An important occupancy level to underscore is 40%. Around this level is the break-even point for hotels, meaning that right now, they are just holding on with support from shareholders and the state, but should get through 2020; still an extension of this period into 2021 could cause serios problems.

With regards the ADR (average daily rate per room), the previous financial crise experience taught the operators not to put too much pressure on prices, as the recovery may take longer than expected. While some lower price adjustements might be observed in the market, the main issue remains the occupancy level. Most of the players in the market estimate that the RevPar (the product of occupancy level and ADR) will need up to 18 months to come back to its previous level.

Another challenging aspect for the hotel industry is the lack of events and the fact that interior restaurants remain closed as per government regulations. At a 4-star which hosts private events (from corporate events to parties and weddings), not just the normal restaurant side of thigs, these services added around 40% of the annual revenue in a normal year. For the sought-after 5-star hotels which are established on this front, the share easily jumped past 50%. Interestingly, newer and more flexible hotels may be somewhat more advantaged by this situation, as they tended to place a somewhat lower emphasis on restaurants/events. This suggests that they could recover a bit faster than the aforementioned venues.

Future developments

In a somewhat counter intuitive fact for this period, we know that there are quite a few players still actively looking at the market. For those comfortable with taking chances amid real estate cycles, this period could provide a good opportunity to seal a deal on a good land plot, perhaps at better pricing. This would mean delivering a project in two years-time, when things should be somewhat normal. The main issue with this is funding, particularly as banks tends to be much pickier than usual in such times with taking on new risk, especially real estate related.

Otherwise, we already had a few new deliveries on the market during summer months, in Bucharest: Moxy Old Town (117 rooms) and Ibis Styles City Center (152 rooms), with Ibis Styles Airport (85 rooms) set to open in September and Autograph Collection by Marriott (215 rooms) towards the end of the year. There are a few openings that may end up pushed into 2021, like Corinthia Grand Hotel du Boulevard or Indigo, alongside the Sheraton Hotel extension already planned for next year. Overall, quite a busy period which does highlight the fact that barring the coronavirus situation, the local hotel business seems to have good long-term prospects.

While all new major deliveries are affiliated to an international chain, around 60% of Bucharest hotels with at least 80 rooms are in this position. This may provide certain advantages in this period, from the brand recognition we mentioned earlier that may improve their appeal from clients, as well as support from the big international chain (like cost optimization consultancy or even financial support).

On the investment side, we would not exclude any opportunistic transactions as some owners may rethink their strategy amid financial difficulties, but the real question is for how long the epidemic issue will continue and how quickly the consumers will be back to their previous travelling habits (or if their behaviour will dramatically change). ​