Hotel Intelligence Market Insight Warsaw March 2012
2 Hotel Intelligence: Warsaw Contributors Josef Filser Research Analyst, EMEA josef.filser@eu.jll.com Lynal Low Research Intern, EMEA lynal.low@eu.jll.com Jones Lang LaSalle Hotels is a global real estate services firm focused exclusively on hotels & hospitality. We provide acquisition and financing advice, valuations, investment sales and asset management for luxury hotels, select service and budget hotels, smaller hotels and pubs, from single assets to large portfolios and mixed-use developments. In the last five years we completed nearly 4,000 advisory and valuation assignments and more sale, purchase and financing transactions than any other hotels real estate firm in the world worth over $30 billion. With 43 offices in 20 countries and 265 hotels real estate experts, no other firm is better connected. Through our depth and breadth of research and experience, with 75 Research Reports each year, we know the market at every level, we know the players and we know how to get results. www.joneslanglasallehotels.com
Hotel Intelligence: Warsaw 3 Market Snapshot Sweden Denmark Lithuania Belarus Poland Germany Warsaw Sweden Ukraine Czech Denmark Republic Slovakia Lithuania Germany Czech Republic Poland Warsaw Slovakia Belarus Ukraine Tourism: Tourist arrivals and bed nights in Warsaw grew by compound annual average growth (CAAG) rates of 7.9% and 5.7% respectively between 2004 and 2010. Growth was driven by an increase in both domestic and foreign visitation. Visitation remains largely dominated by domestic guests with the city s major international source markets being the UK, Germany and the USA. Supply: As at February 2012, Warsaw s graded hotel supply consisted of 59 hotels with a total of more than 10,000 bedrooms. The hotel market is dominated by the 3-star and budget segments, representing about 32.9% and 27.9% of the total bed supply respectively. In recent years, hotel development has been relatively subdued, often due to funding difficulties. However, on the back of the UEFA European championship 2012 and an improvement in hotel performance, activity has started to increase. The Warsaw hotel market will see the opening of six new hotels over the next 2 years. If all proposed developments are realised, hotel supply will increase by 4.5% and 6.6% in 2012 and 2013. Trading: Hotel performance was affected significantly by the economic downturn in 2009 and room yield fell by 30.1% during this year. As economic conditions improved in 2010, hotel performance made a strong comeback with room yield growing by 15.9% at year-end. Room yield continued increasing in 2011, rising by 8.3% compared to 2010. This was driven by a 2.8% growth in occupancy and a 5.4% rise in average room rates. In January 2012, hotel performance had declined by 3.3% when compared to January 2011.
4 Hotel Intelligence: Warsaw Tourism arrivals continue improving Warsaw: Tourism Trends 2004 2005 2006 2007 2008 2009 2010 CAAG (%) 2004 2010 Visitor Arrivals (000s) in hotels Domestic 672 809 942 1,056 1,159 1,228 1,362 12 International 698 728 720 734 754 737 802 2 Total 1,370 1,537 1,662 1,790 1,913 1,965 2,164 8 Growth p.a. (%) 0.0 12.2 8.1 7.7 6.9 2.7 10.1 Bed Nights (000s) in hotels Domestic 1,288 1,468 1,688 1,852 1,944 1,817 2,066 8 International 1,275 1,436 1,380 1,437 1,412 1,364 1,501 3 Total 2,563 2,904 3,068 3,289 3,356 3,181 3,567 6 Growth p.a. (%) 0.0 13.3 5.6 7.2 2.0 5.2 12.1 Source: Warsaw Statistical Office Warsaw: Tourism Demand 2,500 4,000 Arrivals (000's) 2,000 1,500 1,000 3,500 3,000 2,500 2,000 1,500 Bed Nights (000's) 500 2004 2005 2006 2007 2008 2009 2010 Visitor Arrivals in hotels Bed Nights in hotels 1,000 Source: Warsaw Statistical Office Warsaw is the capital of Poland and has a population of some 1.7 million inhabitants. Since the end of communist rule in 1989, Warsaw has developed into one of Europe s fastest-growing cities, particularly as the domestic economy has benefited from democracy and the emerging free market. Tourism in Warsaw has experienced substantial growth in recent years, particularly following the country s accession to the European Union in 2004. Between 2004 and 2010, tourist arrivals and bed nights grew by CAAG rates of 7.9% and 5.7% respectively (2011 statistics not available at the time of writing). Although international visitation showed a healthy increase, the expansion of visitation in the city was largely driven by strengthening domestic demand, as economic conditions in Poland improved and disposable incomes increased. Visitation remains largely dominated by domestic guests, who accounted for roughly 63% of total arrivals in 2010. The percentage is believed to be even bigger when taking all types of accommodation into account. Warsaw s main international source markets tend to be western European countries as well as the USA and Russia. In 2010, the largest source markets were the UK, Germany and the USA, accounting for 14%, 10% and 8% of total overnight stays, respectively.
Hotel Intelligence: Warsaw 5 Tourism arrivals continue improving - Continued Warsaw: Top Feeder Markets 2009 versus 2010 Russia Sweden Italy Spain France US Germany UK 0 50 100 150 200 250 Visitor Origin 2010 Visitor Origin 2009 Guests (000's) Source: Warsaw Statistical Office
6 Hotel Intelligence: Warsaw Growth in passenger arrivals in 2011 Warsaw: Passenger Arrivals 10,000 Passengers (000's) 8,000 6,000 4,000 2,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: PPL Okecie Frederic Chopin Airport Warsaw Warsaw Frederic Chopin Airport is less than 10 kilometres from the city centre, and can easily be reached in 15 minutes by car and public transport. It is the largest and most modern airport facility in Poland, handling around 50% of the country s air passenger traffic. Since March 2008, a second terminal has opened for operation, 2 years after the original planned opening date. This new terminal has helped to facilitate greater passenger flow and increased the airport s capacity to 10 million passengers. As in other central European airports, passenger movements in Warsaw are dominated by international arrivals, which represent nearly 90% of total demand. The airport operates approximately 300 scheduled flights daily. The most popular destinations in 2011 included London (+14.3%), Paris (+10.3%), Frankfurt (+15.1%), Amsterdam (+15.7%) and Brussels (+10.4%). Warsaw Frederic Chopin Airport posted an impressive growth in traffic volume over the last 10 years, with passenger arrivals increasing by a CAAG of 7.1%. In 2011, the airport handled a total of 9.3 million passengers, which represented a 7.2% increase over 2010 levels. This was due to a rise in both domestic and international traffic. One of the major developments at Warsaw Frederic Chopin Airport is called Chopin Airport City. The project, which is already under way, involves the transformation of 22.5 hectares of land into a business and commercial park with recreation and entertainment facilities. This will also include the construction of a 5-star Renaissance Hotel and a 3-star Hampton by Hilton, which are both expected to open their doors for operation in 2013. In June 2012, Warsaw will see the opening of the Modlin airport (Warsaw s second airport). The low cost carrier airport will serve international short-haul and medium range routes, as well as domestic routes between regional airports. Many of the budget airlines such as Ryanair and Wizz Air will move their operations from Chopin airport to Modlin airport.
Hotel Intelligence: Warsaw 7 The MICE market remains an important demand generator Warsaw: International Conference & Exhibition Demand 60 50 Number of Events 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: ICCA The city of Warsaw features more than 120 venues for conferences and congresses. The largest venues are currently the Expo XXI Warsaw International Expocentre and the Warsaw Trade Fair and Congress Centre MT Polska. The Expo XXI opened in 2001 and provides a total exhibition space of some 17,000 sq. m. It is located about 4 kilometres west of the city centre and holds around 150 conferences, 60 meetings and 50 fairs annually. In November 2008, the Warsaw Trade Fair and Congress Centre MT Polska opened its doors. It is the capital s most modern event facility, located approximately 8 kilometres from the city centre, and features 15,000 sq. m. of exhibition and conference space. There are plans for an additional 6,800 sq. m. exhibition hall and the construction of a hotel with conference rooms. Another significant event venue is the Palace of Culture and Science, an emblematic landmark building in the city centre, providing a total exhibition space of more than 10,000 sq. m and a total capacity for 4,500 visitors. It features a main congress hall which holds up to 2,800 delegates. Other major congress and conference venues include the Torwar Sport Centre with a capacity for 5,000 people (2,000 sq. m.), where mainly concerts and sporting events are held, and a smaller exhibition centre in Wólka Kosowska, with a total area of some 5,000 sq. m. There are at present no official statistics regarding occupancy and visitor volumes at the exhibition venues. However, in the yearly global ranking of the International Congress and Convention Association (ICCA), Warsaw occupied 66th place with 28 events held in the city in 2010. This represented a significant decline since the peak in 2008, when the capital hosted 51 events and was ranked 39th. However, this does not represent the totality of the market, as ICCA only takes account of those meetings held on a regular basis, attracting a minimum of 50 participants and rotating amongst a minimum of three countries. Despite the growth in conference facilities Warsaw lacks a significant conference and exhibition venue when compared to other European capital cities. This can be seen in the table below. Major Conference & Exhibition Venues Capital Venue Exhibition space (sq. m) Berlin International Congress Centrum 160,000 Budapest Hungexpo Budapest Fair Centre 70,000 Vienna Messe Wien Exhibition & Congress Center 55,000 Prague Prague Letnany Exhibition Centre (PVA) 34,000 Warsaw Expo XXI 17,000
8 Hotel Intelligence: Warsaw The MICE market remains an important demand generator - Continued Overall, the meetings, incentives, conferences and events (MICE) market has become an important demand generator for Warsaw s tourism industry. This is mainly due to the large proportion of business travellers (who represent approximately 40% of the city s business mix), and the recent surge in quality hotels with extensive exhibition and conference space, such as the Hilton Warsaw and Convention Centre which opened in 2007. The sector continues to show great potential for future growth when compared to other major European cities. UEFA Euro 2012 football tournament set to boost visitation to Warsaw The short- to medium-term outlook for Warsaw s tourism industry is positive. Domestic and international demand grew significantly over recent years and this is expected to continue in 2012, on the back of the UEFA European championship, which is being jointly hosted by Poland and the Ukraine. During the tournament, from 8 June to 1 July, the city will see an influx of both domestic and foreign visitors. Warsaw s new National Stadium will host the opening match on the 8 June between Poland and Greece, and another four matches including the semi-finals on 28 June 2012. In the long term Warsaw s tourism is anticipated to reap the benefits of a higher global awareness as a tourist destination. The city will likely see a strong growth in foreign arrivals, especially from overseas countries in Asia, South America and the Middle East.
Hotel Intelligence: Warsaw 9 Infrastructure developments Tourism demand in Warsaw is supported by several new developments either under construction or proposed, as listed below. Warsaw: Infrastructure developments (as at January 2012) Recently Opened Trade Fair and Congress Centre MT The venue was constructed on the right bank of the river Vistula dividing Warsaw, at 56 Marsa Polska (2011) Street. The first stage was delivered in autumn 2008 (10,000 sq. m. of exhibition space). Additional phases, which will include an exhibition hall offering 6,800 sq. m. of additional space, a hotel with conference rooms and underground parking, are also planned, although no completion date has yet been confirmed. Northern Bridge (Maria Curie- Sklodowska bridge) National Stadium Warsaw (2011) Under Construction Chopin Airport Train terminal Chopin Airport (2010) Modlin Airport Museum of the History of Polish Jews (2012) The northernmost crossing of the Vistula within the Warsaw city limits is now open. Construction work finished in early 2012 and the project now awaits an official operating permit, which is expected in March 2012. The bridge is essential to the dynamically developing Białołęka residential neighbourhood in north-eastern Warsaw. The National Stadium (Stadion Narodowy) was completed in February 2012. It has a capacity of 58,000 seats and will be the main Polish stadium during the UEFA Euro 2012 football tournament which will take place in June 2012. The remaining projects within the National Sport Centre complex, which were designed in the surroundings of the venue, such as the indoor sports arena and the Olympic swimming pool, were postponed and their completion now remains uncertain. After the completion of the new T1 Terminal, the airport authorities are now refurbishing the old part. The scope of works includes incorporation of the old building into the new one, along with completion of the outer pier which, once delivered, will be as long as 700 m. The new terminal for trains departing towards downtown Warsaw is still under construction. The initial delivery date was December 2011, but it has been postponed several times and a new official date has been set for May 2012. This investment is one of the priorities for the UEFA Euro 2012 tournament. In 2010 the construction work commenced on the former military airport in Modlin, approximately 40 km north of downtown Warsaw. The new airport will take over most of the low-cost and nocturnal air traffic from Chopin Airport. The terminal has reached its shell and core status and in June 2012 should become ready to serve general aviation flights. The airport is scheduled to become fully operational in August 2012. A rail connection between Warsaw and the airport is also planned, but no detailed scheduling has yet been disclosed by the investor. In 2006, the city of Warsaw approved a project for the Museum of the History of Polish Jews. The official opening is expected in 2012. The museum is currently being constructed on a site of 13,000 sq. m, within the area of the former Warsaw Ghetto.
10 Hotel Intelligence: Warsaw Infrastructure developments - Continued Under Construction A2 Motorway Ring Road (S8 and S2) Metro Line II (2014) Proposed/Approved Chopin Airport City Future prospects The A2 Motorway is currently being constructed on the section between Warsaw and Łódź. West of the latter, the road runs through Poznań and reaches the German border, approximately 70 km from Berlin. The 100 km section between Poznań and the border was completed in December 2011 and the remaining 90 km section to Warsaw should be due in May 2012. Major delays on the construction site are attributable to the withdrawal of the China Overseas Engineering Group (COVEC), which won tenders to build two out of five parts of this section, but failed to complete them. The road might not be ready for the Euro 2012 tournament, but its completion is still expected in 2012. Once the A2 motorway is completed, the route will then split into Warsaw s northern and southern Rings. The northern stretch the S8 is now partly completed and ready to take traffic. Additional work will commence after the Euro 2012 tournament. The southern stretch the S2 is currently being constructed with delivery initially scheduled for June 2012. However, this date is no longer valid, due to major delays caused by the weather and administrative difficulties. Realistically, completion can be expected no sooner than early 2013. The contract encompasses the construction of a short 6 km section of the S79 expressway, which will connect the S2 with Chopin Airport. Metro Line II is the long-awaited investment in the expansion of high-capacity public transport in Warsaw, which is expected to ease traffic congestion in the city, lower the overall carbon footprint of the urban transport sector, and create crucial linkages with the first metro line by allowing users to transfer efficiently from the east side of the Vistula river to the west side of the city. The initial section of Line 2 between Rondo Daszyńskiego and Dworzec Wileński (6.5 km) is now under construction and completion is expected in 2014. This project includes the development of a commercial zone around the terminal at Warsaw Frederic Chopin Airport. Chopin Airport City will include a conference and exhibition centre, commercial and office space along with sports and recreation facilities. Chopin Airport will develop an area of about 10 hectares and provide over 150,000 sq. m. of usable building area. The budget for the investment project totals PLN 10 billion. Several new large projects are planned for the agglomeration of Warsaw, but with no detailed scheduling. These include the completion of the Warsaw Ring Road (S2, S8, S17), further extensions to the second Metro line, and a potential third line, construction of the Museum of Contemporary Arts, and the revitalisation of public spaces (including major squares) among others. Source: Jones Lang LaSalle Hotels
Hotel Intelligence: Warsaw 11 Narrow hotel pipeline Warsaw: Graded Hotel Supply (as at February 2012) Grade Establishments Rooms % of Total 5-star 9 2,694 26.0 4-star 6 1,377 13.3 3-star 18 3,414 32.9 Other 26 2,894 27.9 Total 59 10,379 100 Source: Jones Lang LaSalle Hotels As at January 2012, Warsaw s graded hotel supply consisted of 59 graded hotels with roughly 10,300 bedrooms. The hotel market is dominated by the 3-star and budget segments, representing about 32.9% and 27.9% of total hotel supply respectively. About 13.3% of all establishments are positioned in the 4-star segment, which is a low proportion compared to other capital cities, especially those with strong appeal for business demand. On the other hand, the city does offer a healthy supply of 5-star hotel rooms. In addition, there are over 100 uncategorised hotels in the city. The city experienced a significant growth in hotel supply between 2000 and 2005, when the number of hotel rooms increased by an annual average growth rate of 9.3%. A total of 24 establishments entered the market during this 5-year period, representing a total of 3,634 guest rooms. A few new hotels opened in subsequent years; however, growth in hotel supply has remained relatively subdued. Notable openings since 2005 have been the 314-bedroom Hilton Hotel and Conference Centre Warsaw in 2007 and the 299-bedroom Mercure Grand (rebranding and full refurbishment) in 2008. Hotel Developments In recent years development activity had been subdued, often due to funding difficulties. However, activity has started to increase and hotel openings have been announced for 2012 and 2013. In 2012, Warsaw will see the opening of an Ibis Budget (previously Etap) and an Ibis hotel prior to the UEFA European championship 2012. In November 2012 a Holiday Inn Express is planned to open at Chopin Airport. In 2013, a Hampton by Hilton and a Renaissance are expected to open at the Warsaw Chopin Airport. Furthermore, the city will see the opening of the Double Tree to be built in Warsaw s Wawer district. This hotel will offer 365 bedrooms and a 5,000 sq. m. conference centre. If all planned developments are realised, hotel supply will increase by 4.5% and 6.6% in 2012 and 2013, respectively.
12 Hotel Intelligence: Warsaw Hotel Developments - Continued Warsaw: Hotel developments (as at January 2012) Hotel Location Rooms Grade Due Date Operator/ Owner Recently Opened Mercure Grand (rebranding) 28 Krucza Street 299 4 May-08 Accor DeSilva Airport Warsaw Al. Krakowska / Lechicka 117 3 2009 DeSilva Total Rooms Recently Opened 416 New Developments 2012 Ibis city centre 170 2 May-12 Orbis Hotel Group (Accor) Ibis Budget city centre 163 2 May-12 Orbis Hotel Group (Accor) Holiday Inn Express Warsaw Chopin Airport 124 3 Nov-12 IHG Total Rooms Proposed/ under construction 2012 457 New Developments 2013 Doubletree by Hilton Conference Warsaw 365 5 2013 Polaris Hospitality Enterprises Centre and Spa Hampton by Hilton Warsaw Chopin Airport 116 3 2013 Hilton Renaissance Chopin Airport Warsaw Chopin Airport 225 5 2013 Marriott Total Rooms Proposed/ under construction 2012 706 Source: Jones Lang LaSalle Hotels Warsaw: Graded Hotel Supply 12,000 Total Rooms 9,000 6,000 3,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F Developments Existing Source: Jones Lang LaSalle Hotels
Hotel Intelligence: Warsaw 13 One of Europe s best-performing markets in 2011 Warsaw: Hotel Trading Performance 2004 2005 2006 2007 2008 2009 2010 2011 Occupancy (%) 48.0 56.1 63.6 66.8 66.0 60.2 66.2 68.1 ARR ( ) 80.37 73.39 74.11 81.74 89.64 68.71 72.48 76.37 Yield ( ) 38.59 41.17 47.13 54.59 59.17 41.38 47.97 51.97 Yield growth (%) 6.7 14.5 15.8 8.4 30.1 15.9 8.3 Inflation (%) 3.6 2.1 1.1 2.4 4.4 3.8 2.7 4.2 ARR 2011 values ( ) 98.52 88.11 88.00 94.79 99.57 73.53 75.52 76.37 Yield 2011 values ( ) 47.31 49.43 55.96 63.30 65.72 44.28 49.98 51.97 Source: STR Global Warsaw: Quality Hotel Trading 120 100% 100 80% (2011 values) 80 60 40 60% 40% Occupancy 20 20% 0 2004 2005 2006 2007 2008 2009 2010 2011 0% ARR 2011 values ( ) Yield 2011 values ( ) Occupancy Source: STR Global Between 2004 and 2008, hotels in Warsaw reported considerable growth in room yield. This was primarily driven by a strong rise in occupancy levels. Worsening economic conditions in 2009 resulted in a 8.8% decline in occupancy and a 23.3% fall in average room rates, causing room yield to drop by 30.1% at year-end. Due to improving economic conditions, hotel performance rebounded in 2010 and room yield increased by 15.9% compared to 2009 as a result of a 9.9% increase in occupancy and a 5.5% growth in average room rates. Impressive growth in hotel performance was also reported in 2011, hotels posting a 8.3% growth in room yield to 51.97. This was on the back of a 2.8% improvement in occupancy and a 5.4% rise in average room rates. Demand was generated by major events including various EU summits and conferences as Poland hosted the EU presidency in the second half of 2011.
14 Hotel Intelligence: Warsaw One of Europe s best-performing markets in 2011 - Continued In January 2012, room yield fell by 3.3% due to a 1.5% decrease in occupancy and a 1.8% fall in average room rates compared to January 2011. Warsaw Year-to-Date Trading January 2011 2012 Average occupancy (%) 52.5 51.7 ARR ( ) 74.84 73.46 Yield ( ) 39.28 38.00 Source: STR Global The table below demonstrates the evolution of trading in Warsaw in real terms and indicates despite an overall positive long term trend that the market still has some way to go to get back to 2008 levels of performance. This comparative underperformance was mainly due to a fall in average room rates, whereas occupancy strengthened by 320 basis points in the last 3 years compared to the last 7 years. Warsaw Trading Growth Rates 2004 11 2008 11 Average occupancy (%) 61.9 65.1 ARR CAAG (%, 2011 values) 3.6 8.5 Yield CAAG (%, 2011 values) 1.4 7.5 Source: STR Global Warsaw: Room Yield Seasonality 100 80 60 40 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 2010 2009 Source: STR Global The graph above clearly demonstrates the corporate nature of the Warsaw hotel market. Peaks in room yield tend to be achieved in spring and autumn months, when most conference and events are held. Lowest results, on the other hand, are experienced in the summer months of July and August when hotels depend on leisure demand to maintain occupancy levels. Although Warsaw does attract a healthy number of domestic leisure travellers, many of these opt to stay in non-hotel accommodation. Hotels in Warsaw reported room yield growth throughout almost the whole of 2011. Growth in hotel performance was especially strong in May and June 2011, with room yield growing by 18.4% and 18.2% compared to 2010. Demand was driven by major events such as the ISSA/INTERCLEAN Central & Eastern Europe in May, one of the major international exhibitions for the cleaning products industry, and various cultural events such as the celebration of the 20th anniversary of the Warsaw Summer Jazz Days in June 2011.
Hotel Intelligence: Warsaw 15 Room yield growth expected on the back of the UEFA European Championship Hotels in Poland, and specifically in Warsaw, have seen an impressive rebound in hotel performance since the dip in 2009. Growth in hotel performance in 2010 and 2011 was driven by a substantial increase in both occupancy and average room rates. The UEFA European Championship should boost visitation to Poland, and Warsaw will experience a significant increase in both domestic and foreign arrivals. During the summer months, hotels are expected to operate at full capacity, allowing hoteliers to charge high prices. This will be supported by a relatively low hotel saturation level in comparison to other major European cities and a narrow hotel pipeline in 2012. Another major demand generator will be a sound Polish economy that is forecast to grow by 2.3% in 2012. Although growing slower than in 2011, the Polish economy will remain one of the best performing in Europe. Demand for business travel is therefore expected to remain robust and the market can expect a further expansion of its MICE sector. Overall, the UEFA European Championship will be a major stimulus for the Warsaw tourism industry in 2012 and subsequent years. On the back of global media coverage, Warsaw will have the opportunity to market itself as a popular tourism destination. The city can therefore expect to receive an increasing number of foreign arrivals over the coming years, especially from overseas markets such as Asia, South America and the Middle East. Furthermore, the city will benefit from the infrastructure investments that the government has made in preparation for the football tournament. Jones Lang LaSalle Hotels therefore sees Warsaw as one Europe s most dynamic hotel markets with great potential for further growth. Major international brands are expected to enter the Warsaw hotel market and to attract further investor interest.
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