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The particular moment affecting the hospitality industry in the Czech capital: luxury facilities are searching for new owners, while low-cost chains are moving in with their “budget hotels”

Crowne Plaza, Kempinski, President, and the Four Seasons are only a few of the luxury hotels in Prague – famous also for hosting international VIPs and show business celebrities – that are now being put up for sale. There can only be one reason for this: lack of profitability of the city’s hotels. Despite the fact that Prague is one of the most sought after tourist destinations in the world, with 5.4 million visitors last year and at least 4.6 million foreigners, (800,000 more than five years earlier, according to the Czech Statistical Office), hotel proceeds are still not remunerative and do not meet expectations. This is also due to ensuing ruthless competition, which is pushing and obliging even the big chains to maintain room prices low.
Four Seasons
From this point of view, Prague is also struggling to shrug off its reputation as a cheap holiday place, where spending little is almost an obligation.

Another leading cause seems to be the availability of low cost alternative accommodation, that particularly during the crisis, tourists pay increasingly more attention to: empty colleges during the summer months, hostels and private houses that are rented for short periods. All at extremely low prices.

The consequences are quite evident: the hospitality market in Prague – that since 1989 until about ten years ago suffered a severe shortage of accommodation for tourists – is now saturated and the supply exceeds demand. And, as if it were not enough, according to the latest news, low cost hotel chains are now moving in.

Business operators say the Prague hotels being sold off, are mainly those built before the outbreak of the economic crisis, when the hospitality business had reached its climax.

In actual fact, during the last decade, the Prague hotel market experienced a real boom, during which, according to Jones Lang LaSalle, the number of beds actually increased by about 7,000 units, the clear majority of which were in the four to five star segment. The biggest increase was recorded in Prague in the years 2006-2008. “They estimated that the city would have ranked among the top European destinations, such as Vienna, Amsterdam and Barcelona”, says Jiří Gajdošík, co-owner of Asten Hotels. But this did not take place. The saturated market has now forced hotels to deal with serious economic problems, whose consequences can still be felt today.

Investors are thus complaining about the lack of return on their investment. Quite recently, we had the example of the luxurious hotel Augustine in Malá Strana: after suffering heavy losses in recent years, the Rocco Forte chain was obliged to give up its management of the concern. The consequence is that the investor Waldeck Capital – that spent a good 1.7 billion crowns on this operation – is now obliged to take over and deal directly with its management until it finds a new operator, perhaps a large international chain, willing to rent the hotel.

According to a survey by Jones Lang LaSalle, earlier this year, there were 341 hotels in Prague for a total of 26,400 beds. More than 50 % of its accommodation capacity belongs to the high standard segment.

According to a survey by Pricewaterhouse Coopers, in the Czech capital there might actually be 470 hotels for a total of 33,000 beds.

“If an investor wants to buy a hotel in Prague, he has a vast choice. On the market there is a series of hotels. However, potential buyers are rare and when you do find them, negotiations often run aground on account of the price, which makes it difficult for the parties concerned to reach a compromise. Moreover, banks are not willing to finance such projects, because they are considered at risk”, states Petr Novotný from the law firm Vilímková, Dudák & Partners.

Gone are the golden days of 2006/2007, when everything seemed to indicate that the return on the investment would be rapid and substantial. The economic crisis, but also other factors – ever increasing competition, the increase of VAT, the strengthening of the crown, not to mention rising management costs – have increased the time necessary for the return on the investment.

The hotels in the center, endowed with “genius loci” and a particular charm, with historical and architectural features, seem to be the only ones that are having less difficulty to find new owners or managers.

One of these is the Palace Hotel, near Wenceslas Square, built in Secession style, which has recently passed from the Austrian company Warimpex to the Czech company Special Tours, in spite of the € 19 million mortgage burden that weights down on the property. “I believe we know how to operate well and we have good contacts with foreign tour operators”, explained Jan Dubský, the owner of a company that runs another Art Decò jewel in Prague, the Imperial hotel, located close to Náměstí Republiky.

On close examination, although the hotel market seems saturated, according to newspaper reports, Prague continues to be a target for five-star hotel chains that are not yet present in the Czech capital. The Ritz Carlton, Rosewood, Le Royal Meridien or Hyatt, just to name a few, are in fact waiting for the right opportunity, but apparently, have not found it yet.

On the other hand – as if to confirm its “low cost city” label – large international operators of the so-called “budget hotels” are moving in. The news came this summer that the French B&B, was opening its first hotel in Prague-Florenc, while the Germany Motel One, has the same type of hotel under construction.

“Our main target is the customer himself, who is looking for accommodation through the internet”, says Jan Strnad, manager of B&B Hotel Praha City.

The new networks intend to beat competition by offering low prices, a respectable standard of accommodation, that is close to the center and urban transport system. Their objective is to have a large number of rooms (160) and reduce services to the minimum. There is no restaurant in the hotel, no phones in the rooms and no room service. A double room costs 69 Euro (high season) or 59 Euro (low season). With a supplement of 7.50 Euro, you may have self-service breakfast, drinks from the vending machines and parking.

B&B are the third largest French hotel chain, whose main shareholder is the investment firm Carlyle. It currently has 270 hotels, besides the ones in France, 55 hotels in Germany, 14 in Italy, two in Poland, and one in Portugal and Morocco.

The other “budget hotel”, with 141 rooms, is the one that Motel One will rent from the Czech/Slovak investor Penta Investments. It will be opened at the end of next year in Na Poříčí street. To sum up the aspiring philosophy of this future hotel, David Musil, manager of Penta, stated rather explicitly: “It will be a Ryanair type of hotel”.

by Yveta Kasalická