Romania's hospitality market: Already glowing, still growing

Romania's hospitality industry is putting the pedal to the metal in terms of volumes this year, especially in the leisure segment, but the rates are still lagging behind other countries in the region

2015-12-06 18:59:03 - From the Print Edition

However, overall, premium players are enjoying a nice ride in 2015′s Bucharest and expect to see 2016′s view at least as good as this one. Alexandra Cioboata (Lopotaru) talks to pundits and to luxury hotel managers to find out how the market is seen in their rare window.

Romania is currently trying to make its way in the world and become a better touristic attraction, but without help the plan is unlikely to succeed. An important sector that has proven over the years its ability to contribute to the forming of a country's image is the hospitality industry, "a silent catalyst" on which most of the enjoyable stay of tourists depends. Although the country still has to work on several issues, including national infrastructure (for better transport connectivity), a country brand (to advertise Romania more as a destination), or the development of a proper location for large conventions, the hospitality market is largely running by itself and is heading in the right direction.

By the end of last year, 2015 had witnessed an active hotel market, with Bucharest registering higher volumes in terms of supply and demand compared with the average in the previous years. The leisure business has grown the most, mainly due to the increased number of flights into and from Bucharest International Airport and to more Danube cruises. Romania's economic stabilization in the region has also led to a positive impact, as investors finally got a sense of stability and optimism from the overall market.

Attracted by the growing potential of all hospitality segments, international chains gave a vote of confidence to Romania and started expansion policies in Bucharest. Although no new Greenfield stock was added this year - the latest built from scratch hotel in Bucharest being Mercure Bucharest City Centre last November - the market was differentiated by important upgrades operated by hotel chains. Park Inn, Sheraton and Best Western upgraded a total of 580 rooms in three affiliated older hotels, according to a report by real estate services company Colliers International.

According to the same source, the Bucharest hotel market includes a total of 147 hotels with more than 12,400 rooms, out of which the premium segment (four and five stars) accounts for almost half - 6,000 rooms. In terms of affiliations, almost a third of the total number of rooms in Bucharest are already part of international chains, most of them (3,900) having four and five stars standards. In 2014, occupancy increased for all hotel categories, registering an average occupancy rate of 63 per cent for the entire year, according to Colliers, reaching a record level after the recession period. For 2015, the average occupancy rate stands at 65 per cent, although for the four and five stars segments, the rate rises even higher for the past 12 months, when occupancy rates registered a 4.3 per cent increase for the entire industry, which takes the level to 72 per cent.

At the end of 2014, the average daily rate (ADR) saw a one per cent y-o-y decrease, from 73.5 Euro to 72.54 Euro, while this year, the indicator remains at similar levels, reads the report by Colliers. In the past 12 months, ADR reported more accentuated increases in the four and five stars segments, an increase of ten per cent in Q3 y-o-y, reaching even 90 Euro. However, although the players are content about volumes, in terms of rates - not so much, as they are lower compared to other cities in the region.

"We are enjoying a growing market of up to ten per cent this year compared to last year, both on occupancy rates and average daily rates," Adrian Adam, sales and marketing cluster director at Radisson Blu hotel in Bucharest, tells The Diplomat - Bucharest. "Every time demand rises, rates follow the trend. However, in Romania they are still below the tariffs in the region. Comparing with the ADR in Prague, for instance, we have rates of ten to 15 per cent lower."

Georgeta Grecu, the general manager of the local four-star Hotel Cismigiu echoes the same perspective as Adam. "The 2015 market was beautiful, in the sense that the economic growth was mirrored in the hotel player's activity," Grecu tells The Diplomat - Bucharest. "We have seen significant increases in both occupancy rate and tariffs. Next year, I hope to see further increases especially in terms of ADR, where there is plenty of room, in order to start approaching at least the tariffs of Prague or Budapest."

While some investors are prospecting the market, others broaden their location options

The hospitality market did not send a positive message only to current investors this year, but to potential developers as well. According to Raluca Buciuc, associate director, Valuation Services and Hospitality Advisory Services, Colliers International, Romania has seen this year a rising interest from investors who were more enthusiastic about prospecting the market for new hospitality projects on lands they had bought in previous years. Moreover, another important trend she points out is that developers have broadened their options and, besides the traditional areas for hotel developments, Old City Centre and Calea Victoriei, Bucharest′s hospitality market has shaped new focal points, such as Barbu Vacarescu - Floreasca, Charles de Gaulle, Dimitrie Pompeiu, Unirii, and also emerging in the Ordiheea and Cotroceni areas.

"International hotel chains are expanding and considering the Romanian market's growth perspective and they will pay more attention to local opportunities," Buciuc tells The Diplomat - Bucharest. "A good sign is that even brands such as Kempinski and Hyatt are prospecting our hospitality market. Moreover, we see increasing competition for new locations in Bucharest supported by more rational and cautious behaviour from investors regarding Romania. Next year, in the Floreasca - Barbu Vacarescu area, hotel developments will break ground and we'll probably see at least one new project under an international brand."

Buciuc went on to add that the increased demand in the hospitality market was driven by growth reported by all three activity segments, business, leisure and MICE (Meetings, Incentives, Conferences, and Events), although the business area remains the main pillar of the Bucharest hospitality market. According to her, Bucharest is dominated by important brands, especially on the middle upper segment and this creates pressure for local operators to improve and invest constantly in quality upgrades.

"Just like in any services business, the most important trigger of competitiveness is quality and the benefits that it gives to the customer," she says. "As previously mentioned, the classic accommodation segment is well represented and will further report development. We expect the growing competitiveness to generate innovative products and diverse concepts such as convention centres or capsule hotels."

In terms of MICE, Buciuc says that the segment is benefiting from the fact that Romania is becoming a visible destination for cultural events, such as the George Enescu Festival, the Film Festival in Cluj, which boost tourist flow considerably. "The George Enescu Festival is undoubtedly a forceful generator of increase in demand," she says. "Every two years, during September, when the festival is taking place, the majority of affiliated hotels reported above 90 per cent occupancy rates, compared with the annual average of 65 per cent. This festival shapes itself as the most important cultural events hosted in the capital, if we consider the increasing number of tourists: almost 16,000 in 2011, 20,000 in 2013 and for this year, the number is estimated to be similar to 2013, according to the organizers of the festival."

If for some hotel players the Enescu Festival played a crucial role this year, for others it was just relevant without having a significant impact of the activity of the business. Adrian Adam, sales and marketing cluster director at Radisson Blu hotel in Bucharest, the largest hospitality unit in Romania with 487 rooms, confessed that the musical event did not have a high impact this year on Radisson's development as it used to in the past. The reason is simple, he says: Bucharest's occupancy rate reached high levels this year as the number of events increased especially during September. "The Enescu Festival lasted for 20 days, so I can't say that it had a significant impact on our activity this year," says Adam. "It is very important as it makes Romania famous, but it did not influence the activity of the business as the occupancy rate of Bucharest reached higher levels anyway compared to previous years."

Tourism, a national priority only on paper

Hospitality is an industry that was structured, has evolved, passed through and emerged from the crisis and now it strives to reconfigure itself at a higher level of quality. The entire development happened solely based on private initiatives, according to Paul Marasoiu, president and CEO of hotel management company Peacock Hotels, due to the risks assumed by private investors and the efforts of entrepreneurs. According to him, hospitality is one of the few national economic sectors that has developed and self-controlled without causing social problems, without pretending debt relief and without benefitting from dedicated funding, ensuring permanent work places.

Nevertheless, the authorities should turn their attention to the tourism industry, says Marasoiu, in order to establish a national strategy of the segment for the medium and long term, to generate measures to boost investments and to adjust the training processes of human resources - necessary to this domain - in order to eliminate the image crisis from the international tourism markets.
"If the political and the government environment would take seriously the fact that the domain has been a national priority for two decades and if they would understand that the role of the state institutions is to ensure the optimal development frame of all parts of the field, then we would not have an identity and image crisis anymore in the external tourism markets, nor a crisis of concept and strategy, all these issues affecting the development of the tourism," Marasoiu tells The Diplomat - Bucharest.

Romania has a number of accommodation units of around two per cent in relation to the country′s population, compared to similar countries in terms of population and tourist attraction which have an available capacity over six per cent. An important element which could help increase the local hotel units could be banking credit, but the financial institutions show little interest in this regard, says Marasoiu.

"After years in which banks had absolutely no interest in financing hotel projects, they had professed before the crisis to understand the phenomenon and already had concerns about involvement in the hospitality real estate market," he says. "Unfortunately, this appetite disappeared suddenly when the crisis came and it is still not recovered in relation to the current needs and opportunities in the market. If more banks would understand the important contribution (obviously, with benefits returning to them) they could have to the re-launch of the field that can set in motion the whole national economy, then things might perform better and faster, eliminating the underfunding situation that we identify in the market now."

Next, The Diplomat - Bucharest talks to four- and five-star hotel players to see what the main indicators were that shaped the face of the industry this year, what 2015 has brought for their business on the local market and what their main objectives are for the coming years.

Adam, Radisson: "In 2015, Romania saw more leisure travellers than in previous years"

Romania's hospitality market is on the right track in the eyes of Adrian Adam as well, sales and marketing cluster director at Radisson Blu hotel in Bucharest, the largest hospitality unit in Romania with 487 rooms. According to him, the market saw up to ten per cent growth this year on both occupancy and ADR mainly due to the increase of the leisure segment. Two of the most important elements that have shaped the face of the industry in 2015 are represented by the economic growth and by the increased number of flights to Bucharest, he says.

"Romania's economic growth is an important indicator, showing us that tourism rises as well, as the market attracts more foreign direct investments, ergo more foreigners and more volume for the hotel players," Adam tells The Diplomat - Bucharest. "Another aspect that has spread optimism across the market this year is the increased number of flights to Romania, a first step to develop tourism. Currently, compared to 2014, we have a larger number of planes or aircraft with a higher transport capacity, double at certain airlines for the same flight towards Bucharest. What is even better is that these growths happened very often during weekends, where Bucharest had major problems in the past. This year, the scenario has changed and more and more leisure travellers came to Romania than in previous years."

Speaking about disadvantages and about what Romania still misses, Adam points out the lack of a country brand, the poor national infrastructure and the lack of a coherent promoting plan done by authorities in order to sustain the MICE business. "We don't have a large conference centre, but we do have the Palace of the Parliament, where one could organize events of several thousand people," he says. "However, nothing happens. Romanian authorities should be more involved in promoting Romania, especially in the context in which the participation in international fairs designed to put Romania on the map of tourism is precarious."

The Radisson Blu hotel in Bucharest hosts mostly business clients, but this year the leisure segment rose to 35 per cent. With eight bars and restaurants, the unit plans to add another restaurant to its portfolio next year and to change the furniture in the public areas. In terms of business development, the hotel increased this year up to ten per cent on all segments, according to Adam. "For us, 2015 was great," he says. "We are very glad that we are managing to grow permanently. As we are listed on the stock exchange, I cannot provide the exact figures, but I assure you that we are market leaders in terms of occupancy rate and tariffs, according to our competition set."

The Radisson Blu in Bucharest is part of Carlson Rezidor Hotel Group, with more than 1,370 hotels in operation and under development, covering over 110 countries. The latest investment of the group on the local market occurred this September, opening the six-million Euro Park Inn by Radisson, counting 210 rooms and designed for long-term stays.

JW Marriott to start the renovation of rooms in January next year

JW Marriott Bucharest Grand Hotel, the second largest hospitality unit in Romania with 402 rooms and present on the local market since 2000, plans to start the refurbishment process of the rooms next year in January as the "sample room" is ready, according to the general manager of the unit, Fadlallah Zayat, appointed to the helm of the hotel this April. The value of the investment will surpass four million Euro and the project will last around one and a half years.

"We are currently at the final stage of deciding the best course of actions for the upcoming renovation," Zayat tells The Diplomat - Bucharest. "Once we complete the design of the room, we plan to go ahead with the rest. However, the plan is to start the renovation in January because it is a slow month. We will renovate floor by floor, as we don't want to cause interruption or close the hotel down."

In the first nine months of the year, the hotel saw growth in both rates and volumes, according to the GM, the latter rising by six percentage points due to the increased number of flights into and from Bucharest. Around 75 per cent of the guests of the hotel were business clients, while 25 per cent were leisure. Speaking about the local hospitality industry in general, Zayat notes that Romania is on the right track, with a lot of growth potential, but is still needs to tackle several aspects, including the rates level and a proper congress centre to support the MICE business.

"From what I have noticed, Romania is heading in the right direction," he says. "I see that volume is increasing, not only in our hotel, but in the whole market as well and this is encouraging. However, the rates are still pretty low. Another aspect I want to underline is that Bucharest needs to get the congress centre or the convention bureau active and this will help a lot. As an example, in Paris, every May there is a convention for cardiology [congress of the European Association of Percutaneous Cardiovascular Interventions] and every odd-numbered year in June there is an air show [Paris Air Show]. The city is always full during this period and everybody benefits from this: the city, the state coffers, more business and small businesses flourish like cafe and Bistros. However, this needs time and diligence, it will not happen overnight."

Zayat is at his first term as general manager, previously holding the position of financial director for Eastern Europe. Asked what other plans he has on the agenda for Bucharest's JW Marriott, Zayat confesses that he wants to put more focus on shifting the hotel into more business segments and to increase its revenues by at least ten per cent this year.

"The plan is very simple," he says. "The hotel is doing very well and it has a great capacity, so the only thing I want is to tap on its capacity. I think we have great talent, we have a great product and we have a wonderful location for certain segments. However, I think if we put more focus on shifting the hotel into more business segments and MICE business, we will be winners. And of course, the plan is to increase the turnover between ten and 15 per cent this year and next year," he concludes.

InterContinental Bucharest sees five per cent rise in leisure segment this year

The occupancy rate of the first five-star hotel InterContinental Bucharest, with 257 guest rooms, has stabilized above 75 per cent this year, which is a slight improvement versus 2014, but a very big growth versus 2013, when the occupancy rate was around 65 per cent. The unit hosts about 65 per cent business clients and 35 per cent leisure customers, recording this year a growth in the latter segment of about five per cent. This increase goes hand in hand with the overall market trend, where leisure industry started to pick up. According to Stefan Frank, the general manager of InterContinental Bucharest, Romania′s picture looks brighter this year and more and more tourists are attracted to it, influencing thus the Bucharest hotel market. Israel and UK are amongst the most growing traveller groups.

"Bucharest is certainly on the right track," Frank tells The Diplomat - Bucharest. "The city's and country's reputation is constantly improving. The main indicators I see are an increased number of flights into and from Bucharest International Airport. Especially the low cost carriers have increased their activities. Segment-wise, the leisure business has grown the most: family holidays in combination with trips to the seaside or Prahova Valley, shopping, casino or clubbing. Israel and the UK are among the most-growing traveller groups. Another indicator is the increase in River Cruise Ship tourists, mainly coming from the US. Cruise Ship operators constantly increase their capacities on the Danube River with a positive impact on the Bucharest hotel market."

Asked about the impact of the George Enescu Festival on the business, Frank confesses that although they decided not to take any orchestras this year, they had a very positive impact from the festival. August and September were much stronger compared to last year and one of the main reasons was the musical event. According to Frank, the latest visible investment of the hotel was a soft refurbishment of the first floor where the unit has its two biggest ballrooms, but it plans to modernize all the guest rooms in the coming years. "We continuously invest in the safety and security of the hotel," says the general manager. "In the coming year, we plan to stabilize the positive business growth, especially in terms of room rates and as a result to form the right base for a refurbishment of all guest rooms as well as public areas including the restaurants."

Speaking about the hospitality industry in general, Frank expects to witness a positive development of the hotel market with more international brands entering Bucharest in the coming years. Nevertheless, there are still several aspects which need to be tackled, he says, emphasising especially the improvement of infrastructure, a segment which is significant for tourism growth. "Much improved location marketing is essential for Bucharest as a city and Romania as a country," he says. "For Bucharest we urgently need a modern conference centre to accommodate big conferences and association meetings. Another concern is the street/train infra-structure in the countryside. It takes too long to travel or to transport goods from A to B. The safety part, is better not even mentioned. I have travelled Romania during the summer and I'm even more amazed by the beauty of this country; however the tourism potential can only be unlocked when road, train and airport infrastructures will be significantly improved," he concludes.

Cismigiu to register more than 20 per cent growth in terms of occupancy rate in the first nine months

Marking three years since the cutting of the ribbon, four-star hotel Cismigiu, owned by Spanish company Hercesa and managed by Georgeta Grecu, registered in the first nine months of 2015 22 per cent growth in terms of occupancy rate, reaching 72 per cent, and a 14 per cent rise in terms of average daily rate. Furthermore, the turnover of the unit will see an around 25 per cent increase by the end of the year compared to last year, surpassing one million Euro, according to the general manager of the hotel.

"The year of 2015 was great," Grecu tells The Diplomat - Bucharest. "We opened the hotel in December 2012, so we count three years of full activity. As in any other businesses, the first three years were marked by accelerated growth and we took advantage of the great location we find ourselves in [near Cismigiu park and near the historical centre], suitable for both business and leisure. The size of our 60 apartments - between 38 and 45 sqm - represents a huge advantage in our sales activity, the turnover surpassing one million Euro this year. This represents an almost 25 per cent rise compared to last year's figures and a ten per cent growth compared to our expected budget."

Cismigiu has seven conference rooms and in January next year it plans to add to its portfolio an almost 400-sqm restaurant for social occasions, an investment that will require 250,000 Euro. Almost 80 per cent of Cismigiu's clients are foreigners, 70 per cent of them for business and 30 per cent for leisure. This year, long-term stays have dropped by 25 per cent compared to 2014 mainly because online booking platforms accept certain accommodation units in their system without having any classification, says Grecu. "Because of this, those units are not subject to rules and the prices they offer are way below the prices a hotel can offer," she adds.

Speaking about the general outlook of the hospitality industry, Grecu notes that the market is on an upwards trend, as more and more tourists are visiting Romania. Asked about next year's perspectives, the general manager expects to see further growth in the industry, especially in the average daily rate. "The 2015 market was beautiful, in the sense that the economic growth was mirrored in the hotel players′ activity," she says. "We have seen significant increases in both occupancy rate and tariffs. Next year, I hope to see further increase especially in terms of ADR, where there is plenty of room, in order to start to approach at least the tariffs of Prague or Budapest."

Epoque to see more than ten per cent revenues growth in first nine months

The five-star boutique hotel Epoque, opened in 2010, announced an 11 per cent revenue increase in the first nine months of 2015, reporting a 1.7 million Euro turnover, versus 1.5 million Euro in last year′s corresponding period, mainly due to the performance registered by the accommodation structure and to the developments in the F&B sector, according to Diana Popescu, owner and CEO of the venue. The boutique hotel also saw a 16 per cent increase in room revenue, with a relatively stable occupancy YOY, and an 18 per cent increase in ADR (Average Daily Rate).

"As anticipated, 2015 has been a good year for Epoque, and achieving our goals is the result of our constant efforts to maintain the highest quality levels in all three Epoque business segments," Popescu tells The Diplomat - Bucharest. "We have already reached our forecast for the current year, that is an at least ten per cent increase of the total turnover before the end of 2015, this growth being due to the performance registered by the accommodation structure and to the developments in the F&B sector."

Epoque Hotel has 45 suites, registering from January to September an average occupancy rate of 70 per cent. This year, the business segment had 63 per cent (weekday occupancy was 75 per cent) and leisure segment 37 per cent (weekend occupancy was 63 per cent). The most notable trend Popescu has stressed is the increase of the latter segment in Bucharest during the summer especially due to cultural events. "The main factors experienced by the industry [this year] were on one hand the growth of the leisure market and on the other the fact that Bucharest has become more and more an attraction for foreign tourists," says Epoque′s owner. "Our capital is increasingly perceived as a weekend destination, especially during large events such as concerts by foreign artists (Robbie Williams, Roxette and others) or international film and music festivals."

In the five years since opening, under the Epoque Experience umbrella, the brand has developed in three directions, namely the hotel, restaurant and events gallery. The latter was launched in 2013 and is the result of an investment of 500,000 Euro, including a conference room and a Wine and Cigar Club. Asked about other investments, Popescu says "now we want to focus as much as we can on these three business segments. We are alert to any new opportunity, but we will not invest unless the project shows a reasonable yield," she concludes.

NEW IN TOWN: Sheraton Bucharest Hotel started its business fully booked

Starwood Hotels & Resorts Worldwide entered the local market through its Sheraton Bucharest Hotel, after signing last year a franchise agreement with Grand Plaza Hotel, the former Howard Johnson in Bucharest. Sheraton officially opened its gates this August right before the start of the famous George Enescu Festival and after a six-million Euro investment, counting 270 rooms, including 27 Suites and one Presidential suite. The festival had a great impact on the business commencement of the hotel, as the unit got fully booked, according to Daniel Ben-Yehuda, the general manager of Sheraton Bucharest Hotel.

"We are happy to notice the favourable progress of the local event planning industry and that Bucharest is more and more present among the main European and international events players and has developed a high potential for the tourism market," Ben-Yehuda tells The Diplomat - Bucharest. "The George Enescu Festival was an important opportunity for the hospitality industry to highlight its capacity to deliver facilities and services that are competitive to the international standards and of course, a popular event for the classical music and culture fans. So our start with the George Enescu Festival was reflected in the fully booked hotel."

Asked about the evolution of the local market, Ben-Yehuda went on to add that the Romanian hospitality market is more mature and stable every year and in general is picking up on all its segments after the crisis. The slow exit from this period compelled the players in the hospitality field to act more responsible, to look to their operation costs and to increase their satisfaction and service level. In terms of market trends, the general manager points out that the clients' needs and expectations in the hospitality area are now more defined compared to previous periods, a general phenomenon which obliged the Romanian industry to improve its services.

"Today's traveller has more specific needs, expects personalized experience, is more sensitive to the way he spends his time on vacation, and all these are explained by the reality that as people are always on the move to different destinations, they experience different level of services and comfort and have specific demands," he says. "This trend in the clients' behaviour compelled the Romanian market to adapt its facilities and services to the European and international industry and therefore, to evolve significantly in the same direction as the guest's expectations." Starwood Hotels & Resorts Worldwide was acquired in mid-November by Marriott International, creating the world′s largest hotel company. Combined, the companies operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide.