Foreign investors are lining up to take advantage of the collapse of tourism in Budapest in the hope of snatching bargain deals on the hotel market, local media writes on December 14. But so far transactions are hard to come by as owners are not ready to make concessions.

Troubled hotel operators in Budapest are besieged by investors from Europe, China and Arab countries, according to a report by Privatbankar website, citing industry associations and consultants.

There is no pressure on owners to sell their stakes with the state-mandated loan moratorium still in place, said Tamas Flesch, head of the Association of Hungarian Hotels and Restaurants. Flesch is also the co-owner of the Continental Group, a hotel management company, that has sealed two transactions a year ago just before the crisis hit.

Customers are looking for buying opportunities, with a possible 20-40% price discount, but owners are unwilling to lower prices despite the crisis, said consultant Peter Kraft. Investors are now moving to other European capitals to strike deals, he added.

Hotel development projects continued during the pandemic as there is confidence that life will get back to normal next year and that tourists will return to Budapest.

In the first ten months the number of guest nights at commercial accommodations dropped 53.1% y/y to 12.8mn. Overnight stays by foreign guests in the same period fell 74% to 3.57mn.

Hungary's tourism sector closed a record year in 2019 as the number of guests at commercial accommodations reached 12.8mn and that of overnight stays exceeded 31.3mn, a two-fold increase from 2010. Foreigners accounted for half of guest nights at hotels with at least three stars. The data does not include stays booked through short-term rental services such as Airbnb.

Budapest hotels, which depend heavily on foreign guests were hit by the crisis harder than their peers in the countryside.

After the government lifted lockdown measures in June, domestic tourists flocked to popular destinations in the countryside. Hotels at the popular holiday hot spot around Lake Balaton operated at full capacity in August with some raising prices by as much as 40% due to strong demand.

Hotels were forced to close their doors except for business tourists after the government reintroduced restrictions in mid-November. Most of the hotels in the capital have closed temporarily to save costs and laid off staff. They are now trying to survive through the government's furlough measures, which had been extended until January.

The overwhelming sentiment is that owners are not in a hurry to exit the market, Privatbankar writes

Analysts say that there are at least two dozen projects in the pipeline in central Budapest. Projects that are still in the designing phase, however, will be unlikely to proceed with the lack of financing.

A recent report by the National Bank (MNB) estimated that the development of some 7,000 rooms, roughly 13% of the present capacity on the market to be completed in three years could come under review. Some 4,200 of the rooms are to be constructed in Budapest.

Developments in the hotel segment have come to a standstill as global tourism collapsed. Some 580 rooms were handed over in H1, according to a report by property consultancy CBRE. Projects under due diligence reached €165mn, the majority of these will slip into 2021,

The largest transactions on the market in the last 12 months were linked to US-Hungarian investment management and property developer Indotek Group, owned by Hungarian billionaire Daniel Jellinek.

The company bought five-star luxury hotel Sofitel for an estimated €100mn this year after taking ownership of one of the most prestigious hotels in Budapest paying an estimated €80mn for Gellert, also known for its world-famous thermal bath.

Indoket is said to carry out a complete renovation of the exterior and interior of the two facilities. In the case of Gellert the costs could easily exceed the transaction price, analysts said.