The Balkans is amazingly interesting region because it has for millennia been the cultural connection between Central Europe and Asia Minor (Hudelson 2014, 34); the place where the Western civilization meets the Ottoman Empire, or as Nedelcheva (2013, 79) describes, a historical crossroad of the ancient cultures of Europe and Asia.
The mix of those cultures results in a cultural, ethnic and religious diversity of the whole region. This diversity attracts tourists and represents one of the main strengths that pull tourists towards the Balkans.
But how can we turn those strengths into hotel investments and development? Let us see the global picture for a moment.
According to PwC, European hotel transaction volume reached €20.9 billion in 2017. This was an 11% increase compared to 2016 deal volume and surpassed the record level achieved in 2015. The movement in transaction volume continued to show a strong positive correlation to changes in RevPAR growth which increased by 5.6% in 2017 compared to 2.1% in 2016.
A resurgence in UK hotel investment activity in 2017 and record levels of investment in the Spanish hotel market drove the growth in transaction volume. UK hotel deal volume in 2017 increased by 34% from €4.7 billion in 2016 to €6.3 billion in 2017 and represented 30% of the total European hotel transactions by deal volume. The number of exits in the second half of the year and the portfolios currently in market indicate that owners are considering whether we are potentially approaching the top of the current cycle. Hotel deal volume in Spain more than doubled in comparison to 2016 with significant portfolio and single assets being brought to market as investors sensed an opportunity for yield compression. Transactions across the UK and Spain combined accounted for more than half of total European transactions by deal volume in 2017.
In regards to the new hotel supply, as there being relatively low overall new supply levels, some cities have high pipelines and this includes London (with the highest pipeline) where some 9,000 rooms could open in 2018 – more than opened in 2012 when there was an Olympic sized demand boost. Berlin has around 6,500 new rooms in the pipeline with almost 4,000 of these already under construction. Some other cities with sizeable numbers of rooms under construction include Istanbul (3,000+), Moscow (3,400), Munich (3,000+), Hamburg (2,770), Dublin (2,600), and the total number of rooms in Amsterdam will grow by approximately 7,000 rooms by 2020.
Looking at the travel segment, there was particularly strong demand for international travel in 2017. Globally, according to the UNWTO, 2017 saw the highest tourism volumes in seven years. International tourism arrivals grew by 7% year on year to reach a total of 1,322 million overnight visitors (for both business and leisure). UNWTO shows that Europe recorded above average tourism growth with an 8% increase in international tourism arrivals in 2017. The outstanding sub-regions were Southern and Mediterranean Europe which saw a remarkable 13% growth over the prior year.
Data from the European Travel Commission (ETC) show that in 2017 Turkey (+28%) experienced an impressive rebound in visitor arrivals with growth largely driven by Russian travellers (+465.2%). Iceland (+24%), the fastest growing destination since 2012, showed robust results while its government considers measures to address overtourism. In southern Europe, destinations like Montenegro (+19%), Serbia (+18%) Malta (+16%), Slovenia and Cyprus (both +15%) also boosted growth and have proved their success in overcoming seasonality. Finland (+14%) enjoyed a solid increase driven by Chinese and Indian arrivals. Established summer destinations Croatia (+14%), Portugal (+12%) and Spain (+9%) also saw healthy growth.
Coming back to the region, and taking into consideration the numbers we have just mentioned, it is a question how can we boost the tourism arrivals and at the same time hotel investments and development on a larger scale, while the money is still cheap and the investors’ interest in relatively high. What are the hotel products that should be developed in the region and how can we take advantage of the Far East markets that are booming at the moment (China, India, South Korea)? How should Croatia and Montenegro compete with the upcoming markets like Turkey, Tunisia and Greece and how should capital cities like Belgrade, Zagreb and Ljubljana compete with already mature markets like Vienna, Budapest and Prague. And is Albania a new hot spot?