Foreign investors expected to put millions into new four- and five-star hotels

L'hôtel Crowne Plaza

A recent headline in the Czech newspaper Mlada Fronta Dnes put it succinctly: "More hotels than streets" indicating the number of hotels in Prague 1. Shortly afterwards, numbers released by the Czech Statistical Office confirmed that the number of guests staying in hotels in 2006 - especially four- or five-star establishments - went up year-on-year. In short, there is now more demand for luxury hotels in the Czech capital than ever.

Despite this fact, a shortage of luxury establishments exists. Prague alone has almost 500 hotels, but real estate agencies and market analysts indicate there are still marked opportunities for investors to open four- and five-star establishments. Some are expected to pour millions into new hotels on the Czech market over the next three years.

Tomio Okamura of the Czech association of tourist agencies explains that even conservative foreign investors are now being attracted precisely because of the market potential and the fact that other important criteria in the 90s were met:

"Whenever a new tourist destination is discovered anywhere in the world there are always a few steps that take place. First come the groups: that means that clients don't feel that safe about a destination which is not so well-known, so they pay always for a guide and tour leaders and so on. That was the situation predominantly up to the years '95, '96, '97. But, then the number of groups fell and the number of individual clients increased. Today, Prague is sixth in Europe regarding the number of tourists. Now individual clients make up 75 percent, which is a barometer of how they feel towards Prague as a destination. It is also reconfirmation that it is safe for investment."

Until now, a good share of the Prague market was made up of three-star hotels with relatively fewer five-star establishments: 26 two years ago, while there were 89 four-star hotels. Now the number stands at 29 and 100 respectively and in the next few years it is expected to increase even more. Pavel Hlinka is the president of the Czech Association of Hotels and Restaurants:

Pavel Hlinka
"I would say that the growth is really big: every year a minimum of two thousand, three thousand new rooms are coming onto the market. We can say that now there are ten times more rooms than before the Velvet revolution. At the same time, it's important to say that there were only a few international hotels, but that now, with the exception of the Hyatt and the Sheraton, every hotel chain is situated in Prague."

One direction some new investors are taking is investing in small or medium-sized boutique hotels, four- or five-star establishments which often present a more original setting or personal touch. Tourism specialist Tomio Okamura once again:

"For smaller hotels, for example in the Old Town, I think the situation will be fine, it will still be good. Because, individual clients very often choose smaller hotels because they want to feel that they are getting individual service. Very often each room is 'a little different' and they can choose from different variations. I know dozens like these and some of them are very nice. Because the number of individual clients is still increasing, I think that some small boutique hotels with some quite interesting hotels and facilities have a very nice and long future."

Mr Okamura suggests that exquisitely renovated and furnished historic buildings with around twenty rooms are typical for this kind of project but stresses that there is a world of difference and investment, for example, between three and four stars. Any hotel in the luxury category must meet the highest international standards. In terms of style, not all such establishments, however, go the Baroque or Classicist route. By way of example, one of the boutique hotels in the city is Hotel Josef, a Functionalist building where owners took a minimalist approach. It was redesigned inside and out by architect Eva Jiricina. Not antiques but contemporary and crisp design: glass and shades of white. Hotel Josef's Milena Findeis:

"You can see it in the details, if it's design or not. It doesn't happen so often that the architect and the interior designer are the same person but we were lucky. I remember quite well one of the first conversations I had with Eva Jiricna: here we have a lot of white, but the reason is that if you are coming to Prague you see so many types of architecture your eyes need some time for recovery! You need a bit of quiet atmosphere which gives you new energy! It's difficult to describe but you can feel it because there is a harmony."

Hotel Josef is one approach, but it is clear investors will be weighing others based on location, history, their target customers, and style. According to the Czech Association of Hotels and Restaurants' Pavel Hlinka, ultimately with even more competition looming on the Czech market it will be the customer who will benefit. On the other hand, some of the smaller, non-luxury hotels may find themselves struggling.

"When we are speaking about the rates, especially for two- or three-star hotels, especially during the low season, life is very tough. Because, five- and four-star hotels go down with the rates and the three-stars are forced to go down with the rates too. And, I am afraid that sometimes for them it is a nightmare in the wintertime to keep their business successful."

The influx of more luxury rooms may present more of threat for cheaper hotels, perhaps not, but this much is clear: most investment, say specialists including Tomio Okamura, will be aimed at Prague. In his view, it is still a major unsolved problem to get investors to put money into projects outside the capital unless there is first a large improvement in infrastructure as well as the promise of government-backed incentives and a low tax rate. While there are cases where foreign investors have renovated old chateaux and turned them, into exclusive hotels, many, like Pavel Hlinka and Tomio Okamura think they are exceptions and do not think the Czech Republic will see all that massive investment into the more rural parts of the country just yet. Tomio Okamura again:

"In the future, yes. But not this year or the next. Not in three years, I think. Last year the Czech Republic was visited by 6.5 million foreign tourists. Fifty-seven point five of them visited only Prague, and 80 percent of foreign tourist revenues were done only by Prague: 111 billion crowns. So it means that there is a very, very big difference between Prague and the rest of the Czech Republic."

Attracting new investment into the regions must now be a number one priority, seventeen years after the revolution, says Mr Okamura, if the Czech Republic is to attract a substantially higher number of repeat visitors, beyond the Czech capital.