Across all three cities, investors are now seeking to capitalise on the growing markets, as the Baltic economies are among the fastest developing in Europe. Growing economic value has been seen most prominently in Tallinn, which has seen annual RevPAR increases of 6% in the last five years, with Vilnius following with 4% annual growth. Riga has seen slower RevPAR increases over the five year period at 2% annual growth, as it has experienced the most rapid market supply increase at 11% over the same period, driving rates slightly lower due to increased competition. Overall, all three markets have seen demand exceed supply, with Tallinn and Vilnius showing 3% and 6% supply growth over the five year period, respectively.
Alongside having the highest rate of supply growth, Riga is also the fastest growing city in terms of demand, as hotel overnights have seen the highest annual growth of 3.9%, followed by Vilnius at 3.1%. Despite their impressive growth, the two cities have yet to catch up with Tallinn, which remains the leading market for hotel overnights with 2.7 million stays in 2017, despite slower but still positive growth of 2.3% annually.
The airports in all three capital cities have shown strong passenger growth rates and expansion, increasing accessibility and tourist supply to the areas. Riga Airport is the largest of the three, carrying 6.1 million passengers annually and has the second highest annual growth rate of 6.8%, behind Vilnius Airport at 8.2%, while Tallinn Airport, the smallest of the three, has shown annual growth of 4.4%.
As a historically more fragmented industry in the Baltics, the hotel market is now beginning to see investment from international group operators looking to capitalise on the growing opportunities and value in the three major cities. Radisson Hotel Group is the leading operator in the region overall, with Mogotel and Accor most prominent in Riga, Tallink, Hestia and Sokos dominating in Tallinn, and Centrum, Mikotel and IHG in Vilnius. Currently, the only city to have a Hilton presence is Tallinn, but this looks to change with plans for Hilton to open its first hotel in Riga and two in Vilnius in the pipeline.
Marriott and Mogotel have also shown plans to further expand in the Baltics, following the trend of continued expansion and growth which will be seen across the region, as noted in the report’s outlook. Vilnius looks set to have the largest pipeline and growth with 1,900 more rooms expected by 2020, a 41% supply increase, while Riga and Tallinn can both expect a 15% supply increase in that time.
With the region still in an early stage of growth and development, the report shows that there are plenty more opportunities for investors and operators to break into these exciting markets, with no lack of demand as their popularity grows.
Kimmo Virtanen, Director – Scandinavia, Russia, and the Baltic States based in Christie & Co’s Helsinki office, was part of the team that published the report’s findings and comments, “These markets are developing rapidly, attracting many new projects and players. Low brand penetration combined with relatively inexpensive development and operating costs could unlock many lucrative investment opportunities for international investors.”