HOTEL MARKET IN POLAND table of content

I. INTRODUCTION 3 IV. DEMAND

II. SUPPLY Number of Polish and foreign tourists and their percentage share in the years 2012-2016 24 Supply of hotels and accommodation places in 2015 and 2016 and the change 2016/2015 4 Top 10 foreign tourist nationalities in Poland and the average length of stay in 2016 25 Supply of hotels and hotel rooms – business and tourist hotels 5 Number of accommodation places and number of tourists Supply of hotels and hotel rooms according using hotels in the years 2012-2016 26 to the hotel’s category 6 Hotel room occupancy rate in the years 2009-2016 Percentage of hotels according to the hotel’s category 10 and according to hotel’s category in 2015 and 2016 27

Percentage of hotel rooms according to the hotel’s category 12 Average hotel rooms occupancy in particular voivodeships and change in the occupancy rate 2016/2015 28 Number of chain and private hotels according to the hotel’s category 14 V. ADR and REVPAR INDICES FOR HOTELS IN THE 3-,4- AND 5-STAR CATEGORY 29 Hotel management structure according to type of operator 18 VI. MAJOR HOTEL TRANSACTIONS IN THE YEAR 2015-2017 30 Tourist and business hotels – number of rooms per hotel 20 VII. CONDOHOTELS IN POLAND 31 Average number of rooms in a hotel and share of chain hotels 20 VIII. FORECAST 33 III. SELECTED, PLANNED AND EXECUTED HOTEL INVESTMENTS 21 IX. GLOSSARY OF TERMS 34

2 INTRODUCTION

Dear Sirs,

We are presenting you our report on the hotel market in Poland. In the recent years What sets our report apart from similar publications is a vast collection of standar- this is one of the most dynamically developing segments of the Polish real estate dized information about the major hotel transactions, which have taken place over market. Continuously growing demand for hotel services driven by tourists and cor- the last two years. porate clients, both Polish and foreign, has translated into a considerable growth Let us not forget about the supplementary condo hotels market, which – over in the number of new hotel investments. Hotels are becoming a more popular the last years – has gained a lot of popularity both among developers as well as indi- investment option among individual and chain investors alike as well as developers. vidual investors. Being a part of investment processes while estimating the value of this kind of invest- ment allowed us to gain experience and broad knowledge about this particular seg- Based on the conducted analysis of the situation on the hotel market, the current ment of the real estate market. trends and conditions, we attempt to foresee the future development options for this real estate segment in Poland. Today we would like to share our knowledge with you by providing you with an aggre- gated report, including various graphs and charts. We have outlined the most impor- We hope you will enjoy reading our report. If you have any questions or you would like tant information that summarizes the current situation on the hotel market. to obtain an even more detailed analysis or another set of data, contact us.

To start with, we carefully examine the current supply of hotels and hotel rooms in the particular voivodeships and the selected Polish cities. Due to the growing in- Dariusz Książak, terest of international hotel chains, we analyze the proportions between the num- Chairman of Emmerson Evaluation Sp. z o.o. ber of operating chain and private hotels. We outline the most important executed and planned hotel investments divided into business and tourist hotels as well as hotels in regional cities. We provide information about the hotel room occupancy rate and the current key fnancial indicators for this sector.

3 Supply of hotels and accommodation places 2015 2016 IN 2015 AND 2016 AND THE CHANGE 2016/2015 For a few years now, the Polish hotel market has been growing considerably both the number of accommodation places ofered across Poland. Last year such situation in terms of the number of tourists, the number of facilities, the occupancy rate as was recorded in over 80% of voivodeships. The largest number of new accommo- well as the sector’s fnancial results. Increased tourist trafc is related, among other dation places in 2016 appeared in the mazowieckie and małopolskie voivodeships things, to security concerns in other regions of Europe and the generally good fnan- (respectively 4.1 and 3.3 thousand) where Warsaw and Krakow generated, respecti- cial situation of Polish households. Every year Poland is visited by a growing number vely over 1/3 and 2/3 of fresh demand. A considerable number of accommodation of foreign tourists. The number of national tourists is growing even faster than that. places appeared also in dolnośląskie voivodeship (1.6 thousand), śląskie voivodeship These positive factors boost investment in the sector. The number of modern facilities (1.5 thousand) and lubelskie voivodeship (1.4 thousand). The remaining regions re- built both by private investors as well as chain hotels, including international ones, corded a less dynamic growth. In 2016, in łódzkie and lubuskie voivodeships the num- is growing. One can notice a considerable growth in the number of hotels, including ber of accommodation places did not change compared to 2015.

POMORSKIE POMORSKIE WARMIŃSKO-MAZ. WARMIŃSKO-MAZ. 188 193 ▲ 19,119,9 ▲ ZACHODNIOPOM. ZACHODNIOPOM. tys. tys. 2,7% 105 113 ▲ 4,0% 12,5 13,2 ▲ ▼ 7,6% 16,5 16,7 ▲ tys. tys. 5,0% 124 120 PODLASKIE PODLASKIE tys. tys. -3,2% KUJAWSKO-POM. 1,3% KUJAWSKO-POM. 36 47 ▲ 9,1 10,1 3,8 4,7 ▲ ▲ ▲ tys. tys. 112 121 30,6% tys. tys. MAZOWIECKIE 23,7% 8,0% 11,3% MAZOWIECKIE 33,5 37,6 ▲ WIELKOPOLSKIE tys. tys. 220 251 ▲ WIELKOPOLSKIE 12,3% LUBUSKIE 230 229 ▼ 14,1% LUBUSKIE -0,4% 17,8 18,2 ▲ ▲ 4,6 4,6 tys. tys. 2,1% 63 65 tys. tys. 3,2% ŁÓDZKIE 0,0% ŁÓDZKIE LUBELSKIE LUBELSKIE 11,2 11,2 DOLNOSLĄSKIE 5,9 7,3 ▲ 113 113 ▲ DOLNOSLĄSKIE tys. tys. tys. tys. 0,0% 89 107 0% 24,6% 232 245 ▲ 20,2% 26,0 27,6 ▲ 5,6% ŚWIĘTOKRZYSKIE tys. tys. 6,4% ŚWIĘTOKRZYSKIE OPOLSKIE ŚLĄSKIE ŚLĄSKIE 7,4 8,0 ▲ ▲ OPOLSKIE 98 104 tys. tys. ▲ 198209 ▲ 6,1% 20,822,3 ▲ 7,7% 58 64 5,6% 3,2 3,8 ▲ tys. tys. 7,1% 10,3% PODKARPACKIE tys. tys. 16,2% PODKARPACKIE MAŁOPOLSKIE MAŁOPOLSKIE 135147 ▲ 9,4 10,0 ▲ 315335 ▲ 8,9% 34,8 38,1 ▲ tys. tys. 7,0% 6,3% tys. tys. 9,6% HOTELS ACCOMMODATION PLACES Source: Own study based on CSO data 4 number of hotels Supply of hotels and hotel rooms number of hotel rooms IN SELECTED CITIES BUSINESS HOTELS TOURIST HOTELS 15242 250 16000 60 4000 WARSZAWA 14096 KOŁOBRZEG 3481 3510 KRAKÓW 14000 ŚWINOUJŚCIE 200 WROCŁAW 12000 PÓŁWYSEP HELSKI 3000 POZNAŃ 40 ZAKOPANE 150 ŁÓDŹ 10000 KARPACZ KATOWICE 8000 BESKIDY 2000 TRÓJMIASTO 5933 100 4863 6000 1163 20 4000 769 1000 50 1828 2000 93 21 75 242 102 41 4 20 59 25 8 0 0 0 0

mountain region (Zakopane, Karpacz, Beskidy) MOUNTAIN AND SEASIDE REGION seaside region (Kołobrzeg, Świnoujście, Półwysep Helski)

NUMBER OF HOTELS NUMBER OF HOTEL ROOMS PER HOTEL

45 41 300 40 250 250 35 30 200 177 25 17 18 150 20 14 94 15 11 100 78 82 54 51 10 5 36 3 3 3 50 26 5 1 15 0 0

5 number of hotels Supply of hotels and hotel rooms number of rooms per hotel ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

270 300 80 108 120 243 94 30 60 73 200 80 20 131 50 50 112 40

73 100 40 10 20 6 15 34 16 12 6 16 80 41 10 0 0 0 0

116 114 112 120 105 120 30 30 80 76 80 69 80 20 20 48 41

40 40 10 10 20

5 4 31 11 7 2 11 31 11 4 0 0 0 0

6 number of hotels Supply of hotels and hotel rooms number of rooms per hotel ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

180 15 181 200 10 200

8

10 108 6 82 82 79 100 79 100 4 5 47 2 2 9 15 5 6 6 5 1 0 0 0 0

50 150 122 40 106

100 30 58 57 20 50

10 14 45 13 7 0 0

7 number of hotels Supply of hotels and hotel rooms number of rooms per hotel ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

10 8 340 400 206

200 6 300

107 5 89 4 200 100 88 93 2 32 100 7 5 2 1 7 4 1 0 0 0 0

5 80 65 64 4 60 43 3 40 2 15 20 JASTARNIA 1 JURATA 1 2 4 2 0 0 CHAŁUPY

8 number of hotels Supply of hotels and hotel rooms number of rooms per hotel ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

78 79 458 15 80 20 500 57 60 15 10 44 44

40 10 250

5 20 5 27 43 1 4 14 6 4 4 17 2 0 0 0 0

10 182 200

8 150

6 97 100 4 55 36 50 SZCZYRK 2 17 WISŁA 2 9 10 6 1 0 0 USTROŃ

9 Percentage of hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

3% 4% 15% 7% 6% 12% 9% 7% 11% 7% 19% 18% 19% 27% 19% 19%

52% 41% 53% 52%

6% 16% 7% 9% 18% 33% 16% 29% 28%

48% 33% 57%

10 Percentage of hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

8% 8% 11% 14% 22%

22% 50% 30% 36% 54% JASTARNIA 45% JURATA CHAŁUPY

3% 4%

9% 7% 14% 14% 17% 21%

21% 32%

48% 36% SZCZYRK 74% WISŁA USTROŃ

11 Percentage of hotel rooms ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

1% 4% 6% 11% 8% 16% 8% 9% 23% 8% 8% 16%

30% 38% 26% 37% 39% 37% 33% 42%

5% 6% 13% 14% 30% 27% 25%

28% 51% 16% 45% 40%

12 Percentage of hotel rooms ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

3% 3%

26% 25% 29% 40% 29% 45%

27% JASTARNIA 34% JURATA 39% CHAŁUPY

2% 2% 5% 6% 17% 10% 15%

53% 41% 26% 52% 26% 45% SZCZYRK WISŁA USTROŃ

13 private hotels Number of chain and private hotels chain hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

Despite the growing interest in the Polish market among international hotel networks, in Poland there is a large fragmentation in terms of the ownership structure. In Po- land there are still more individual facilities run directly by property owners. A large part of such facilities operate in the tourist hotel segment and are located in tourist resorts. In such locations there are more Polish network facilities, as for instance Gołębiewski or Zdrojowa Invest than foreign hotels. International networks usually 20 manage business hotels in large cities. They operate predominantly on the markets 20 in the largest agglomerations where they are able to achieve the most certain return on investment, even in case of 4- and 5-star hotels, the management of which is much 15 14 more difcult than that of 3-star hotels. Despite it, for some time now, there has 12 11 been a trend of locating more and more hotels of foreign networks in towns situated in the mountains and at the seaside. In the coming years a few such investments 10 8 will be completed, as for instance Hilton Garden Inn in Kołobrzeg or Radisson Blu in Zakopane. Local brands with a portfolio of business hotels that have been active 5 4 4 4 4 on the market in the last years include Q Hotel, which in May last year opened a 4-star 2 hotel in Katowice (and is already planning another hotel in Warsaw) or Chopin Airport Development, investor of the Moxy hotel at the airport in Katowice-Pyrzowice, which 0 is planning to open Renaissance Warsaw Airport Hotel at the Chopin Airport.

69 70 25 23

60 20 50

40 15

30 26 10 8 7 15 15 20 11 4 4 5 3 3 10 4 4 6 2 2 2 2 1 0 0

14 private hotels Number of chain and private hotels chain hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

30 27 10 9

25 8 20 6 6 5 15 4 9 4 3 10 7 2 2 4 4 2 5 2 2 3 0 1 0 0 0 0 0

5 40 34 4 4 30 3 3 3 3 3 20 2 11 11 1 1 10 7 6 1 4 2 3 0 0 0 0 0 0 0

15 private hotels Number of chain and private hotels chain hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

8 7 8 6 6 6 4 4 4 2 2 1 1 1 2 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0

4 3 3 2 2 2 1 1 1 JASTARNIA 0 0 0 0 0 JURATA 0 CHAŁUPY

16 private hotels Number of chain and private hotels chain hotels ACCORDING TO THE HOTEL’S CATEGORY IN SELECTED CITIES

10 16 10 16

8 12

6 4 4 8 4 3 3 4 2 4 2 1 1 1 1 1 1 0 0 0 0 0 0 0 0

10 9 8 8

6 5

4 2 SZCZYRK 2 1 1 1 0 0 0 WISŁA 0 USTROŃ

17 percentage of hotel percentage Hotel management structure rooms of hotels domestic chain operator ACCORDING TO TYPE OF OPERATOR IN SELECTED CITIES international chain operator no chain operator

17% 8% 15% 9% 24% 5% 16% 8% 10% 15% 36% 14% 46% 49% 30% 55% 37% 60% 35% 77% 81% 45% 49% 59%

6% 25% 31% 30% 8% 23% 43% 39% 33% 21% 49% 58% 19% 45% 71% 28% 32% 39%

18 percentage of hotel percentage Hotel management structure rooms of hotels domestic chain operator ACCORDING TO TYPE OF OPERATOR IN SELECTED CITIES international chain operator no chain operator

10% 22% 14% 18% 33% 11%

86% 67% 82% 89% JASTARNIA 78% JURATA 90% CHAŁUPY

7% 30% 37% 31% 41% 4% 47% 4% 3% 51% 66% 92% 70% 93% SZCZYRK 16% 8% WISŁA USTROŃ

19 tourist hotels Tourist and business hotels business hotels NUMBER OF ROOMS PER HOTEL

200 145 145 150 140 138

100 87 65 59 63 38 50 23

0

avg. number of hotel rooms per hotel Average number of rooms per hotel percentage of chain hotels and percentage of chain hotels BUSINESS HOTELS TOURIST HOTELS

160 145 70% 160 70% 138 140 145 140 60% 140 60% 120 59% 120 50% 57% 50% 100 87 50% 100 40% 40% 80 65 63 80 38% 30% 59 30% 60 60 38 24% 20% 25% 20% 40 24% 40 23 20 10% 20 15% 10% 0 0% 0 5% 0% 0%

20 PLANNED HOTEL INVESTMENTS

Watching the future supply of hotels in Poland, one can say with certainty that Another market trend is the implementation of economy hotels. This trend is driven interest of international hotel networks is still growing. Over the next few years by the growing interest among the younger generation looking for cheaper alter- we may see many new hotels built by foreign brands both in large cities as well natives to hotels, yet still situated in attractive locations. Moxy Hotel, built in Praga as on regional markets, where 3- and 4-star hotels are going to be opened. Still district in Warsaw, fts perfectly well into this category. It will be the frst hotel of this this year a 4-star Hilton Garden Hotel is to be opened in Szczecin whereas Ibis- brand in Poland, belonging to the Marriott International network whose the inve- and Ibis Styles- brand hotels belonging to the Accor/Orbis group are to be opened stor is the Polish Chopin Airport Development network. The Marriott network has in Lublin, Rzeszów, Tomaszów Lubelski and Bolesławiec. In some cities popular ho- recently been one of the most active networks in this market segment – in August tel networks will also start building their frst facilities. Expansion onto new markets this year it launched another facility classifed as the lifestyle segment – AC Hotel may suggest a gradual saturation of large cities with chain hotels and the necessity by Marriott located in a 19th century tenement house right next to National Forum to look for new places to conduct business operations. Interesting facilities are also of Music in Wrocław. to be built in Pomerania, where, even though the potential of many places has already been depleted, investors are still searching for attractive locations for their investment. The most important projects carried out on the coast of the Baltic Sea include the hotel in Spichrzów Island in Gdańsk built by Deo Plaza, the hotel close to the Southern Pier – Nowa Marina in Gdynia and Seaside Park in Kołobrzeg built right along the coastline.

A few new hotels are also to be built in business center regions, as for instance Hotel Four Points by Sheraton Warsaw in Konstruktorska street, Vienna House Mokotów Warsaw in Postępu street. Some hotels are also to be built in conferen- ce-exhibition areas, as for instance Ibis Styles Expo Warsaw or close to airports as the above-mentioned Moxy Hotel by Marriott erected at the International Airport Katowice-Pyrzowice or Best Western Hotel at the airport in Katowice-Balice.

21 Selected, planned and executed hotel investments

planned BUSINESS HOTELS planned hotel number category PLANNED NUMBER opening date of hotel rooms OF HOTEL ROOMS Marriott Renaissance, ul. Żwirki i Wigury 225 ★★★★★ IV Q 2017 Europejski (Raffles Hotels & Resorts) 103 ★★★★★ IV Q 2017 Arche Krakowska Residence 356 ★★★★ II Q 2018 Holiday Inn InterContinental Hotels Group, ul. Twarda/Żelazna 254 ★★★★ II Q 2018 Hotel Four Points by Sheraton Warsaw, ul. Konstruktorska 192 ★★★ II Q 2018 WARSZAWA Puro, ul. Widok 150 ★★★★ II Q 2018 MOXY by Marriott ul. Ząbkowska 141 ★★★ III Q 2018 Ibis Styles Warszawa Expo 120 ★★★ III Q 2018 Ibis Styles Warszawa Centrum 179 ★★★ IV Q 2018 Hampton by Hilton Służewiec 163 ★★★ IV Q 2018 B&B Kraków 130 ★★ IV Q 2017 KRAKÓW Puro Kazimierz 200 ★★★★ II Q 2018 KRAKÓW-BALICE Best Western 150 ★★★ I Q 2019 Hampton by Hilton Gdańsk Old Town 156 ★★★ IV Q 2017 IBB Hotel Dlugi Targ 90 ★★★ IV Q 2017 Deo Plaza on the Granary Island GDAŃSK (Dobry Hotel) 150 ★★★★ III Q 2018 Granaria Park Holiday Inn 236 ★★★★ IV Q 2018 Ibis Budget (investment of the New Granary) 172 ★ IV Q 2018 Park Inn by Radisson 166 ★★★★ IV Q 2017 POZNAŃ Hampton by Hilton 117 ★★★ I Q 2018 Focus Hotel 94 ★★★ II Q 2018 WROCŁAW Hotel Best Western Premier 65 ★★★★ I Q 2018 ★★★ ŁÓDŹ Hotel Puro 136 ★★★★ IV Q 2018 Hotel Moxy by Marriott MPL KATOWICE Katowice - Pyrzowice 100 ★★★ IV Q 2018

22 Selected, planned and executed hotel investments

planned TOURIST HOTELS planned hotel number category PLANNED NUMBER opening date of hotel rooms OF HOTEL ROOMS Focus Hotel Premium 70 ★★★ IV Q 2017 SOPOT Hotel, ul. Pułaskiego 68 b.d. IV Q 2018 Hotel, ul. Bitwy pod Płowcami (Radisson Blu) 230 b.d. I Q 2019 Hampton by Hilton 100 ★★★ IV Q 2017 GDYNIA Hotel complex in Orłowo 130 b.d. IV Q 2018 Hotel in the investment of Nowa Marina Gdynia 200 ★★★★ II Q 2019 HEL Nadmorski Hotel b.d. ★★★★ IV Q 2017 Seaside Park 400 b.d. III Q 2018 KOŁOBRZEG Hilton Garden Inn Kołobrzeg 128 b.d. I Q 2019 4-star Hotel ul. Jagiellońska 50 ★★★★ III Q 2017 ZAKOPANE Radisson Blu Hotel & Residences 158 ★★★★ I Q 2018 Hotel Golden Tulip Zakopane 125 ★★★★ IV Q 2018

planned REGIONAL CITIES planned hotel number category opening date of hotel rooms Hilton Garden Inn 100 ★★★★ IV Q 2017 ★★★ SZCZECIN Courtyard by Marriott i Moxy 250 ★★★★ IV Q 2018 Ibis Styles 105 ★★★ III Q 2019 Focus Hotel Premium 75 ★★★★ IV Q 2018 LUBLIN Hotel Ibis Styles 100 ★★★ I Q 2019 OŚWIĘIM Hampton by Hilton Oświęcim 120 ★★★★ II Q 2018 TOMASZÓW LUB. Hotel Ibis Styles 51 ★★★ IV Q 2018 RZESZÓW Hotel Ibis 150 ★★★★ I Q 2019 JASIONKA near Rzeszów Holiday Inn Express 150 ★★★ II Q 2019 BOLESŁAWIEC Ibis Styles 60 ★★★ II Q 2019

23 NUMBER OF POLISH AND FOREIGN TOURISTS foreign tourists polish tourists IN THE YEARS 2012-2016

The growing supply is accompanied by a continued growth in the num- 14 13,2 11,8 ber of tourists who chose Polish hotels, which is due to the relative 12 10,7 security in Poland when compared to the events in other European countries over the last years, the continuously growing wealth of the 9,3 10 8,5 Polish society that is growing keener to spend their money on shorter and longer holiday trips. Other positive factors include ongoing gro- 8 6,4 wth of quality of hotel services in Poland. It turns out that the number 5,5 5,7 6 5,0 5,2 of tourists who use hotels has been growing much faster than the num- millions ber of hotels so far. The CAGR index for tourists using hotels in the years 4 2012-2016 was 9.87% and that for accommodation places amounted to 6.34%. This is a good sign for investors interested in investing in ho- 2 tels and it seems that there’s still room for new investment, however 0 potential investors must choose new locations more and more wisely. 2012 2013 2014 2015 2016 Polish tourists have been more active than foreign tourists over the last few years (two to one ratio). The CAGR index for Polish tourists in the years 2012-2016 amounted to 11.27% whereas that for foreign tourists it amounted to 6.39%. Tourists from other countries for whom Poland PERCENTAGE SHARE OF POLISH AND FOREIGN TOURISTS is the most frequent destination come from Germany, Great Britain, IN THE YEARS 2012-2016 Ukraine and the United States. They usually spend 2-3 days in Po- land and their number has been continuously growing since 2012. Altogether, they amount for almost 50% of all the tourists visiting 100% our country.

80% 37% 36% 34% 33% 33% 60% CAGR 40% 63% 64% 66% 67% 67% 2012-2016 20% 11,77% 6,39% 0% 2012 2013 2014 2015 2016

Source: Own study based on CSO data 24 Top 10 foreign tourist nationalities in Poland ACCORDING TO THE NUMBER OF TOURISTS IN 2016

number number percentage of tourists of nights of tourists 1. GERMANY 1 658 587 5 552 587 26% 2. GREAT BRITAIN 476 830 1 132 359 7% 3. UKRAINE 357 578 924 205 6% 4. USA 301 886 686 050 5% 5. ITALY 271 188 617 295 4% 6. FRANCE 247 228 509 523 4% 7. RUSSIA 227 594 370 896 4% 8. SPAIN 212 155 437 679 3% 9. NORWAY 199 418 523 157 3% 10. SWEDEN 190 207 444 526 3% OTHER NATIONALITIES 2 236 122 4 380 948 35%

AVERAGE LENGTH OF STAY OF FOREIGN TOURISTS 4 3,3 3 2,6 2,6 2,4 2,3 2,3 2,3 2,1 2,1 2 1,6 day

1

0 Germany Norway Ukraine Great Britain Sweden Italy USA Spain France Russia

Source: Own study based on CSO data 25 accommodation places Number of accommodation places tourists using hotels (in general) and number of tourists

USING HOTELS IN THE YEARS 2012-2016

CAGR2012-2016 300 25 accommodation places 250 19,6 20 17,5 ) 6,34% 16,1 200 14,6 general places 13,5 15 (in

150 hotels millions

thousands 10 using 100 accommodation tourists using hotels

tourists (in general) 5 50 9,87% 198,1 208,6 227,5 235,6 253,3 0 0 2012 2013 2014 2015 2016

Source: Own study based on CSO data 26 HOTEL ROOM OCCUPANCY RATE IN THE YEARS 2009-2016

Since 2009 the hotel room occupancy rate has been growing 52% 50,8% gradually across all the hotel categories. The highest room oc- 50% 48,3% cupancy rate is in 5-star hotels, which confrms the stable de- mand for high-standard hotels ofering a broad scope of servi- 48% 45,4% ces which – compared to other countries – are relatively cheap 46% 44,3% 43,7% 43,6% in Poland. Top standard hotels are very often chosen by wealthy 44% tourists from abroad. The good situation on the hotel market 41,2% 41,6% was also confrmed by the increase in the hotel room occupancy 42% rate in the particular voivodeships in 2016. The highest growth 40% was recorded in the dolnośląski region (12.7%), lubuski region 2009 2010 2011 2012 2013 2014 2015 2016 (8.4%) and warmińsko-mazurski region (7.9%). Only in two vo- ivodeships: lubelskie and podlaskie the hotel room occupancy rate dropped slightly compared to 2015 (by 1.2% in podlaskie and by 1.5% in lubelskie voivodeship), which was due to a fresh HOTEL ROOM OCCUPANCY RATE 2015 hotel supply, after new facilities were built in 2016, which had not ACCORDING TO HOTEL’S CATEGORY IN 2015 AND 2016 2016 yet been absorbed by the market.

80% 67,1% 67,5% 54,9% 57,9% 60% 51,2% 48,0% 45,2% 47,7% 40,0% 42,2% 40%

20%

0%

Source: CSO data 27 AVERAGE HOTEL ROOMS OCCUPANCY IN PARTICULAR VOIVODESHIPS IN 2016

70% 62,1% 62,6% 57,1% 60% 52,5% 48,9% 45,9% 46,2% 50% 42,9% 44,5% 44,6% 40,6% 41,2% 39,9% 42,3% 40,2% 40% 36,5%

30%

20%

10%

0%

CHANGE IN THE OCCUPANCY RATE IN PARTICULAR VOIVODESHIPS (2016/2015)

dolnośląskie 12,7% lubuskie 8,4% warmińsko-mazurskie 7,9% podkarpackie 7,5% śląskie 7,4% świętokrzyskie 7,0% wielkopolskie 6,4% pomorskie 6,1% łódzkie 5,2% opolskie 5,1% mazowieckie 3,0% zachodniopomorskie 2,5% małopolskie 1,8% kujawsko-pomorskie 0,9% podlaskie -1,2% lubelskie -1,5%

-2,0% 0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0%

Source: CSO data 28 range (min-max) ADR and REVPAR INDICES average FOR HOTELS IN THE 3-,4- AND 5-STAR CATEGORY

600

500 450

400 Over the last months the ADR 270 and RevPAR indices for hotels 300 have been as follows: 190 200 from 160 to 230 zł 100 ADR from 235 to 350 zł from 350 to 550 zł 0 ADR from 90 to 115 zł 450 from 155 to 190 zł 400 345 from 270 to 420 zł 350 300 RevPAR 250 200 170 150 100 100 RevPAR 50 0

29 Major hotel transactions IN THE YEAR 2015-2017

transaction transaction transaction price voivodeship city type of hotel hotel category number of rooms price per hotel date [euro] INVESTMENTS room [euro] In the last two years 3- to 5-star hotels were most 2015 MAŁOPOLSKIE KRAKÓW 15,2 mln private hotel Hotel Stary ★★★★★ 53 286 792 often sold. There were few transactions involving 1- and 2-star hotels. Until now, in 2017 several ho- 2015 MAŁOPOLSKIE KRAKÓW 1 mln private hotel hotel Major ★★★ 45 22 222 tel sales agreements have been signed. The largest transactions certainly include the sale of the 5-star Radisson Blu 2015 MAZOWIECKIE chain hotel 311 66 881 WARSZAWA 20,8 mln Centrum Hotel ★★★★ Sheraton hotel in Krakow, the 5-star Westin hotel

Radisson Blu or the 4-star Radisson Blu hotel in Warsaw. The Orbis 2015 DOLNOŚLĄSKIE WROCŁAW 50 mln chain hotel ★★★★★ 162 308 642 Wrocław network has been very active too. Over the last se- LUBLIN, 158 veral months it has sold a few hotels across Poland, 2015 LUBELSKIE 5,3 mln chain hotel Orbis/Mercure ★★★ 33 544 ZAMOŚĆ (w 2 hotelach) among others in Karpacz, Jelenia Góra, Opole or To- 2016 MAZOWIECKIE WARSZAWA 6,8 mln private hotel Hotel Partner ★★★ 103 66 019 ruń. It might be expected that these won’t be the only large transactions on the hotel market this year. Mercure WARMIŃSKO- 2016 chain hotel Mrągowo MAZURSKIE MRĄGOWO 4,5 mln ★★★★ 214 21 028 Resort & SPA

2016 OPOLSKIE OPOLE 2,3 mln chain hotel Mercure ★★★ 103 22 330 2017 MAZOWIECKIE WARSZAWA 56 mln chain hotel Westin ★★★★★ 361 155 125 CAPITALIZATION RATES The capitalization rates for hotel facilities difer de- 2017 MAŁOPOLSKIE KARKÓW 6,4 mln private hotel Cracovia ★★★ 314 20 382 pending on the formula in which the given facility Mercure JELENIA G., Jelenia Góra, 188 (Jelenia G.) operates. For hotels managed using the formula of 2017 DOLNOŚLĄSKIE 6,2 mln chain hotel ★★★ 32 979 KARPACZ Mercure 146 (Karpacz) long-term lease agreements the capitalization rates Karpacz Resort are on average 0.5-1 percentage point higher than in Sheaton Grand 2017 MAŁOPOLSKIE chain hotel KRAKÓW 70 mln Kraków ★★★★★ 232 301 724 case of “prime” ofce properties located in city cen- ters. In case of the ofce facilities the capitalization ZIELONA Grape Town 2017 LUBUSKIE 3,4 mln private hotel ★★★★ 62 54 839 GÓRA Hotel rates amount to 5.25-5.5%. Slightly worse capitaliza- tion rates are achieved by facilities operating based 2017 MAZOWIECKIE WARSZAWA 22 mln chain hotel Hotel Gromada ★★★ 354 62 147 on management agreements (management contracts) Radisson Blu 2017 MAZOWIECKIE chain hotel or franchise agreements. In this case the facility owner WARSZAWA 60 mln Centrum Hotel ★★★★ 311 192 926 bears a higher risk of business operations.

30 CONDOHOTELS IN POLAND

Over the last few years condo-hotels have appeared on the Polish market. Such tel. In the mountains in Karpacz there is a condo-hotel in the vicinity of the Śnieżka facilities are usually classifed as the “premium” segment. They have condominium Mountain called Green Mountain Resort and in Szklarska Poręba there is, among units which belong to particular investors, who receive a defned rate of return others, the Sun&Snow Resorts facility and Cristal Resort Szklarska Poręba with from renting the property. For some time they can also use the condo by them- a panoramic view of the Karkonosze Mountains. In the Mazurian region the above selves, for instance during the holiday time. Each condo is fully furnished and mentioned 5-star hotel in Mikołajki is especially worth mentioning. ftted and the proft from its rental is most frequently guaranteed in the contract. The proft depends on the unit’s location, its functionality and standard. Another New investments are executed for instance in Świnoujście as for example the Bal- model in which condo-hotels operate is based on the owner’s share in revenues tic Park Fort, which is to be opened in the second quarter of 2018, the Baltic Park or profts from rental. This model is not as safe as the frst one as it depends Molo (stage II), which is to be opened in the frst quarter of 2019 and Kudowa on such variables as the occupancy ratio or the demand for a given location. Towers in Kudowa-Zdrój, which is in the preparatory phase. The owner of a particular condo in a condo-hotel bears costs related to mainta- ining the unit, just as it is the case with traditional apartments. This means he has Units’ prices in condo-hotels vary and depend mostly on the location of the given to pay the rent, insurance or property tax. However, most frequently, a professio- facility and its set up. The more attractive the location the more one has to pay nal operator is responsible for rental issues, which makes remote management for a single unit. For instance a unit located in Świnoujscie costs from approx. of the condo possible. 5.8 to 12 thousand zloties per square meter whereas a unit located very close to the beach in Kołobrzeg costs from 8.5 thousand to 16 thousand zloties per Condo-hotels frst appeared in the United States in the middle of the 20th century. square meter. Prices for units in the best locations may reach even 35 thousand In Poland the frst facilities became available around 2007-2008. The largest play- zloties per square meter. One must also take into consideration the scope of ers on the Polish condo-hotel market include the following investors: Zdrojowa the investment, the category of the condo-hotel and the standard of furnishing Invest, Condohotels Group and Qualia Development that were the frst in Poland and ftting of the apartments. to launch facilities operating in the condo-hotel formula. Other Polish developers are Sabe Investments which operates mainly on the Warsaw housing market, howe- The condo-hotel segment has so far included only a few facilities managed by in- ver it has also invested in the “condo” system in Międzyzdroje and Świnoujście, and ternational hotel networks which operated under their brand, such as the invest- Inpro Gdańsk which has a luxurious 5-star Mikołajki hotel located on Ptasia Island. ments of Qualia Development in Międzyzdroje and Gdańsk (Golden Tulip-brand condo-hotels managed by the Louvre Hotels Group network). At present we can The frst condo-hotels that appeared in Poland were addressed typically to to- see a trend of complementing the portfolio of global networks with facilities ope- urists and located at the seaside, later also in the mountains and around the Ma- rating in the condo formula, a good example of which is Radisson Blu in Świnouj- zurian Lakes. The most attractive locations and the most famous facilities include: scie, opened this year, which ofers over 60 condo units and also Hotel Ibis Styles, Kołobrzeg with the 5-star Marine Hotel and 4-star Sand Hotel, Świnoujście with the which is to be opened in 2018 and which is managed by the Orbis network as well modern Baltic Park Molo facility or Międzyzdroje with the Golden Tulip condo-ho- as the 4-star Best Western Premier Wrocław City Center.

31 The development of the condo-hotel market is accompanied by blurring of the bo- of other forms of capital investments, such as bank deposits or the stock market undaries and at present not only hotel buildings but also residential buildings are additionally contributes to the development of condo-hotel market. Apart from sold in the condo formula. This is particularly visible in markets in large agglomera- the economic aspects, it is worth mentioning that having a luxurious apartment tions, such as Warsaw, Wrocław, Krakow or Tricity, where the segment of the above in an attractive coastal or mountain town is associated with prestige that’s highly mentioned luxurious facilities started developing a few years ago. Housing develo- appreciated especially by individual investors. Therefore it is not surprising that pers spotted an alternative method of selling residential apartments and encourage developers have introduced plenty of investments onto the market in a relatively potential buyers with frequently lower prices than those of a standard apartment short time. It seems that the boom for condo-hotel continues. Developers no lon- and with a guaranteed proft. The available units are usually fully ftted and fur- ger promise such high rates of return as still a few years ago, but that proves that nished micro-apartments, from 15 square meters in size, where the operator gu- the market is maturing and investors, both corporate as well as private, feel more arantees full service throughout the duration of the agreement. At present several and more secure and perceive this market as a safe form of investment. buildings, which will provide approx. 2,500 apartments, are under construction in large Polish cities. Nevertheless, this does not change the fact that the condo-hotel market in Poland is still relatively young and just forming. Therefore we may suspect that in the ne- Condo-hotels seem to be an interesting solution, in particular from private inve- arest future it won’t replace the traditional hotel segment. However, we do think stors’ point of view, also the less wealthy ones, as buildings with the so-called low that it will continue to develop strongly, yet both supply and demand will intensify threshold price ranging from below PLN 100 thousand are also available. A rental in the segment of luxurious apartments, mostly in large cities. In particular private agreement is most often signed for the period of 5 to 15 years and the currently investors, who have so far focused on buying rental apartments, may become in- ofered profts reach from 4.5 to 9% net a year. Moreover, the falling attractiveness terested in the condo-hotel market.

32 FORECAST

It is difcult to predict the situation on the hotel market in Poland in the next few The situation on the markets in large agglomerations is varied. Warsaw, as usual, years. Despite the fact that the year 2016 was highly successful in the hotel industry is no. 1 in terms of the most dynamic development. Only by the end of 2018 almost and the year 2017 can also be considered as a good year, one may wonder how much 2 thousand of new hotels rooms will become available here. However, it seems that longer this trend is going to last. The very large planned supply may cause that the the growing supply in Warsaw meets the large demand, both from the side of busi- market won’t be able to cope with it so efectively, which will contribute to a slowdown ness clients as well as tourists. In Krakow there is the largest number of hotel facilities in the future. among all the Polish cities (over 150), however – as a rule – these are usually hotels ofering a much smaller number of accommodation places than the hotels in War- At present we can see a continued high level of activity among investors who are saw. The number of new hotels to be built in Krakow is not much diferent compared introducing more facilities onto the market, which may lead one to believe that they to other markets, which – in our opinion- means that the market balance between are optimistic about the future. New investments abound and feature an increasingly supply and demand should not be disturbed in the nearest years. A completely dif- broad ofering both in terms of luxury hotels (as for instance Rafes Europejski hotel ferent situation is taking place is Tricity, where – taking into consideration the market in Warsaw) as well as lifestyle segment hotels (for instance Moxy by Marriott hotels). scale – the future supply combined with the already existing facilities may prove ex- Moreover, the brands that have already been present on the Polish market for some cessive and lead to lower hotel room occupancy ratio and weaker fnancial results time, are still increasing the number of facilities in their portfolio by acquiring hotels of some older and worse operating facilities. On the other hand, on the Wrocław from private investors (still this year Gubałówka Residence in Zakopane will become and Poznań market the situation is rather stable. Investors are planning to build some one of the facilities under the brand BW Premier Collection). Another factor driving new facilities, which, however, should not weaken the position of the already existing the hotel market are the very low rates of return in the sectors, which were traditio- ones. The market, which – to our mind – still has untapped potential and a lot of room nally the frst choice for foreign institutional investors on the Polish real estate market, for new hotel investments is the Silesian agglomeration. i.e. the ofce and commercial sector. The good situation of the hotel industry ofers a relatively high investment security coupled with higher rates of return. Well mana- ged hotels prove to be a good method of investment.

Older facilities with worse localization or less efective management may fear fast growing competition. They may fail in their eforts to remain competitive, especial- ly with the continued expansion of strong network operators with qualifed mana- gers and globally recognizable brands that guarantee a certain level of hotel services. Additionally, the trend of chain hotels appearing on regional markets may pose a threat to private hotel investors, who have dominated these markets so far.

33 GLOSSARY OF TERMS

THE ADR INDEX defnes the average net daily rate per hotel room. It is achieved by A MANAGEMENT CONTRACT is an agreement under the framework of which dividing net revenues from sale of hotel rooms by the number of hotel rooms sold. the given hotel network grants permission to use its brand and also manages the facility’s operations on behalf of its owner. Fees depend on the sales revenues THE REVPAR INDEX defnes revenue per available room. It is achieved as the pro- (3-6%) and the operational proft (max. 15%). An individual entity may also act as duct of the average revenue generated by one available hotel room and the average an operator managing hotel – then the facility operates under its own brand. occupancy rate or as the quotient of the revenues from sale of hotel rooms and the number of hotel rooms available in the given period of time. LEASE – an agreement concluded by the owner and managing operator. The ma- naging operator conducts business activities related to the property for his own CAGR MEANS COMPOUND ANNUAL GROWTH RATE. This is an average index account and the owner receives a fxed rent. This contract is not popular due to the of annual growth in the examined period of time. The CAGR index is defned by high risk borne by the operator. It is most often used by popular Polish hotel taking into account the fnal and starting value of the given phenomenon, and also the number of years between the starting and fnal year. THE LIFESTYLE SEGMENT – a hotel segment addressed to the young people, i.e. the so-called Millennials who expect a reasonable price, good location and good A HOTEL NETWORK – an organization with its own brand or hotel brands that standard of hotel services. manages facilities which are a part of the hotel network. A hotel network applies its own, uniform standards to the scope of the provided services, the type of organiza- HOTEL ROOM OCCUPANCY RATIO – the relation of the number of rented rooms tion, equipment or location of the hotels operating under its brand. to the nominal number of rooms (the total number of rooms prepared for tourists on every day of the hotel’s operations). It is expressed as percentage. It is defned HOTEL MANAGEMENT STRUCTURE ACCORDING TO THE TYPE OF OPERATOR as hotel room occupancy ratio or hotel occupancy. PRESENTS the structure of entities that manage hotels is divided into network ope- rators (Polish or global) and private operators who do not form networks, whereas AVERAGE LENGTH OF STAY – the average number of days (nights) a tourist spends a network operator may also be a hotel owner or solely a hotel manager based at a hotel, calculated using the quotient of the number of overnight stays at the ho- on a relevant agreement (for instance franchise agreement). tel and the number of tourists using hotels in the given (identical) period of time.

FRANCHISE – an agreement concluded by the property owner and the hotel brand NUMBER OF OVERNIGHT STAYS – the product of the number of hotel guests and owner, under the framework of which the property owner is allowed to use the the number of days/nights of their stay at the given hotel in the given (identical) brand, know-how and distribution channels in return for respective fees (entrance period of time. and cyclical). Franchise is usually granted by international hotel networks. Signing a franchise agreement means a large risk for the hotel brand owner who risks de- terioration of its image if inappropriate actions are undertaken by the facility owner or manager.

34 THE DESCRIPTION OF EMMERSON EVALUATION’S ACTIVITIES Emmerson Evaluation Sp. z o.o. was established in 2008 and provides services involving the appraisal of residential, commercial (ofces, retail facilities, wareho- use, development investments, hotels). The Company makes all-purpose valuations, including to secure debts, for fnancial statements and proft evaluation in regard of purchases or sales. It has broad experience in valuing large packages of real property, tangible assets and market analyses.

Emmerson Evaluation’s studies comply with Polish and international standards. Emmerson Evaluation also has its own data base of transaction prices on the real property market, E-VALUER, which now comprises nearly 1 000 000 transactional data described in great detail.

The Company has regional ofces in 7 largest cities in Poland, employs more than 50 real property market experts, including 35 property valuers. Emmerson Evalu- ation’s services are targeted mostly at banks, residential and commercial develo- pers, investment funds and quoted companies

DETAILED INFORMATION : www.emmerson-evaluation.pl

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