When the lifting of pandemic restrictions for the economy was announced for February 12, hotels were inundated with new bookings and in far higher numbers than after the reopening in May 2020. Hotel owners in tourist destinations bet on busy spring and summer seasons, while city hotels are waiting for the return of corporate clients and international travellers.

For most of 2020, Polish hotels operated either on limited terms or not at all, and at the end of December, they were completely closed for almost seven weeks. In fact, Poland introduced the most severe restrictions on hotel operations anywhere in Europe and was the only country where even business trips were not allowed.

“St. Valentine’s Day weekend was a massive hit, hotels were under siege the moment they reopened. Guests were not only checking into resorts but also into urban hotels. Following that weekend, business returned to what we saw during last year’s holiday season. Hotels in most popular tourist destinations have no problems with occupancy rates, especially during weekends but it remains difficult to find guests in city hotels. Tourism demand in Poland has proven to be much more resilient in these pandemic times,” says Agata Janda, Head of Hotel Advisory, JLL.

Many tourist hotels are selling all available rooms, which is, under current restrictions, 50% of capacity. There are already bookings that have been made for Easter, the long May weekend and summer holidays, as well as reservations for April because guests want to take advantage of the lower prices.

“Lockdown fatigue has made Poles plan last minute trips and escape to drive-to destinations. At the same time, we have stopped making travel bookings based on a number of complicated factors. Now the only motivation is simply a change of scenery. We want to go anywhere, just for the sake of leaving our apartments,” adds Agata Janda.

Urban hotels are waiting for guests

Hotels located in the largest Polish cities are in the most difficult situation, because they rely mainly on international visitors (Kraków) as well as corporate, conference and meeting demand (Warsaw) that have now been absent for many months.

Unfortunately, forecasts from Credit Suisse have dampened the mood among city hotel owners – in 2021, we can expect the number of international business travellers to drop by 65% on 2019’s performance. Some organizations in the travel industry predict that the pandemic will permanently reduce demand for business travel by up to 25-50%.

“However, a shrinking business travel market does not necessarily mean a proportional decline for the hotel bookings. Prior to the pandemic, many business trips were made within one day, without overnight stay. So in this regard, teleconferences may well pick up the slack. However, business trips that lasted several days and required hotel stays, will be more difficult to replace with video meetings. Trips that require overnight accommodation are likely to be less frequent but longer to minimise the number of journeys,” explains Agata Janda.

Hoteliers’ cash reserves are shrinking

Currently, however, despite the reopening of hotels, the situation of many Polish hoteliers is very difficult. Only about a third of all hotels in Poland are facilities located in typically tourist towns, i.e. where it is easiest to attract hotel guests today. The remaining 70% have had to operate for almost a year in a zero cash flow environment and under extreme market uncertainty. New restrictions are being introduced regionally and it is not unreasonable to assume that government- imposed hotel closures will soon be introduced across whole of Poland.

“Since May 2020, hotel owners have been using their cash reserves, and moving FF&E reserves, using stimulus and relief packages from the state and the banking sector, including loan repayment moratoria. But with zero income, it is difficult to cover even fixed costs. Even with the hotel closed, government aid packages to date covered only around 16% of the total fixed costs bill,” says Agata Janda.

Furthermore, debt restructuring costs are rising and banks are becoming less accommodating for the sector. The difficult situation of hotel owners in Poland is also exacerbated by the fact that most of them are individual entrepreneurs and not institutional capital, which is more common in mature hotel markets in Europe. Private owners are burning through their cash reserves faster and are more affected by the uncertainty that is predominant on the market.

“This negative sentiment is slowly beginning to translate into owners’ decisions regarding the sale of hotels. So far, we are primarily seeing a change in sentiment. Entrepreneurs who would not consider selling their properties at all before the pandemic are now starting to reconsider this option. For the time being, however, there is little flexibility on pricing, and price discounts is what investors categorically need to see in the times like this,” explains Agata Janda.

Opportunistic investors are interested in the hospitality sector

“The periods of high market uncertainty generate increased interest from opportunistic capital, which accepts purchases at a higher level of risk, i.e. at a correspondingly lower price and with higher cap rates. Therefore, it mainly targets real estate in financial or legal difficulties. Another group of funds, is looking for objects with the potential to change their functionality, especially within the broadly understood living sector, as well as rebranding or modernisation. This would translate into increasing a property’s value and would allow it to be sold at a higher price,” explained Jakub Kleban, Senior Director, Co-Head of Valuations, JLL.

Thus far, the market has not generated significant hotel deals in the wake of the pandemic, although JLL is seeing more and more behind-the-scenes talks on potential sales. It is worth noting, however, that at the beginning of February this year, the sale of the Regent Hotel (formerly Hyatt) on Belwederska Street in Warsaw, was finalised. The hotel went into administration in 2018, but the terms of the tender and auction were not presented until April last year. The hotel was bought by PHN Property Management, a subsidiary of PHN and PHH, for PLN 130.5 m.

The pandemic is accelerating change

The emergence of COVID-19 has accelerated global hotel trends that were emerging before the pandemic – from change in the arrangement of common areas and rooms, to more complex technological solutions. Many hotel brands are adding apartments to their room mix . The Accor Group is introducing a digital key to open rooms or activate an elevator, which will be available in the form of a mobile app.

“The recent stock exchange success of Airbnb was also a strong impulse for change. The success of the company, the capitalisation of which currently exceeds the market caps of the Marriott, Hilton and Hyatt chains put together, shows that travellers are looking for more local and authentic experiences, and hotels will have to adapt and reinvent themselves if they want to remain competitive,” says Agata Janda.

The pandemic has caused the boundaries between travel, work, and life to become blurred. Hotels will slowly become a “one-stop shop” for post-pandemic travellers. “We are for example already observing that conference rooms and hotel lobbies are being converted and adapted for coworking spaces, hotels welcome more social friendly, attract local community. The ability to adapt to the changing moods of consumers will determine how quickly the hotel market will rebound,” sums up Agata Janda.