If You Build It, They Will Come

With years of strong growth in arrivals and overnight stays Croatia experienced a boom in accommodation units which now seem to be a burden for some segments. Now, as tourism becomes the main topic in almost all Croatian media, we decided to bring you a brief overview of tourist arrivals and overnight stays recorded in the first half of the year.

Tourist Arrivals & Tourist Nights (2016 – H1 2019) (million)

Source: Croatian National Tourist Board, InterCapital Research

In the first six months of 2019, Croatia recorded 6.88m arrivals, representing an increase of 6.4% YoY. Meanwhile, overnight stays amounted to 26.3m, representing an increase of 3% YoY. Although these growth rates are significantly lower than last year’s double-digit growth of 12% in arrivals and 10% in overnight stays, one can still find comfort in the fact that Croatia’s tourism is still attracting new guest, despite pressure from recovering markets. As a reminder, for the past couple of years Croatian tourism has been benefiting from the unfavorable security conditions seen in competitive Mediterranean countries. As a result, the domestic hospitality industry saw double digit growth in arrivals and overnight stays which pushed prices up significantly.

This continuous growth in arrivals and overnight stays, which has only been interrupted twice since 1995, has also been the driver of increasing accommodation units. As a result, the number of available beds rose 4% YoY, amounting to 1.2m by the end of H1 2019. If we break down the total number of beds into segments, private accommodation continues to be the dominant provider of accommodation with the segment accounting for 52.5% (+4 p.p.) of all beds offered. Next come camps, which account for 21%, followed by hotels which make up for 14.9% of total beds.

Number of beds (30 June 2019)
Source: Croatian National Tourist Board, InterCapital Research

In recent years, the number of beds has observed a significant increase, which can be observed when comparing the current number of beds to June 2016. Since then, the number of beds has increased by 16.23% (+164,816 beds). It is noteworthy, that most of the increase came from the rise in beds in private accommodation, which observed an increase of 127,609 beds (+25.9%). As a comparison, the number of beds in hotels increased by 3.5% (+5,873 beds), while the number of beds in camps remained relatively flat.

So, by now one can surly be wondering if decreasing growth rates and rising accommodation supply is something that investors should worry? Well, as noted in the text above, the largest increase in accommodation units has been in the private segment which managed to increase their offer by 25% in just three years. Meanwhile, the growth rate of hotel beds remained much lower and if one looks at the table presented below it becomes clear why hospitality companies might benefit from it.

Net Occupancy Rate Of Bed-Places And Bedrooms In Hotels And Similar Accommodation (%)
Month 2013 2014 2015 2016 2017 2018 2019
wdt_ID Month 2013 2014 2015 2016 2017 2018 2019
1 January 13,40 14,30 15,90 16,10 18,40 20,50 18,2
2 February 18,30 19,10 21,20 22,90 26,60 26,50 28,6
3 March 23,80 22,50 22,50 27,00 27,20 30,10 30,8
4 April 31,40 34,40 34,10 32,60 46,30 42,20 45,4
5 May 47,60 44,60 47,20 49,10 49,40 55,70 52,7
6 June 64,40 66,00 66,50 65,80 77,50 74,60 -
7 July 87,60 84,80 90,70 94,40 95,90 94,30 -
8 August 96,70 92,50 97,40 98,40 98,30 97,30 -
9 September 68,50 66,70 69,80 75,40 72,80 73,10 -
10 October 37,00 37,70 36,30 41,00 44,10 54,60 -
Source: Eurostat, InterCapital Research

As one can see from the table, the occupancy of hotel beds during the peek of the season has been almost full in all of the observed years, meaning that the demand for hotel accommodation in Croatia is met by the supply. Therefore, even if Croatia does record a certain slowdown in growth of arrivals and overnight stays, whereby the record numbers from 2017 are repeated, hospitality companies which invested heavily in their CAPEX to upgrade their offerings may still find ways to enhance their top lines even if fewer tourists do visit Croatia this year.

Dino Durrigl
Category : Blog

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