Hospitality Not Only in Prague – Q1 2023 Analysis

On the hotel performance front, hotels in the Czech Republic recorded robust RevPAR growth of 91.2% in Q1 2023 compared to Q1 2022. This was driven primarily by a strong occupancy recovery of 64.1%, with occupancy reaching nearly 57% in March 2023. In Prague, RevPAR (Revenue Per Available Room) grew even more sharply — up 97.2% in Q1 2023 versus Q1 2022 — on the back of significant increases in both occupancy and ADR (Average Daily Rate) of 69.5% and 16.3% respectively. Overall, hotel occupancy in Prague exceeded 58% in March 2023.

Q1 2023 transactions

The Czech Republic recorded two hotel acquisitions in Q1 2023. The limited number of transactions in recent months has reduced visibility into yield movement, but some deals outside key locations showed upward pressure, driven primarily by elevated capital costs.

Although Prague hotels recorded a healthy performance recovery in Q1 2023, room for further growth remains: RevPAR still averages about 19% behind the other CEE-6 capital cities. The main reason is the slower recovery of air connectivity at Prague Airport (still 40% below 2019 levels), which should be a short-term challenge given the airport's adequate capacity and Prague's strong appeal as a tourist destination.

Prague – hotel supply in Q1 2023

No new hotels opened in Prague during the first three months of 2023. Average room supply was nevertheless up 1.4% versus Q1 2022, thanks to hotels that opened last year: Andaz (March 2022), The Julius (April 2022), Karl by Zeitraum (June 2022), and Residence Bilkova (November 2022). In addition, the Alcron Hotel underwent a full renovation and rebrand to Almanac X (204 rooms), reopening in January 2023.

Central and Eastern Europe

Investment

Hotel investment activity across Central and Eastern Europe remained subdued amid a climate of uncertainty — including Russia's war in Ukraine, rising energy costs, and broader recession concerns — prompting investors to adopt a wait-and-see stance. Looking ahead, transaction activity in 2023 is expected to pick up as investors need to deploy capital while some owners consider selling assets to address liquidity needs.

Limited transaction evidence in recent months has reduced transparency around yield movement. Some deals recorded upward shifts, driven primarily by higher capital costs. Interest rates are expected to ease during 2023, which should allow yields to stabilise.

Performance

Hotels across Central and Eastern Europe are recording strong RevPAR growth, with most markets approaching 2019 levels. Budapest — boosted by record-high ADR — achieved the highest RevPAR in the region, followed by Prague and Bucharest. Looking ahead, hotels across most CEE markets are expected to continue acting as an effective inflation hedge, with revenue growth helping to offset rising operating costs.

Supply

CEE capital cities saw a moderate supply increase in 2022, with 18 new hotels totalling 2,420 rooms opening, while 6 hotels with 1,145 rooms closed due to repositioning. A stronger supply pipeline is expected in 2023 — 25 new hotels (3,187 rooms) — including several reopenings such as the Intercontinental Athenee Palace in Bucharest and Almanac X Prague.

Demand

Demand is on a solid recovery path, with room nights occupied across Central and Eastern Europe up more than 100% compared to 2021. While occupancy improved robustly, CEE markets have not yet returned to pre-pandemic levels, largely because Russia's war in Ukraine continues to deter travellers from the region. Corporate and MICE demand has also not yet fully recovered, though early signs of significant improvement are emerging for 2023.

Czech economy

GDP growth of 2.5% was recorded in 2022, but the economy posted two consecutive quarters of mild contraction in the second half of the year as weakening private domestic demand — driven by sharp rises in inflation and interest rates — weighed on activity. Inflation appears to have peaked and is projected to decline relatively quickly. The labour market remains relatively resilient, with one of the lowest unemployment rates in the EU. As of April 2023, Moody's Analytics projected the economy would contract by −0.4% in 2023, before returning to GDP growth of 3.5% in 2024 and 4.0% in 2025.