Prague’s Hotels are Still Performing Low, Yet Investors’ Interest in Them Continues

The occupancy level in Prague’s hotels was just 10 per cent during the first six months of this year, with revenue remaining far below the average of the pre-coronavirus years.

Contrary to initial expectations, their owners are not selling them – definitely not on a mass scale. Investors’ interest in buying remains strong – more than one-third of them are “very” or “highly” interested in Prague according to Cushman & Wakefield’s current Hotel Investor Beat survey.

Investors obviously trust Prague’s hospitality market and perceive its current situation as temporary.

“I see the principal cause in the restrictions imposed on hotels and travel in the Czech Republic, and also in the trend in the number of infected people. Every increase in this number translated to a decrease in hotel occupancy and booking rates. Once the restrictions were lifted last July and August, occupancy grew immediately and Prague quickly outperformed other European destinations,” says Bořivoj Vokřínek, Partner, Strategic Advisory, Head of Hospitality Research EMEA, Cushman & Wakefield

Accordingly, we can expect the figures for July and August 2021 to also be more positive than those for the first half of this year.

Prague has a better position for the recovery of tourism than certain other cities; today, the recovery depends on accessibility by car rather than by plane; in addition, it is a destination for leisure rather than business and conference travel, which remains deeply subdued.

Accommodation prices in Prague are currently markedly lower than elsewhere in Europe. Compared with June 2019, the average achieved price per room was 44 per cent lower this June while the average decrease in Europe is 21 per cent.

The double reduction in prices compared with other countries is also attributable to the fact that certain five-star hotels such as the Fairmont (formerly InterContinental) are currently closed due to refurbishment, so the statistics do not include their prices.

Investors continue targeting Prague

Investors are also aware that the situation Prague hotels are currently facing is temporary and caused by external factors – and does not characterise the quality of the market as such. They trust in its long-term resilience and continue showing great interest in the local hospitality properties.

Prague ranks 13th in the Hotel Investor Beat survey that maps institutional investors’ interest in hotels in European cities. With an average rating of 3 on a scale from 1 (not interested) to 5 (highly interested), Prague fares the best of all the Central and Eastern European Region cities.

In all, 37 per cent of investors are very or highly interested in buying hotels in Prague, and just 15 per cent do not want to invest in hotels in Prague. 

Interest in buying hotels is increasing

Hotels, in general, are going up on the chart of real properties that investors target despite the adverse effects of the pandemic. Even with the current risk, investors can see a lasting potential and higher rates of return on investment in them.

Due to a number of long-term trends, some of which the current crisis has accelerated, the potential of certain types of properties such as hotels is growing – while the potential of other types of properties is deteriorating, which obviously changes the investors’ relative preferences. In addition, hotels offer higher yields combined with an adequate risk, a relatively rare combination in real estate and a major factor from the viewpoint of diversification.

This is why hotels attract increasingly more investors – including large funds that did not invest in hotels in the past – who now want a percentage of their capital invested in such properties with a view to optimising their overall investment portfolios.

Almost 40 per cent of the Hotel Investor Beat respondents say they want to buy hotels more than before due to the pandemic; just one-fifth are less inclined to buy hotels; and 30 per cent are not changing their hospitality segment strategy under the pandemic influence.

 

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