Business travel as the driving force in the hotel industry

According to a report by real estate advisory firm Cresa Poland, entitled “Hotel market in the context of modern office space market growth in Poland”, office stock across Poland exceeded 11 million square metres in the first half of 2020, while the number of hotel rooms (taking into account only facilities offering at least 50 rooms) went up to 49 thousand. A correlation has been noted between the development of these two industries, in addition to their rapid expansion since the accession of Poland to the European Union in 2004. The report has been produced in collaboration with The Students’ Scientific Association Inwestor (SKN Inwestor) of the Faculty of Economics and Sociology at the University of Lodz.

“Following the accession of Poland to the European Union, the office space market grew much faster than the hotel industry and infrastructure bottlenecks experienced by business travellers were addressed by means of short-term rental of private flats and smaller, non-chain hotels. To seize the opportunity, hotel developers intensified their efforts, increasing the supply of new rooms and the number of development projects in the pipeline. International hotel chains entered the Polish market, reaching high occupancy rates and profitability. The outbreak of COVID-19 has come as a surprise to all market participants, from developers, through hotel chains to banks. A decline in hotel occupancy rates driven by social and economic restrictions combined with temporary border closures has had an adverse impact on the business environment. On the positive side, the foundations of demand in the industry continue to be relatively strong, which is a sign that business clients will return as soon as the general conditions improve. The question is, will it not be too late for some hotels?,” says Bolesław Kołodziejczyk, PhD, Head of Research & Advisory, Cresa Poland.

The office market growth rate in each of the major Polish cities has been much faster than in the case of the hotel base, but in Cracow, Wroclaw, Tricity, Poznan and Katowice the differences have clearly been more pronounced than in the capital of Poland. Lodz is the only city which has reported a similar growth rate in both these markets – the number of hotel rooms has seen a fivefold increase since 2007, which is the same rate as in the case of office space. In mid-2020, there were approximately 3,200 hotel rooms and 550,000 square metres of existing office space in Lodz.

In Cracow, the existing office space has increased from about 300,000 square metres to nearly 1,500,000 square metres between 2007 and 2020. At the same time, the number of hotel rooms has gone up from 4,500 to more than 9,400. Although the growth rate in both the industries is impressive, Cracow is in need of additional hotel infrastructure, which will surely be a profitable investment going forward.

In Wroclaw, the office stock is eight times what it was in 2007 (it went up to 1.2 million square metres) but the number of hotel rooms has increased only twofold (reaching nearly 5,300 rooms). During the very same period, the hotel base in Tricity trebled to 6,700 rooms, which was accompanied by a fourfold increase in the existing office space. In Poznan, the rise in the number of hotel rooms has been relatively slow, reaching 3,500 rooms in 2020 versus a fourfold increase in the existing office space, which has approached 600,000 square metres over the past 13 years. In the analysed period, the number of hotel rooms in Katowice has seen a twofold increase (up to more than 1,800), which has been accompanied by a fourfold rise in the existing office space (up to nearly 560,000 square metres).

“Clear predominance of three- and four-star hotels in the major regional cities across Poland is largely a response to the development of the office market and a business boom in general following the accession of Poland to the European Union. Had it not been for the pandemic of COVID-19, we would now be witnessing accelerated growth in the hotel industry as well as high rates of return on investment in hotels. However, given the current circumstances, demand generated by the business sector as well as social and economic restrictions imposed by governments will be the major factors determining the future of the hotel market in Poland,” says Iga Kraśniewska, Analyst, Research & Advisory, Cresa Poland.