MAY 2011 | PRICE €150 MARKET INTELLIGENCE REPORT THESSALONIKI, GREECE Pavlos Papadimitriou, MBA Senior Associate Adamantia Phoca, MRICS Associate Director www.hvs.com HVS ATHENS | 10 Panepistimiou Str. 3rd Floor, 106 71 Athens, GREECE Characterised as the “co‐capital” of Greece, the city of Thessaloniki was a flourishing economic centre in ‘80s and ‘90s featuring some of the strongest industrial, manufacturing, and textile firms of Greece. After a decade of general stagnation, Thessaloniki is still one of the most favoured cities in the country and sha a great potential to finally win the bet of attracting an increasing amount of international travelers. City Overview Thessaloniki is the second major financial, industrial, commercial and political centre of Greece, situated in the Region of Macedonia on the north of the Greek mainland and features about 2% of total hotel room supply in Greece. The city is considered to be a major transportation hub for the rest of Southeast Europe; its commercial port is also of great importance for Greece and its Balkan hinterland. In 2004 the greater urban zone/area of Thessaloniki had an estimated number of almost 1 million residents. INDICATIVE MAP OF THESSALONIKI Some of the biggest firms, either national or international, feature branch offices or even headquarters in the city; the manufacturing sector established Thessaloniki in the broader Balkan region; the industrial zone of the city is quite vivid hosting major companies with export orientation; numerous administrative and government services together with three major universities of Greece are located here; whereas numerous national and international exhibitions and fairs take place every year. Therefore, the city rightfully caries the honorific title of the "co‐capital" of Greece, a reference to its historical status as the "co‐reigning" city of the Byzantine Empire, alongside Istanbul. Demand Generators Thessaloniki is undoubtedly a city that offers its visitors numerous tourist attractions but also some points of business interest varying from: ancient monuments and sites (e.g. the Byzantine walls of the upper city, the Arch and Tomb of Galerius, the anc ient market, the Roman Palace and Hippodrome, the White Tower etc.); museums (e.g. Museum of Byzantine Culture, Thessaloniki Archaeological Museum, Jewish Museum of Thessaloniki, State Museum of Contemporary Arts, etc.); MARKET INTELLIGENCE REPORT – THESSALONIKI, GREECE | PAGE 2 lively neighborhoods (Aristotelous, Ladadika, Nikis Avenue, Ano Poli, Kalamaria, etc.); some of the biggest academic institutions in Greece and several military schools attracting MICE1 and SMERF2 clie ntele; many national sectoral exhibitions, the annual International Trade Fair of Thessaloniki, the International Thessaloniki Film Festival, and the largest bi‐annual meeting of the Greek Diaspora; many beaches located within a 20‐minute drive from the city or at the well‐known resort of Chalkidiki, several of them awarded with the Blue‐Flag ecolabel. There are also three marinas within a 100 km radius. Features of the Hotel Market The hotel market in Thessaloniki is characterised by introversion and dependence on the domestic market, very low occupancy shoulder months and minimum possible length of stay. Overall, the room stock offered in the city is in a good state of maintenance. However, the current turmoil has led to strong competition and price pressures. Airport and Seaport Traffic Thessaloniki is served by one airport, the “Macedonia” International Airport, located 15 kilometres southeast of the city centre, and one seaport, the second largest in Greece, mainly used for cargo transportation but with unexploited potential as a passenger hub. International visitation to Thessaloniki over the past nine years is summarised in Table 1. Airport arrivals include those by international scheduled and charter flights and seaport arrivals refer to passengers disembarked only by commercial ships. Cruises refer to transient cruise travellers (both domestic and international) from the port of Thessaloniki, as well as to those using it as a homeport. It should be mentioned that a significant proportion of airport arrivals comprises of tourists having Chalkidiki as their final destination. Until now the city’s hotels have not been able to capture a share of these travellers in order to spend at least one night in Thessaloniki, leaving the opportunity untapped. TABLE 1: INTERNATIONAL ARRIVALS BY AIR AND SEA – THESSALONIKI 2002‐10 (000S) Airport Seaport Cruises Year Total ChangeAirport Change Seaport Change Cruises Change % Share % Share % Share 2002 1,130 — %1,011 — %90 — %28 — %89.57.92.5 2003 1,136 0.6 1,028 0.6 83 ‐7.9 26 ‐8.5 90.4 7.3 2.3 2004 1,169 2.9 1,060 2.9 85 2.6 24 ‐7.5 90.7 7.3 2.1 2005 1,207 3.3 1,100 3.3 102 19.9 6 ‐74.8 91.1 8.4 0.5 2006 1,219 1.0 1,151 1.0 60 ‐41.5 8 32.8 94.5 4.9 0.7 2007 1,339 9.9 1,251 9.9 56 ‐5.5 32 295.9 93.4 4.2 2.4 2008 1,376 2.7 1,272 2.7 56 0.4 48 50.1 92.4 4.1 3.5 2009 1,284 ‐6.7 1,187 ‐6.7 58 3.6 39 ‐19.5 92.4 4.6 3.0 2010 1,133 ‐11.8 1,075 ‐11.8 42 ‐28.4 16 ‐58.4 94.9 3.7 1.4 Compound Annual Growth Rate 2002‐10 0.0% 0.8% ‐9.1 % ‐6.9 % Source: Civil Aviation Authority, Thessaloniki Port Authority 1 MICE: Meetings, Incentives, Conferences, and Events 2 SMERF: Social, Military, Educational, Religious, and Fraternal MARKET INTELLIGENCE REPORT – THESSALONIKI, GREECE | PAGE 3 The total number of passenger arrivals steadily increased between 2002 and 2008 with a CAGR3 of 3.3%. During the period 2008‐10, tourist movement in Thessaloniki slowed down due to the economic recession in Greece and the deceleration of the economic activity. Arrivals by air represent the biggest share and traditionally account for over 90% of total arrivals. Thessaloniki airport accepts additional 700,000‐800,000 domestic passengers on an annual basis raising the total number of arrivals by air and sea close to the level of two million. Lately, several low‐cost carriers but also conventional airlines announced scheduled flights from Thessaloniki to more than ten destinations. Turkish Airlines intends to commence direct flights to Istanbul in spring, Aegean Airlines is planning to offer a code share flight with Aeroflot to Moscow, Ryanair gradually starts to offer flights to eight European destinations, whereas there have been advanced discussions with the low‐cost carrier Wizzair to service Thessaloniki. During the last nine years, arrivals at the seaport of Thessaloniki dropped significantly only remaining stable between 2006 and 2009. Tourist arrivals by cruise ships stagnated between 2002‐2004, dropped sharply in 2005 and vigorously increased over the period 2005‐08, due to the utilisation of Thessaloniki as a homeport. However, Greek Law only recently partly lifted maritime cabotage, thus providing an opportunity for Thessaloniki to potentially enlarge its tourism market by promoting its harbour and attracting cruise companies to use it as a homeport. Visitation The number of arrivals at hotel establishments in Thessaloniki over the past eight years is summarised in Graph 1. An average of about 70% of the total hotel arrivals and roomnights in Thessaloniki is of domestic nature. Regarding the primary source countries feeding the international hotel arrivals in Thessaloniki, these are Cyprus and the neighbouring Bulgaria, Romania, and Turkey. GRAPH 1: DOMESTIC AND INTERNATIONAL ARRIVALS AT HOTELS ‐ THESSALONIKI 2003‐10 (000S) 1,200 Domestic 1,000 International 800 600 (000s) 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010* Source: National Statistical Service of Greece *Estimate As illustrated in the table above, the number of total tourist arrivals at hotels experienced significant growth over the period 2004‐07, thereafter remaining relatively stable, achieving a total growth of 24.6% for the period 2003‐10, with a larger gain recorded in the international segment, at 41.4%. 3 CAGR: Compound Annual Growth Rate MARKET INTELLIGENCE REPORT – THESSALONIKI, GREECE | PAGE 4 The city has a rather typical seasonality pattern of visitation for a city destination: demand starts from relatively low levels in winter; it increases during the first months of the year to reach a peak around April, mainly due to business activity and conferences/congresses organised in the city; it slows down during summer months when resort destinations are more preferable; it peaks again in September, another popular month for conferences/congresses; and it drops quite steeply moving towards the Christmas period. Thessaloniki is an established destination for hosting conferences, meetings and events and MICE clientele comprises a relatively big proportion of total hotel guests in the city. According to industry experts, these last about three to four days. Nonetheless, the big proportion of hotel business stems from corporate travellers staying in the city for one to two days. The overall length of stay in Thessaloniki is two nights on average, mainly driven by the corporate character of travel and the lack of more extended leisure demand. Historical Hotel Performance Data published by the Thessaloniki Hotel Association (THA) reveal that hotel occupancy in Thessaloniki peaked in 2007 reaching 49.5% after an upward trend during the previous years. Since 2008 hotel occupancies record continuous decline from 49.21% in 2008 to 42% in 2010. Occupancy levels are Occupancy levels are under pressure both from demand and supply forces. The under pressure both from construction of several new hotels and the oversupply of rooms, especially in the high‐ demand and supply end spectrum of the market, in disproportion with the falling demand attributed to the forces decrease of domestic travel on which Thessaloniki is heavily dependent, has led to relatively low levels of occupancy.