The hotel market could begin recovery this autumn if it restarts operations during the holiday season, says Colliers

The hotel industry continues to remain attractive for developers and investors, despite uncertainties in the following period. Strongly affected by the coronavirus generated crisis, many hotel operators are counting on reopening during the holiday season to unblock operations and start recovery. The market could return to an occupancy rate of 50-60% for hotels operated by recognized brands towards the end of the year, in a scenario in which the epidemiological context remains stable or even starts improving, according to Colliers International consultants.

In March, the first official month of pandemic, Romanian hotels recorded a 68% decline in the number of tourists, according to The National Institute of Statistics (INS) data. In Bucharest, the occupancy rate was only 15% in March and April, and most hotels closed their doors to economically cope with the significant decrease in turnover. The decline is higher compared to other parts of the world, considering that in Europe the number of tourists decreased by only 19% and worldwide the decrease was 57%, according to The World Tourism Organization.

“The good news is that, in Romania, over 50% of the hospitality industry is ensured by domestic tourism, which has all the prerequisites to relaunch faster than international tourism. Regarding tourism in Bucharest, an important share of the demand, of over 60%, is driven by business tourism. Although it is possible for corporate tourists to change behavior, choosing, in some cases, online meetings at the expense of travel, we still expect this market segment to be the first to unlock the demand from foreign tourists, even in the very near future”, explains Raluca Buciuc, Partner & Head of Valuation Services and Hospitality Advisory Services at Colliers International.

Therefore, the average occupancy rate in Bucharest could reach 40-45% at the end of this year and the disposable income of hotels in the Capital could register the same level as before the pandemic, of about 87 euros, in a year or even a year and a half from the time the pandemic was declared.

Tourists will migrate from small local hotels to hotels operated by renowned brands

Almost 50% of the total number of rooms in the Capital are operated by international brands or by well-represented local brands and enjoy a much higher degree of trust than locally operated hotels with lower recognition. Therefore, it is possible that, as a first trend, there will be a move from local accommodation to hotels operated by well-known brands, even if the price paid will be higher.

“The accepted cost difference will be the price that the tourist will pay in exchange for a higher degree of safety offered by operators that have the financial possibility to implement safety and hygiene requirements imposed by the authorities and that want to maintain the image they have in the market regarding some high quality standards”, adds Raluca Buciuc.

Romania does not have a very high economic risk due to the slowdown in the tourism sector, as tourism represents only 3% of the Gross Domestic Product (GDP), compared to Spain (12%), for example, or Hungary, where this percentage reaches 7%. Thus, Colliers International consultants expect tourism to be supported to a greater extent by other economic sectors, which will recover faster, such as the services sector or transport and logistics.

Developing hotel sites continued their activity

In fact, funds allocated worldwide for the recovery of the economy will have direct consequences for the return of the hospitality industry. At local level, a package of specific measures for this industry has not yet been announced, which makes it difficult to implement a business plan for the reopening of hotels, but measures such as exemption from local taxes or the payment of income tax for a certain period aid for the payment of employees’ salaries or the implementation of security measures could help operators get through this difficult period,  Colliers International consultants underline.

“Hotel construction sites continued their activity during the quarantine caused by Covid-19. Owners of hotels, however, found themselves in an activity freeze with no clear outcome yet, even if they continued to remain operational or had to close their doors and take drastic measures like reducing or sending home their staff. On the positive side, they were able to benefit from measures taken by authorities to support businesses and from availability and flexibility from creditors that granted repayment deferrals and reformulated the business model in the new context”, says Anca Merdescu, Associate Director of Investment Services at Colliers International.

“Looking forward, there is still a lot of uncertainty driven by the evolution of the Covid-19 pandemics and the implications of travelling. However, if we were to take it from now, based on the fact that hotels business in Romania were in a growth phase before the current context and their leverage was not too high, the most likely effect we see in the near future will be reduced profits, in some cases significant ones, but at least in terms of hotels affiliated with international brands we do not expect more drastic situations like closing down or fire sales”, concludes Anca Merdescu.