2013 also formed a period of positive results. The resulting Compound Annual Growth Rate (CAGR) for total bednights of 4.1% originates primarily from the 6.7% average annual increase in bednights generated by domestic tourists. The city has a rather typical seasonality pattern of visitation for a city destination: demand starts from relatively low levels in winter; it increases during the first months of the year to reach a peak around May, mainly due to business activity and conferences/congresses organised in the city; it relatively slows down during summer months when resort destinations are more preferable; it peaks again in September and October, popular months for conferences/congresses; and it drops moving towards the Christmas period. The average length of stay in Wrocalw has traditionally been approximately 2.0 days since the majority of bednights are made by business travellers visiting the city only for a limited time. CHART 3: INTERNATIONAL VISITATION WROCLAW % 44.2% 22.0% 4.5% 5.4% Source: Central Statistical Office of Poland Germany UK Italy France Others Our research shows that the primary source countries for visitation to Wroclaw are, apart from the domestic visitors, Germany, the United Kingdom, Italy and France. Wroclaw is a very popular city amongst Germans since it is located very close to the borders with their country. The fact that Wroclaw used to be German territory before 1945 is an additional factor to the attractiveness of the city to Germans which account for more than 35% of international tourist arrivals. Guests from other source countries visit the city both for business and leisure purposes (for instance, many Britons visit Wroclaw in order to organise bachelor parties) however, they represent only a smaller proportion of incoming tourists. IN FOCUS: WROCLAW, POLAND PAGE 4

5 Meetings, Incentives, Conventions & Events (MICE) In 2012, Poland was an attractive place for corporate event organizers due to sporting events. The presence of numerous media and interest in Poland resulted in the programmes linked to support for sales through incentive travels based on football games or even the presence in fan zones and cities where UEFA Euro 2012 was played. In CHART 4: CONVENTION STATISTICS Year International Meetings in Poland % Change Meetings and Events in Wroclaw % Change % % Source: Poland Convention Bureau, International Congress & Convention Association general, according to the Poland Convention Bureau, 22,300 meetings and events of all kinds were held in Poland in 2012 attracting approximately 4.0 million attendees, with the vast majority of them taken place in hotel facilities (about 74%). More than 70% of these meetings were focused on technical or humanitarian fields of interest while slightly less than half of them (43%) endured for two or more days. March, September, and October are traditionally the months with the highest demand for MICE. Meetings in Wroclaw were reduced in the last four years mainly because of the internal competition amongst Polish cities but also due to the lack of qualitative hotel room supply adequate to absorb the demand for accommodation stimulated by the events held in the city. According to Poland Convention Bureau, 425 meetings and events were held in Wroclaw in 2012 generating approximately 600,000 overnights. Corporate meetings accounted for 30% of the total number of events in the city; Conferences and other Incentives captured another 67%, whereas the remaining 3% was attributed to Trade Fairs. For 2014, five international conferences have already been planned to be held in Wroclaw estimated to attract 2,000 delegates. MICE tourism in Wroclaw is enhanced by the presence of Centennial Hall Complex, an extensive state of the art facility which hosts various events and meetings. In 2006 the Centennial Hall was enlisted in the World s Heritage List compiled by UNESCO. Constructed in the beginning of 1900s, nowadays the Centennial Hall has a total seating capacity of 6,000 individuals and is a focal point of Wroclaw MICE with a drawback though not offering adequate medium sized break out rooms. CHART 5: HOTEL SUPPLY WROCLAW No of Hotels: % Share (2013) 5* Hotels % 4* Hotels % Other % Total: % No of Rooms: % Share (2013) 5* Rooms % 4* Rooms ,086 1,086 1,086 1,298 1,298 34% Other 1,339 1,329 1,447 1,500 1,648 1,752 1,905 1,905 50% Total: 2,660 2,650 2,768 2,953 3,269 3,419 3,784 3, % No. of Beds: % Share (2013) 5* Beds ,070 1,162 1,162 1,162 16% 4* Beds 1,908 1,908 1,908 2,172 2,172 2,172 2,596 2,596 36% Other 2,455 2,501 2,638 2,761 2,909 3,225 3,547 3,510 48% Total: 5,097 5,143 5,280 5,667 6,151 6,559 7,305 7, % Hotel Supply Increase 2.9% 2.8% 5.7% 8.1% 5.0% 9.5% 4.3% Room Supply Increase 0.4% 4.5% 6.7% 10.7% 4.6% 10.7% 0.0% Bed Supply Increase 0.9% 2.7% 7.3% 8.5% 6.6% 11.4% 0.5% Source: Central Statistical Office of Poland In 2013, the average five star hotel in Wroclaw featured 116 rooms and 232 beds, lower than the average size in 2006 (184 rooms and 367 beds). In general, the average hotel size is 86 rooms since the region is dominated by smaller independently run hotels. Also remarkable is the fact that five star properties almost doubled their number during together with the fourstar properties that also increased by more than 300 rooms. Hotel Supply The majority of hotel units are of oneand two star classification; however, five and four star hotel units together constitute the ones with a significantly considerable number of available rooms and beds. IN FOCUS: WROCLAW, POLAND PAGE 5

6 Recent and New Developments It was only in May 2014 that a new hotel property commenced operations and entered the market under a brand affiliation with Best Western. The 127 room Plus Q Hotel is managed by Dobry Hotels, a Polish hotel management company with a presence in various Polish cities. Scandic Wroclaw hotel had 70 out of its 164 rooms renovated during 2013 together with its ground floor restaurant and bar. The reported amount for the entire investment was 1.7 million. Hampton by Hilton is scheduled to open its first hotel in Wroclaw within The 100 room Hampton by Hilton Wroclaw City Center West has beedn agreed to operate under a franchise agreement between Hilton Worldwide and owner Wroclaw City Center West Sp. z o.o., which is part of the West Real Estate S.A. capital group. Hilton Worldwide has also signed an agreement to manage a new 189 room hotel in the city centre of Wroclaw, after its planned opening in April The proposed Hotel, affiliated with DoubleTree by Hilton, is part of a greater development, named OVO Wroclaw, that is planned on the same site and includes the construction of retail shops, offices, apartments, a casino, and an extensive fitness centre. The entire building is targeted to be successfully positioned as an iconic architectural development of the city that would motivate visitation being an attraction itself. Hotel Performance Chart 6 summarises the important operating characteristics of primary hotels in Wroclaw. The chart sets out the average occupancy, average room rate, and rooms revenue per available room (RevPAR) for a sample of major upscale hotel properties representing 1,748 hotel rooms. It should also be noted that all occupancy percentages refer to 365 days of operation for consistency reasons. CHART 6: HOTEL PERFORMANCE WROCLAW (PLN) (%) 0 The sample of hotels experienced a steady increase in occupancy since 2011 while ARR (PLN) RevPAR (PLN) Occupancy (%) average room rates (ARR) increased in 2012 Source: HVS Database before decreasing again by 4.9% in This was a result of the increasing average daily charges during the months of the Euro 2012 soccer matches taken place in the city. As a result of the occupancy and average rate dynamics, RevPAR increased in 2012 before decreasing very slightly to PLN167 in The recent opening of new hotels in the market caused no suffering on marketwide occupancy levels but rather led to the better absorption of the demand for lodging accommodation in the city. Conclusion The successful staging of the Euro 2012 soccer games has vastly improved the attractiveness of Wroclaw as a destination in general; yet the impact in terms of arrivals and overnights in the city, as a destination and not as a transit city, is slowly emerging. With its picturesque old city centre, its various art and culture centers, the strong presence of some of the most significant globally known companies, extensive shopping, vibrant night life, and much more, Wroclaw has everything to position itseld even better as a city destination within Poland. In 2016 the city is assigned to be the European Capital of Culture demonstrating its persistence in gaining valuable knowledge for improvement. However, there are still a lot to be done as far as a proper marketing strategy is concerned in order to attract the ever increasing number of city break visitors. HVS October IN FOCUS: WROCLAW, POLAND PAGE 6

7 About HVS HVS is the world s leading consulting and services organization focused on the hotel, mixed use, shared ownership, gaming, and leisure industries. Established in 1980, the company performs 4,500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 30 offices and 450 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. Superior Results through Unrivalled Hospitality Intelligence. Everywhere. HVS ATHENS, established in 2006, offers a wide range of expert consulting services for hotels, resorts, serviced apartments and mixed use developments in Southeast Europe. Our office team consists of highly skilled professionals with substantial industry experience who possess significant experience with a large number of major projects in Greece, the Balkans, Malta, Cyprus, Georgia, Turkey, and Morocco. HVS Athens performs valuations for mortgage security and transaction purposes, market feasibility studies, market research and demand analyses, as well as operator selection, management contract analysis and negotiation services. About the Authors Pavlos Papadimitriou is a Senior Associate with the Athens Office of HVS specializing in hotel valuation and financial consultancy. He joined HVS in late 2007 after completing an MBA from Les Roches School of Hotel Management in Switzerland and a BSc in Marketing and Communication from the Athens University of Economics and Business. Since then, he has conducted a number of valuations, feasibility studies, and market research analyses in Croatia, Cyprus, Georgia, Greece, Italy, Montenegro, Poland, Serbia, Spain, and Turkey. Contact him at ppapadimitriou@hvs.com or Panagiotis Verykios is a Consulting & Valuation Analyst with the Athens Office of HVS. He joined HVS Athens in late 2014 after receiving a B.Sc. in Hospitality Administration from Boston University s School of Hospitality Administration. Contact him at pverykios@hvs.com or HVS ATHENS 17 Posidonos Ave. 5 th Floor, Alimos, Athens, GREECE