Prague hotel market shows positive signs of recovery

The Prague hotel market has seen strong performance growth in 2010 and 2011 and results for the first four months of 2012 are promising with hotels posting an impressive 17.8% growth in Revenue-Per-Available Room (RevPAR) compared to the same period in 2011 according to STR Global.

Growth in performance, however, is primarily driven by a strong rise in occupancy rather than an increase in Average Daily Rates (ADR). Prague´s occupancy was 62% in 2010, climbed to 67% in 2011 and in 2012 is anticipated to reach approximately 70%. Given the fierce competition in the Prague hotel market, the ADR has shown marginal growth and oscillates around €73 per night.

“Currently, there are a total of 341 hotels in Prague, out of which 80% (269) are in the segment of three to five stars category and only 20% (72) in the economy/budget segment. Three-star hotels form a majority of the hotel stock in Prague, meaning 162 establishments and accounting for more than a third of the hotel properties in Prague. 

“In terms of hotel rooms, Prague offers 26,416 hotel rooms, out of which more than half are in the upscale four- and five-star hotel segment,” says Karel Klecka who specializes in hotel valuation at Jones Lang LaSalle Prague. 

In the first decade of the 21st century (2000 – 2010), the Prague hotel market experienced a tremendous amount of development. During this time, hotel supply in Prague increased by 7,000 rooms, most of them in the upscale segment. 

In last couple of years, fierce competition and challenging hotel trading conditions curbed hotel development in the Czech capital. In 2011 there was no new hotel delivered to the Prague market. In 2012 it was only Fusion Hotel*** in Panská Street which has been already completed. 

Prague´s tourism industry is dominated by international visitors (80%). For hotels in the Czech regions, the visitor ratio is the opposite (80% Czechs, 20% international). As far as the Czech capital is concerned, Prague has been a popular tourist destination for Germans, Russians, Italians, British and Americans. 

In 2011, bed nights from Italy and the UK declined by 2% and 14% respectively. In contrast bed nights from Germany, Russia and the US rose by 11%, 60% and 2%, compared to 2010. 

Overall, the most dynamic growth was reported from emerging markets, primarily from Asia, with source markets such as China and South Korea posting double-digit growth rates in overnight stays. Other growing source markets are Brazil and Mexico. 

“Despite a growing number of foreigners visiting Prague, hotel rates see only minimal growth with the average level of €73 per night. Fierce competition in the market is keeping average room rates well below 2008 levels (by 30-40%). On the contrary, occupancy is steadily growing from 62% in 2010, through 67% in 2011 and to 70% expected in 2012,” says Klecka. 

“The highest occupancy is usually recorded in spring/early summer and in autumn when a lot of festivals and international events take place in Prague and weather favors tourism.”

“There have been two hotel transactions (InterContinental***** and Mandarin Oriental*****) closed in Prague in 2010. This year Hotel Ibis*** in Prague Karlin has changed its owner (Quinn Group was the seller and pentahotels the buyer),” adds Angus Wade, Executive Vice President at Jones Lang LaSalle Hotels in London.