According to Christie & Co there has been an above average volume in the Austrian hotel investment market: namely, hotel properties in the value of about 440 million Euros have already changed hands in the first half of 2016. As a result of the continuing investment trend in the second half of the year, a transaction volume of nearly a billion Euros has been reached for the first time in history. This result reflects not only a tripling from 2015, but also more than a fifth of the hotel transactions in neighbouring Germany.
“The reasons for this record increase are not only the several large trophy transaction, but also some portfolio deals, such as Accor and Invesco,” explains Lukas Hochedlinger, Managing Director Germany, Austria and CEE at Christie & Co adding that, “although Vienna registered the majority of the transactions in the last few years, the sales of hotels in the Austrian provinces contributed a great deal to this significant increase in 2016.” The criteria for which type of hotel is in demand vary accordingly. Simon Kronberger, Senior Consultant at Investment & Letting Austria and CEE at Christie & Co explains that, “investors in Vienna look for high rate of returns in which case the type of hotel is irrelevant, but rather the operating management, security and duration. Private investors are more interested in a specific type of property.” Nonetheless Andreas Kreutzer, Managing Partner of Kreutzer Fischer & Partner detects a definite trend: “Four to five-star hotels from the ‘Pop-up’ segment are very popular with investors. There are also some three-star international chains such as ‘Motel One,’ which is essentially a four-star hotel that has to be classified lower because of smaller rooms. “One can see in this case how a conventional star-category rating does not apply.” This shows that there is a trend away from the traditional star-category towards a specific lifestyle or market gap in this area. According to Simon Kronberger, “because of internet platforms and customer reviews, the star-category ratings of hotels are no longer the decisive factor.” A further development could be seen in the hotel market in Austria, namely that some investors purposely acquire three-star properties in order not to have to offer certain services such as 24-hour reception desks. Andreas Kreutzer says, “I am sceptical if this will work in the long run.” Expressing his reservations, he does not think that one should consider this to be a trend on the international scale.
In view of the fact that 36% of all overnight stays in Vienna were in the four and five-star hotels, this segment is gaining significance, especially the cities of Salzburg (+7,4%) and Innsbruck (+5,7%) have shown large gains. Kreutzer points out another trend: “In the course of the last two years there has been an increase in overnight stays in the so-called alternative places such as holiday apartments especially those offered by the company of Airbnb. “This creates increasing difficulties for the middle class three-star hotels, but it also affects the one and two-star establishments,” maintains the expert consultant. Martina Maly-Gärtner, Managing Director of Michaeler & Partner agrees: “This is a trend that could be noted not only in Europe, but in all cities around the world. The travellers are mostly families or groups of friends who need larger accommodations that most hotels are unable to provide.”
Hotel expert Martin Löcker of UBM Development AG finds, “competition to be very healthy, as long as everyone plays by the same rules - hygiene standards, taxes, etc.” Maly-Gärtner agrees that clear-cut provisions are necessary for all areas. Löcker sees the trend in the growing mobility of people and the demand for more places to stay overnight in the metropolitan areas, which will naturally increase the “demand for variety.”
It is vital to best provide for the needs of the guests. Simon Kronberger maintains that there is a demand for smaller rooms with more common areas and meeting zones. The technical aspects are particularly important to the younger customers whereby WLAN and mobile work spaces are a “must.”
At the moment there is a lot of foreign capital on the Austrian hotel market, coming mainly from Germany. “Although the Austrian investors have contributed to a greater number of transactions, more of total investment volume has come from other countries,” explains Kronberger. He claims that except for the large cities, the Austrian market is not of interest to foreign investors, because “guaranteed year-round tourism is possible only in the cities.”
Adjustments to improve the situation have been made in the Alpine regions even if more work needs to be done in the lake districts of Austria. “The market is well saturated in the metropolitan areas, although we still see growth potential for the international ‘branded hotels.’ In the long run we expect the room prices to go up.” The Christie & Co expert defines Vienna as a demand market, “we have seen this development reflected in the increasing prices over the course of the last few years.”
Differences
In order to examine the return on investment, one has to differentiate between the city hotels and vacation hotels. “Attractive hotel properties in the three to four-star range could be acquired at about 6%. The higher the category and more central the location, the less returns could be expected on the Viennese market,” says Martin Schaffer, Managing Partner of the MRP Hotels. One can usually obtain higher returns of 6,4 to 7% with budget and economical projects with a higher number of rooms.
Manfred Kohl, Managing Partner of Kohl & Partner claims that the expected return on investment in the city hotel branch is 4 to 6 % - “not more than that.” When it comes to the prestige properties (trophy assets), the returns might even be as low as 2%. “Generally, the returns have decreased in the last couple of years.”
As far as occupancy rate is concerned, 2016 showed a slight increase on the Austrian hotel market. Martin Schaffer reports, that “the RevPAR has risen by 2% in Vienna last year - a moderate increase, but nevertheless.” Furthermore, the higher the category, the lower the occupancy rate. “Good hotels in Vienna achieved an occupancy of up to 80% - however not in the luxury hotel branch”, according to the MRP Managing Partner. Because of seasonal fluctuations, only a few hotels in the other Austrian cities managed to reach occupancy over 70%. He further expanded that, “it is difficult to answer the question based on the occupancy alone, because in the end it is a combination of both.” The largest growth could be seen in the popular tourist provinces of Salzburg, Tyrol, Vorarlberg and Vienna. According to Manfred Kohl, “both, the city hotel industry and the holiday resort hotels ,are developing very well in Austria.”
From the positive business perspective, Martin Löcker emphasises that Austria - Vienna in particular - has a strong and stable economy, which reflects in a clearly predictable hotel market. “The mixture of tourism and business is one of Austria’s main strengths.” Manfred Kohl states that, “the economic conditions in the Austrian hotel industry are fundamentally favourable for investors. However, both occupancy rates as well as revenue vary enormously according to category, location, size, etc.”
Andreas Kreutzer suggests that the organisational structure in the Austrian hotel field is not especially satisfying. Many of the smaller hoteliers would rather close down their business, but cannot afford to do so because of tax back payment. “The main problem is that they have appreciated in value and would have to repay the due taxes.” A “taxation time slot” in which one would be able to close a hotel without having to pay the revaluation surplus would regulate the bureaucracy for the hotel owners.
Martin Löcker considers the last few years to have been exceptionally favourable for the central European markets, which means that, “2017 projects will grow out of a new and high level, where the location will be immensely important. Not everything that is being developed as a hotel today will guarantee future success.”
According to the assessments of Christie & Co, the first half of 2017 will be less spectacular than last year. It might be possible to continue with the trends of 2016, but only if some unexpected portfolio or trophy transactions should be successfully completed. “Although there are some hotels in all areas of Austria and all price categories on the market at the moment, it is highly unlikely that they will be able to peak the record high of 2016. We assume that 2016 provided an exceptional high and that the investment volume in the current year will stabilise to the levels of the last few years. At the same time Austria continues to be safe haven for investors and has reached a top rank on the international business scales,” summarises Lukas Hochedliner.
