The hotel market in Romania could diversify over the next year, as new hotel brands are looking to conclude rental or partnership agreements with real estate developers as an alternative to management or franchise contracts, according to real estate consultancy firm Colliers International.

Such a business model will lead to the re-launch of the local hotel market and, at the same time, will enable real estate developers to diversify their portfolio, Colliers International consultants say.

Market researches made by Colliers International showed that, although the hospitality industry in Bucharest has grown steadily both in terms of occupancy and average room price in the past three years, only a few new projects have been opened. This was mainly the result of the fact that strong brands wanted to extend exclusively through management or franchise contracts with developers. Developers, however, see these contracts as being less predictable in terms of cash flow generated, and therefore more risky.

“However, recently, young German, Austrian and Polish brands that have already covered the hotel markets in their countries of origin have started looking for opportunities to expand to emerging markets in South-Eastern Europe,” according to Colliers International.

“In Romania, such brands have started discussions with real estate developers, even proposing to co-finance the projects.”

In Bucharest, such projects could be developed in the Old Town, Floreasca-Barbu Vacarescu area, or Calea Victoriei. While the Old Town offers the advantage of old buildings that can be reconverted, Calea Victoriei still has plots of land available, but at high prices.

“In terms of costs, the hotel brands’ option to rent buildings in such areas is cost-effective. For a hotel, the rent amounts to about 20% of turnover and may be similar to that paid by tenants in office buildings,” said Raluca Buciuc, Aassociate Director Valuation Services and Hospitality Advisory Services at Colliers International.

The number of tourists in Bucharest increased by 63% in the last five years, while the four and five-star hotels registered occupancy rates of 75%, on average.

The construction of a new hotel affiliated to Mariott Courtyard will start in Bucharest’s Floreasca-Barbu Vacarescu area this year.

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Irina Marica, irina.marica@romania-insider.com