Hungary: Overview of the Hungarian hotel market in 2020

Due to the fast and shocking impact of the pandemic on the hotel industry, the first half of 2020 was truly two-faced. While guest arrivals from January to February 2020 showed double digit expansion, all key indicators fell dramatically in the hotel industry resulting in the following figures (considering the first 6 months on average):

• the average daily rate was EUR 78.00, which is 10.2% lower than 2019;
• revenues fell by 69.9% y/y;
• occupancy rate fell by 60%; and
• guest nights fell by 60%.

Hotels in Budapest especially suffered a lot, particularly those which rely heavily on foreign travellers. Having seen their worst 6-month period on record, the hotels’ strategies varied as to whether or not to reopen after April and for the rest of the year in 2020.

Tourist accommodation was fairly empty in March and April 2020 with negligible growth in May. June showed some improvement in domestic tourism, but it soon became crystal clear that there was practically no chance to reach the growth levels of previous years without international guests. Nevertheless, a positive development was that domestic demand essentially saved the tourism industry in the countryside, especially at Lake Balaton. Another promising indicator was that the number of rooms in the pipeline increased in 2020, which was 3,340 rooms in 27 assets throughout the country, according to CBRE Hungary.

Regarding investments in the Hungarian hotel industry, the devastating global tourism figures and general market uncertainty deeply impacted this asset class. During the first half of 2020, the total transacted volume in Hungary reached EUR 66 million (down by 44% y/y), involving three asset deals. Having said that, discussions about future hotel investments increased after the summer holiday and according to CBRE Hungary, total projects under offer or already under due diligence reached an overall volume of EUR 165 million by the end of 2020.

In terms of regional comparisons (which include Prague, Warsaw, Bucharest and Bratislava), Budapest performed quite well despite the challenging circumstances in 2020. In terms of occupancy rates, only Warsaw showed higher rates (33% compared to 30%), but on average daily rates and revenue per available room, Budapest performed the best (EUR 78 and EUR 22) among these cities.

Market structure in Hungary

The classic comparative model that characterises the Hungarian hotel market is the Budapest – countryside parallel. Approximately 26,000 hotel rooms are in Budapest and 30,000 hotel rooms in the rest of the country, leading us to recognise that Budapest is still the main attraction in Hungary. If we look at the development pipeline in 2020, it shows that Budapest has a 75% share of the total market, which means that not only tourists, but also hoteliers choose Budapest as a primary destination.

While the hotel and leisure industry in Budapest is diverse and balanced, weak regional diversity exists. Looking outside of Budapest, we must mention first the region of Lake Balaton, which is the largest tourist attraction in the countryside. Nevertheless, we can see notable developments, or at least plans in certain major cities like Debrecen (2nd biggest city in the countryside). Big industrial developments could also be the catalysts for such hotel investments in the countryside; for example, in Kecskemét and Debrecen, massive greenfield automotive developments were carried out or are under construction by Mercedes and BMW.

In addition, the spa sector is strong and internationally renowned in certain regions of Hungary, where increased construction activity started in the beginning of 2020 before the lockdown began.

Another feature of the Hungarian market is the ratio of domestic and foreign visitors. In recent years, the number of hotel guests in Hungary steadily increased, almost half of whom were from abroad. In 2019, commercial accommodation received 12.9 million guests, for 31.5 million guest nights and almost half of them were foreign guests (6.2 million foreign guests and 15.8 million foreign guest nights). This sounds nicely balanced, but if we take a closer look, it turns out that Budapest depends much more on foreign guests – 88% of the guest nights in Budapest were booked by foreign guests in 2019. In the light of these numbers, it is obvious how serious the impact of COVID-19 was in the capital of Hungary when the ban on international travel was introduced.

It goes without saying that the pandemic was a game changer in the well-established structure of the Hungarian hotel market, as the number of local guests in the first half of the year was almost double that of the number of foreign guests, and more guest nights were spent at Lake Balaton and in Northern Hungary than in Budapest. 

Apart from these exceptional circumstances, Budapest has a truly balanced market segmentation, which means that the capital of Hungary is strong in both the leisure and business sectors (the ratio is approx. 50-50%). Budapest can offer various types of hospitality options from large-scale to the absolute luxury and there is a wide range of entertainment opportunities as well as a great variety of schemes for business related gatherings. Unfortunately, this is not true in the countryside, where the options are quite limited, especially where high-end and luxury hotels are lacking. Hopefully that will change soon: one of the latest developments is a premium project of a 5-star hotel with 104 rooms at Lake Balaton.

Prospects for the market

The short-term impact of the pandemic was that market players waited out for better periods. CBRE Hungary reported last year that 35% of the projects in the 2020 pipeline, which were scheduled to be handed over in Q4, were sliding into the current year. Furthermore, 6 projects with 530 rooms have been put on hold across the country with no new delivery dates.

If we examine the long-term impacts of the pandemic, we could be more optimistic. Experts say that Budapest is likely to be among the fastest recovering tourist destinations in Europe, reaching the pre-COVID levels by 2022-23 and expanding further at a double-digit pace in 2024. This is primarily due to the country’s strategic location in Europe and the very well-balanced market as detailed above.

These prospects are backed by the fact that international comparisons with destinations providing similar attractions, such as Prague or Vienna, show that the number of available hotel rooms in Budapest is far behind them. Therefore, there are significant opportunities to develop further.

The good news for hoteliers, which may help them recover, is that the Hungarian Parliament adopted new legislation recently, that gives local governments the right to regulate Airbnb-like operations by potentially limiting short-term rentals to a period of four months per year. This was on the table for a long time, but the pandemic has accelerated this process.

The pandemic completely overturned everyone's plans in 2020, but there are indicators telling us that there is a chance that very exciting and positive times lie ahead.

All data used for this article is based on ‘The View’ – CBRE Hungary’s Real Estate Magazine 10th Edition 2020, Hungarian Hotel Market chapter (p.56 – p.63) and the publicly available data disclosed by the Hungarian Central Statistical Office.