Hungary: Overview of the Hungarian hotel market in 2020
There is no doubt that 2020 will remain a remarkable and unforgettable year, especially from the point of view of the hotel sector. As COVID-19 and its aftermath spread across the world in March 2020, the hospitality industry was among the first to be directly affected, and Hungary was no exception.
Due to the rapid and shocking impact of the pandemic on the hospitality industry, the first half of 2020 has truly been two-sided. While guest arrivals from January to February 2020 showed double-digit expansion, all key metrics dropped dramatically in the hospitality industry resulting in the following numbers (considering the first 6 months on average ):
- the average daily rate was 78.00 EUR, 10.2% lower than in 2019;
- revenues fell 69.9% year-on-year;
- the occupancy rate has fallen by 60%; and
- overnight stays have fallen by 60%.
Budapest hotels have suffered particularly, especially those heavily dependent on foreign travelers. After experiencing their worst 6-month period on record, hotel strategies have varied on whether or not to reopen after April and for the rest of the year in 2020.
Tourist accommodation was quite empty in March and April 2020 with negligible growth in May. The month of June showed some improvement in domestic tourism, but it soon became clear that there was virtually no chance of reaching the growth levels of previous years without international guests. Nonetheless, a positive development has been that domestic demand has essentially saved the tourism industry in the countryside, especially at Lake Balaton. Another promising indicator was that the number of rooms in the pipeline increased in 2020, which was 3,340 rooms in 27 assets across the country, according to CBRE Hungary.
When it comes to investments in the Hungarian hotel industry, the devastating global tourism figures and general market uncertainty have deeply affected this asset class. In the first half of 2020, the total transaction volume in Hungary reached 66 million euros (down 44% year-on-year), involving three asset transactions. That said, discussions on future hotel investments intensified after the summer break and according to CBRE Hungary, the total of projects under offer or already under due diligence reached an overall volume of 165 million. euros at the end of 2020.
In terms of regional comparisons (which include Prague, Warsaw, Bucharest and Bratislava), Budapest performed quite well despite difficult circumstances in 2020. In terms of occupancy rates, only Warsaw posted higher rates (33% versus 30%). %), but on average daily rates and revenue per available room, Budapest had the best performance (78 and 22 euros) among these cities.
Market structure in Hungary
The classic comparative model that characterizes the Hungarian hotel market is the Budapest – countryside parallel. There are approximately 26,000 hotel rooms in Budapest and 30,000 hotel rooms in the rest of the country, which leads us to recognize that Budapest is still the main attraction in Hungary. If we look at the development pipeline in 2020, it shows that Budapest has 75% of the total market, which means that not only tourists but also hoteliers choose Budapest as their main destination.
While the hospitality and leisure industry in Budapest is diverse and balanced, there is little regional diversity. Outside of Budapest, we must first mention the Lake Balaton region, which is the biggest tourist attraction in the countryside. Nevertheless, we can see notable evolutions, or at least projects in some big cities like Debrecen (2nd city of the countryside). Major industrial developments could also be the catalysts for such hotel investments in the countryside; for example, in Kecskemét and Debrecen, huge, entirely new automotive developments have been made or are being built by Mercedes and BMW.
In addition, the spa sector is strong and internationally renowned in parts of Hungary, where the increase in construction activity started in early 2020 before containment began.
Another characteristic of the Hungarian market is the ratio of domestic and foreign visitors. In recent years, the number of hotel guests in Hungary has steadily increased, almost half of whom came from abroad. In 2019, commercial accommodation welcomed 12.9 million customers, for 31.5 million overnight stays and almost half of them were foreign customers (6.2 million foreign customers and 15.8 million overnight stays foreign). It seems well balanced, but if we take a closer look, it turns out that Budapest is much more dependent on foreign guests – 88% of the nights in Budapest were booked by foreign guests in 2019. In light of these numbers, it is evident how severe the impact of COVID-19 was in Hungary’s capital when the international travel ban was introduced.
It goes without saying that the pandemic has been a game-changer in the well-established structure of the Hungarian hotel market, as the number of local clients in the first half of the year was almost double that of foreign clients, and more clients have been spending nights at the hotel. Lake Balaton and in northern Hungary than in Budapest.
Apart from these exceptional circumstances, Budapest has a really balanced market segmentation, which means that the capital of Hungary is strong in both leisure and business sectors (the ratio is around 50-50%) . Budapest can offer different types of hospitality options, from grand to absolute luxury and there is a wide range of entertainment opportunities as well as a wide variety of programs for business meetings. Unfortunately, this is not true in the countryside, where options are quite limited, especially where upscale and luxury hotels are lacking. Hopefully that will change soon: one of the latest developments is a premium project of a 104-room 5-star hotel at Lake Balaton.
Outlook for the market
The short-term impact of the pandemic has been that market participants have waited for better times. CBRE Hungary announced last year that 35% of pipeline 2020 projects, due for delivery in the fourth quarter, were slipping into the current year. In addition, 6 projects of 530 rooms were put on hold across the country without a new delivery date.
If we look at the long-term impacts of the pandemic, we might be more optimistic. Experts say Budapest is likely to be among the fastest recovering tourist destinations in Europe, reaching pre-COVID levels by 2022-2023 and growing at a double-digit rate in 2024. This is mainly due to the country’s strategic location in Europe. and the market very well balanced as detailed above.
These prospects are supported by the fact that international comparisons with destinations offering similar attractions, such as Prague or Vienna, show that the number of available hotel rooms in Budapest is far behind them. Therefore, there are important development opportunities.
The good news for hoteliers, which can help them recover, is that the Hungarian Parliament recently passed new legislation, which gives local governments the right to regulate Airbnb-type operations by potentially limiting short-term rentals to a period of four months per year. It had been on the table for a long time, but the pandemic has accelerated this process.
The pandemic has completely upended everyone’s plans in 2020, but there are some indicators that tell us there is a chance that some very exciting and positive times are ahead.
All data used for this article is based on “The View” – 10th edition 2020 of the real estate magazine of CBRE Hungary, chapter on the Hungarian hotel market (p.56 – p.63) and publicly available data disclosed by the Hungarian Central Statistical Office.