Prague Selling Itself Short, Says STR Global Report

Prague Selling Itself Short, Says STR Global Report

Vacation News » Vacation & Leisure Real Estate Edition | By Michael Gerrity | September 22, 2009 1:02 PM ET

(News Source: STR Global)

(LONDON, UK) -- Results for Prague were consistently gloomy for the year to date, as a general lack of demand and oversupply of hotels drove the market's key performance indicators deep into negative territory, according to data from STR Global, the leading provider of market data to the world's hotel industry.

Prague Monthly Hotel Performance (Percentage change over 2008, €)

Foreign visitors to Prague were down 10.8 percent in the first half of the year (Source: Czech Statistical Office). The Czech Republic as a whole has seen the supply of four- and five-star hotel rooms more than double since 2000--an astonishing 118-percent increase (Source: Czech Association of Hotels and Restaurants). Recent openings in the Czech capital include the Clarion Congress hotel (559 guestrooms), the Sheraton Prague (160), the Augustine (101), the Kempinski Hybernská (75) and the Buddha Bar Hotel (39).

"The knee-jerk reaction to these two stimuli has been a dramatic decrease in rates", explained Elizabeth Randall, managing director of STR Global, of the 17.9-percent decline in average daily rate for the year through July 2009. "The city's hoteliers just doubled up on the pain as price cuts did not stimulate demand that wasn't there".

However, some improvement is on the horizon. "The slowing of the rate of decline for Prague's year-on-year occupancy over the last few months has stalled the downward pressure on rates", Randall said.

Hotel Performance for the year to July 2009 (€)

Prague's struggles are particularly pronounced when compared with the rest of Europe. The market experienced a 30.6-percent decrease in year-to-date revenue per available room compared to last year; Europe as a whole posted a 20-percent decrease.

Prague also is selling itself short on rate. At €80.65, the market's ADR was 14.4 percent lower than the rest of Europe, which had an average of €94.29, and 3.7 percent lower Eastern Europe*, which had an average of €83.79.

Other factors are also at play. The city has no dedicated marketing campaign for tourism. Furthermore, a poor meeting infrastructure makes it difficult to fill the city's hotels with the thousands of guests that travel to such events in cities like Vienna, Frankfurt and Barcelona.
On the upside, the Czech Crown is currently trading at around CZK25.5 : €1, which is slightly weaker than the CZK29: €1 rates of 2008. Thus, the city's attraction to euro-spending visitors should make for an improvement in its fortunes. "As the economies of feeder markets, particularly Germany, are showing signs of recovery, this should add some much needed impetus to the Prague market", Randall said.

With an estimated 30,000 additional roomnights generated from Prague's hosting of the presidency of the EU for the first six months of 2009, it is sobering to think how much worse it could have been.

*Eastern Europe is defined as Belarus, Bulgaria, Czech Republic, Hungary, Poland, Moldova, Romania, Russia, Slovakia and Ukraine.

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