Poland’s hotel sector: rapid change, investor


Poland’s recognition as an attractive tourist destination and a country with excellent development prospects and advanced infrastructure is driving a steady increase in visitor numbers.

The Polish hotel market is going through a period of rapid growth, with rising demand for hotel services followed by an increase in market supply. Rising operational indicators and occupancy rates are encouraging investors to open new hotels, a move seen as a good way to diversify portfolio risk.

Rapid changes in the market

The market has been stimulated thanks to growing interest from foreign tourists, especially German, and the improving financial situation of many Polish families resulting from government policies, in particular the Family 500+ Program. At the same time, favorable economic conditions manifested in the growth in GDP, along with a relatively cheap and well-educated workforce, have made Poland one of the most attractive locations for foreign investment in Europe.

As a result, significant changes have taken place in the hotel sector, including the development of modern facilities and the market entrance of new brands and chains. There are now a significant number of business and tourist hotels in Poland’s main cities, especially Warsaw and Krakow, and in holiday resorts and seaside towns. According to official data, 13 of the 16 Polish provinces have seen an increase in the number of hotel facilities in recent years1.

International investors are showing an increasing interest in transactions involving large hotels with well-established brands located in Poland’s largest cities. The majority of these transactions have involved three, four and five-star hotels2.

“ The Polish hotel market is going through a period of rapid growth, with rising demand for hotel services followed by an increase in market supply.”

Trends in the hotel market

Both domestic and foreign hotel chains have facilities throughout the country. Commercial advisors estimate that there are at least 366 categorized chain hotels in Poland3. International chains tend to operate in large cities through hotels in business districts. Such investments can bring the highest levels of return, even for four and five-star hotels, which are more challenging to manage than three-star facilities.

Despite the increased presence of international hotel chains, the overall ownership structure on the market is still relatively diverse. The vast majority of hotels are privately owned and run by individual entrepreneurs, with most located in holiday resorts where the most well-known Polish chains also operate.

Three-star hotels currently constitute the largest segment of the market, significantly outnumbering four and five-star facilities. However, recent market trends indicate this may be changing, as the highest occupancy rates are recorded consistently in five-star hotels, which are the most popular among foreign tourists4. This indicates a steady demand for high quality facilities that offer a wide range of services, and which are relatively inexpensive in Poland compared to other countries.

Another trend led by foreign chains is combining two hotel brands in a single building, which allows them to offer services to different target groups with varying needs and expectations. However, the most significant development today is the growing interest of international chains in opening hotels in holiday destinations.

In recent years, with several new luxury brands entering the market, it’s been estimated that the cost of investing in a top-class five-star hotel ranges from EUR80,000 to EUR175,000 per room5. Financing for hotel investments is usually provided through equity or third-party capital. This may be generated, for example, by increasing share capital through capital contributions from existing shareholders or by attracting new investors. A special form of raising capital is co-operation with venture capital funds.

Bank loans are the most common source of third-party financing for hotel projects. In particular, banks are willing to provide financing for projects involving well-established hotel operators, who in turn are usually obliged to execute a triparty duty of care agreement to secure the interests of the bank and eliminate the risk of early termination of the project.

Alternative hotel investments

In recent times, an alternative investment product has started competing with traditional hotels: so-called condo hotels. These represent an investment opportunity not only for international chains but also private individuals who want to earn rental income. It’s estimated that, in 2019, there were at least 60 condo hotel projects in Poland, providing more than 11,000 condo units6.

Offering guests the same functionality as a regular hotel, condo hotels are usually classified as premium class facilities. They operate on the basis of dispersion of apartments’ ownership between individual investors, who receive a certain rate of return from renting out the property. This is usually a long-term investment, for a period of between 5 and 15 years.

Poland’s condo hotel market is relatively young. While it will not be replacing the traditional hotel segment any time soon, it’s currently a popular form of investment among individual investors who focus primarily on purchasing residential apartments for rent. It’s also seen as an opportunity by well-established hotel brands. While the condo market is currently dominated by large Polish companies such as Arche, international chains like Mercure, Staybridge Suites, Royal Tulip and Tulip Residences are showing increasing interest.

Returns on investment in the condo hotel sector currently range from 4.5% to 9% net per year7. However, this is before the payment of additional maintenance costs, and also assumes the occupancy rate of the property remains constant throughout the year, which is difficult to achieve.

At the end of 2019, the Polish authorities initiated a high-profile public campaign to raise awareness amongst consumers about condo hotel investments, highlighting the risks involved and warning against this type of investment. It is difficult to say if the campaign will slow development of this segment. This may not be the only issue condo hotel investors face this year: legal questions have also been raised concerning the separation status of condo hotel units, which constitutes the main feature of such projects.

Market forecasts

The growth in supply for the Polish hotel market looks set to continue for the next few years.8 New hotel investments are being announced, including large chain investments such as Accor, which is opening 17 new hotels. The biggest rise in the number of new hotels will continue to be in major cities such as Warsaw and Tri-city, where some 30 new hotels will be built. However, investors and international franchisers will also start operations in smaller cities, e.g. Hampton by Hilton in Kalisz and Oświęcim.

International chains will continue to invest in Poland, with new brands appearing in the coming years, such as Marriott International under brands such as Residence Inn, Four Points by Sheraton or Autograph Collection, and Louvre Hotel Group under Royal Tulip brand.

The flipside is that rapid growth in the hotel market may slow due to challenges relating to the implementation of hotel projects. The main issues facing investors are financing, increasing construction and labor costs, and recruiting qualified hotel staff, which may cause delays in investment processes. Last but not least, higher land prices may also become an obstacle to future developments.

“ The growth in supply for the Polish hotel market looks set to continue for the next few years – the flipside is that rapid growth may slow due to challenges relating to the implementation of hotel projects.”

1Emmerson Evaluation report using data from Polish Central Statistical Office.
3Market Report, April 2019 prepared by Horwath HTL.
4Emmerson Evaluation report using data from Polish Central Statistical Office.
5Profitroom report on Polish hotel market.
6Report: Aparthotels/condo hotels in the biggest Polish cities, prepared by Inwestycje w Kurortach.pl
7Emmerson Evaluation report, available via condo investor websites, information provided by Polish authority UOKiK.