Current Evolution of the Romanian Hotel Market and Trends for the Forthcoming Period

by Peacock Hotels General premises Unprecedented hotel effervescence in the north of the capital Hotel investments in Bucharests limitrophe area Infrastructure of assemblies in Bucharest Strategic movements of the hotel groups and chains Hotel development forecasts for various areas of the country Recommendations for the correlation of the hotel, city planning and systematization investments Analysis of the tourist circulation in Romania General premises
One of the reference landmarks in our valuations regarding the evolution of the local hotel market is the accelerated rhythm of Bucharests development, the highest registered since foundation of the European Union and comparable to the increasing rhythms of the economy and urban development of big metropolis such as Moscow or Shanghai, maintaining the proper proportion, obviously. Forecast 2020 - Arrivals to Europe and other regions Forecasts Base year (mn) (mn) 1995 2010 2020 World 565 1006 1561 Africa 20 47 77 Americas 110 190 282 East Asia and the Pacific 81 195 397 Europe 336 527 717 Middle East 14 36 69 South Asia 4 11 19
Source: UNWTO

Market share (%) 1995 2020 100 100 3.6 5.0 19.3 18.1 14.4 25.4 59.8 45.9 2.2 4.4 0.7 1.2

Average annual growth rate (%) 1995-2020 4.1 5.5 3.8 6.5 3.1 6.7 6.2

Another element to be considered is that, if until now we assisted to a viable increase of interest for hotel investments, this period did not mean but an exploration interval, a pioneering and foundation stage, strengthening and growing up the ample portfolio projects to come. The investment explosion in the hotel industry begins only now and we forecast it will last for the next five six years, when we shall assist to a doubling of the current room capacity as far as the Capital concerns and also to the significant increase of the national room capacity. If the North of the capital has been, so far, the star of current development, surprisingly, the North will also be the area to equally generate the most spectacular and ample real estate and hotelier projects. What we have seen so far in the North of the city, and amazed us, is but a general rehearsal for what is next to happen in the area by the end of the decade. Without being 223

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as spectacular, the development of the Western area will be firmly added to the investment efforts envisaged for the following period. The same fast and permanently ascending rhythm of economic increase and real estate investments, including hotel developments, is visible as well in the big urban centers, from Constan]a to Ia[i, from Bra[ov to Cluj, from Timi[oara to Oradea. It becomes ever more obvious that the dispersion aims smaller places around big cities, but also new residential or tourist regions that develop on the natural virgin areas around lakes, mountain areas, still wild sea places or in bathing places that have been forgotten for more than 20 years. property with ultracentral location in Bucharest, on a displayed area aiming to 100,000 sqm, according to market sources. On the current location of the so-called Radio House, downtown Bucharest, on Dmbovi]a Embankment, a real estate project will be developed by Plaza Center, based on a public - private partnership, aimed at reaching a built surface of 360,000 sqm. The ensemble will be developed in three stages, for the next 6 years and will include a commercial area, office spaces and more than 300 hotel rooms of a 5-star quality. Another impressive hotel project is the one located at the crossroad of Victoria Avenue with Lemnea Street, very close to the envisaged investment of the Romanian Academy who plans to build a 4-star hotel with meeting facilities. The project would be accomplished through a participation association, where the Academy would provide the 3,500 sqm land and the finance would be ensured by the company to build the hotel. With the greatest interest, the market is waiting to see the rebidding for Triumf Hotel. The location and potential of this property are highly interesting, but the actual building should be extended with new additional accommodation capacity and ample collateral functions. Keeping the current advantage reduced only to maintaining a beautiful park will not compensate the limits and lacks in the actual shape of the property. The new 5 star projects will be located both in the downtown neighboring area and also in the South-East, Western and Northern parts of the capital, and they will generate as much as 1,100 new rooms for the next three - four years. Bucharests hotel offer is progressively completed with new, small-shaped investments which extend existing properties or add as new entities, in an attempt to cover certain market shortages and difficult approach locations by the big investors, especially owed to the small capacities that can be achieved. For Bucharest, fortunately, the evaluation of a franchise or management agreement with an international hotel chain has recently become a new and positive custom, even from the project design or building works phase. This is the case for almost all the projects that aim a capacity around or over 100 guest rooms. There are also exceptions to this logical and efficient approach, which refer to the development of very large-sized properties that are not based on a coherent and really consolidated concept from a functional and operational point of view and also not endorsed by any national or international operators or hotel experts. Probably, based on a costly additional effort and the availability of less exigent guests, this type of mega hotel will find its own place in a still unstructured local hotel environment, but it will have to face later the higher exigencies of a mature hotel market. We also need to point out that an investment of such size, suddenly adding more than 1,000 rooms to the city capacity, should be strongly grounded and valuated by its initiator, as well as by the professional community and local authorities. All these interlocutors would cooperate to allow a proper, efficient and professional management of the future hotel property, preventing it from inducing baneful influences over a still nonconsolidated market. The information regarding the need for supplementary accommodation capacities in Bucharest, in this case, was taken over and used without a correct and careful evaluation, aiming only the quantity component, which is a fundamental mistake.
Romanian Business Digest 2007

Unprecedented hotel effervescence in the north of the capital

Together with recovered real estate properties, recent landmarks and buildings, with interesting locations and important value were entered into transactions, providing new opportunities on the market. Taking the industrial components out the urban perimeter made available, in almost every important city, surfaces hard to ignore. These were allotted to residential projects, commercial and agreement areas and most of them included hotelier projects integrated into the concept of the mentioned real estate developments. The major investments are concentrated in upper classification property range, pointing to the trend of developing hotels of a reasonable capacity, that is over 150200 rooms. An obvious change can be noted in the approach of the investment, which now pays attention to the concept and compliance with the professional development criteria of the new hotel properties, according to international standards and based on the use of specialized consultants services. International hotel chains are interested in obtaining keypositions on the Romanian market in the terms when, for the next ten years, the tourist services could exceed EUR 11 billion, considering a yearly growth ratio of 7,9%, according to World Travel & Tourism Council. Thus, Bucharest is an attractive target and shows a high development potential compared to other cities of Europe, in regard to both the average occupancy and the net average daily rate. The Romanian market is dominated by 3 and 4 star hotels, representing 66% of the total existing hotel facilities. As far as the 5 star hotels in Bucharest are concerned, the number of those that comply or significantly approach the exigencies of this category are limited to 6 properties, with a total capacity of 1,467 rooms. According to our earlier forecasts and to WTTC studies, the main international networks that intend to enter the Romanian market, inside the perspective of the next three or four years, are Kempinsky, Hyatt or Sheraton. Inside the far-reaching real estate development of Bucharest, there is a new concept in the integration of hotels in larger projects, based on a capacity varying from 250 rooms up to 350-400. These large satellite hotel properties are aimed at a classification of four or five stars, generating a strong synergy with connected areas assigned to offices, relaxation functions and commerce. In this context, we can mention, for instance, the projects initiated by River Invest Sema Park in the Western part of Bucharest; the AFI Europe/NCH Cotroceni Park project; the development of the Spanish group Fadesa project, all assuming the same kind of approach. The Esplanada project of Trigranit Group will be one of the most spectacular, generating the biggest hotel 224

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Better news come with the maintained investor interest for old areas of the Capital that will include also the old commercial and historical city center. Once this area entered into reconstruction, it will generate a multitude of new boutique hotel properties, in old buildings or new ones raised consonantly with the architectural surrounding environment, on landmarks available within this picturesque area. The perimeter of the historical city center is foreseen to witness the development of a few hotels from 30 up to 100 rooms. Already, it can be noticed that some properties developed under the ultra-exclusivist concept of high luxury and refinement show full and constant attention for all the needs that a guest can have on the entire length of stay. This is the alternative for those persons for whom the services of a 5 star hotel are not good enough. An example in this respect could be Carol Palace hotel, a truly spectacular property, which opens the series of old, aristocratic Bucharest palace renovations. In Bucharest, there will be other such initiatives and the city will gain a few points of interest to be developed as exclusivist hotel functions, on old private domains. progressively also to South. As a consequence to the Bucharest-Bra[ov highway and the future second belt of the Capital, the Snagov Lake and the route to Bucharest, including Otopeni, will witness a strong investment concentration in hotel & leisure industry. Future hotel venues around Snagov Lake will integrate leisure and meeting facilities, aiming to complete Bucharests offer on the MICE market. In the same conceptual context, Corbeanca/Prisma area will receive in the next few years new accommodation capacities destined both for transit and for dedicated functions complementary to the exhibition-to-be area. The surroundings of the International Airport Henry Coand` will become a vivid perimeter in transactions with existing hotel properties, modernization and expansion of hotels and development of new guest room capacities integrated to complex functions of offices and large convention & exhibition spaces. The town of Otopeni has already the premises to become, earlier even than Bucharest, the main receiver and host of international events. The availability to correctly evaluate partnerships, the mobility in action and the entrepreneur approach sustaining the town development, turn the local authorities into real and pertinent business interlocutors. The next few years will show the initiation and development of the first stages of large projects, bringing integrated hotel properties with large conference, exhibition, leisure and accommodation facilities. From a mere satellite of the Capital, Otopeni will become a strength and a player difficult to ignore, thanks to its rooms number, but also to its capacity to host international events in large facilities according to the market demand. For the next 4-5 years, we predict an addition of minimum 900-1100 guest rooms, to the currently existing 600 rooms. At first, the classification levels will be 3 and 4 stars, which will be followed in three years time by at least one large 5-star project. In this region, one notable hotel transaction has been concluded, taking the local market to the next level. The Austrian Group Warimpex group is the new owner of the 99,98% of the Golden Tulip Sky Gate hotel, by purchasing the stocks that used to belong to the Romanian-American Enterprise Fund and other 2 partners. This way, Warimpex adds the 14th hotel to its portfolio containing high class hotels. This transaction confirms the groups interest for the Romanian market from a professional, not speculative perspective, as Warimpex, which is quoted by the stock exchange in Vienna and Warsaw directly owns its hotels, while their management is provided by a group company, Vienna International, which is one of the best viewed hotel management companies in Europe. Warimpex officials have already announced their intention of modernizing and expanding the hotel, as well as the groups breakthrough on this market. This provides a positive signal to the potential investors in this industry. In the same area, }iriac group plans large-sized developments in exhibition facilities, a convention center and a new hotel, to complete a residential and logistical zone. Several other investment initiatives of local groups that manage business in the hotel industry are already popular in the area. An example is the Perla Majestic group, aiming to expand to Otopeni, and to expand its presence in the perimeter of Phoenicia hotel, by opening a partnership with Romaero for the construction and exploitation of a business center. 225

Hotel investments in Bucharests limitrophe area

The {tirbey Palace in Buftea was bought with several millions of Euro, from the heirs of the homonym family, and it is to be transformed into an exquisite hotel. The property includes the palace itself and 24 hectars of park land. As the place has an impressive heritage of history and tradition, the new owners intend to set up a museum of the Stirbey family, but also to raise new buildings that will host conferences and exhibitions. The Ana Aslan Institute domain in Otopeni has been visited by several developers and it is yet teasing to watch the competition for this trophy, as the potential of this location is fabulous, even with its spa & medical component striving to survive the period of a primitive accumulation of capital. On the opposite to the deluxe segment, even since the previous year there has been made a start for an extension of the 2-star international-standard hotels, certifying our rightful judgment foreseen 3 years ago regarding the stringent necessity of this segments development. New 2-star hotels have been built, others will be renovated and soon investments will be initiated for networks of hotels/motels. Such initiatives are announced by owners of certain local hotel networks or groups, along with the clearly stated interest expressed by foreign investors, regarding the acquisition of existing buildings and their conversion to low budget hotels. These developments target locations within the Capital city area, at the main city limits and entrances, as well as on major driving routes countrywide. Undoubtedly, in the next 3-5 years, there will be at least 3 national networks of budget hotels operating under international franchises. Lake areas around Bucharest have been evaluated and still remain on the investors agenda, both for new property building and for renovations of venues that, meanwhile, have been subject to privatization or transactions on the real estate market. The current city belt, as well as the route of the future belt, while the modernization and construction works go forward, will become regions that will attain important hotel investments, mainly on the transit/budget segment and on the higher comfort level. Preferred locations will be close to the circulation hubs towards the North, West, East, and
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Existent meeting facilities of small size now reach a total of some 600 seats. There will be an addition of dedicated spaces for conferences, conventions, sports events, shows and social functions, with hall of 600 to 3,000 seats, as well as generous exhibiting surfaces, generating a total event capacity up to 6,000 seats in the next 5 years. This will bring Otopeni and its surroundings to the top list of local MICE market players, as a pushing engine for future investment in hotel capacities. of two new pavilions with a total surface of 32,000 sqm, which are planed to be opened by the beginning of 2009. As a measure aimed at increasing the occupancy of Bucharest hotels, especially in low periods, weekend and summer months, generating a confirmed calendar of sports, music, theater, folklore events able to raise the interest of European citizens would be a first step in bringing Romanias Capital to general attention. For instance, the FIA GT competition, the first in ten years, organized on a street route, attracted to Bucharest over 70,000 spectators, of which over 13,000 coming from outside the city limits and 2,000 foreigners. Throughout the event, all local hotels reached an occupation of nearly 100%. With an average spending per stay of minimum EUR 800/foreign visitor and a spending of minimum EUR 200/local visitor, the total income for Bucharest was over EUR 2 million.

Infrastructure of assemblies in Bucharest

As a reference for Bucharest located investments, we point out that the projects currently implemented and about to start generate a rapid growth of the available accommodation capacities, tending to reach by the end of this decade the minimum of 9,000 guest rooms, correctly classified upon international standards, in the rhythm that Peacock Hotels first estimated four years ago. An essential catalyst of the hotel and tourist offer in Bucharest, and also an opportune promoter of the hotel market development and of the Capital itself would be a real Convention Center, still missing from the city and country offer. Hopefully, the business community together with the local authorities and governmental institutions may acknowledge the importance of such an objective and decide to take urgent measures to implement a complex and modern conference center able to host up to 10,000 participants, where the largest plenary hall should have a minimum of 7,000 seats. Only then, Bucharest can become Europes top destination of international events, with all the positive outcomes that can be generated by such a product. This process would be, above all, a question of vision, political and civic will and correct evaluation of Romanias perspectives as a fully integrated EU member. The need for this Convention Center can be substantiated by each and every hotel operator, travel agent and professional event organizer in Bucharest. It was also one of the first and most determined conclusions of the WTO experts that elaborated the Master Plan for tourism development in Romania. Bucharest hotel market - Annual growth ratio (%) Market segment 2007 2008 2009 2010 Corporate 17% 20% 16% 12% Meeting and Conference 12% 15% 18% 22% Leisure 14% 18% 20% 22% Bucharest - Market structure Market segment Corporate Meeting and Conference Leisure Total

Strategic movements of the hotel groups and chains

The presence of international hotel chains is constantly growing and consolidating, with new groups adding or existing players diversifying the brands on the local market. Accor is present with Sofitel, Novotel, Ibis (fast growing from 3 current properties, to 9 hotels in the next three years) and Etap, a two-star brand that will enter the market with new properties. Wyndham has 3 existing Ramada hotels in Bucharest and other 2 under preparation, a Howard Johnson and the intention to introduce the Days Inn and Super 8 brands for a motel network. Golden Tulip quickly developed a local portfolio of 6 hotels - 4 Golden Tulip and 2 Tulip Inn, of which five are located in Bucharest, representing the best developed network in Bucharest at this moment. This chain spread also to Bulgaria with a Golden Tulip hotel in Varna, planning to add at least 5 hotels countrywide by 2008. It will also introduce the Royal Tulip brand for 5 stars and B&B for 2 stars. Hilton aims expansion in the country both with the 5-star brand and the 4-star Scandic one. Intercontinental has a franchise agreement with the homonym hotel, as well as a Crowne Plaza management agreement and it plans to access the market with the 3star Holiday Inn brand and Holiday Inn Express for 2 stars, upon its second access attempt with these two brands. Marriott operates the management agreement for JW Marriott Grand Hotel, planning to expand countrywide with the Courtyard brand and in Bucharest with Renaissance. NH Hotels has a property in Bucharest and one in Timi[oara, while market sources mention the intention to sell the one in Bucharest. K&K momentarily has one hotel in Bucharest, intending to add the second shortly. Hungar Hotels has a franchise hotel deal and Danubius Hotels has two. Leading Hotels of the World will endorse an exclusive hotel in Bucharest and most probably another at the seaside.
Romanian Business Digest 2007

2011 9% 11% 12%

Absorbed demand (% of total) 66% 21% 13% 100%

Within the same context, we notice that the main organizer of national and international fairs and exhibitions in Romania, Romexpo, had a turnover of more than EUR 20 million last year, confirming the visibly ascending trend in hosting an ever larger number of events. This company owns the exhibition center located in the Northern part of Bucharest, including 42 pavilions with a display surface over 100,000 sqm, of which some 55,000 sqm indoor. The company disclosed its intention to invest around EUR 15 million for the construction 226

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New hotel projects in Bucharest Estimated opening date July-Dec. 2007 2008 2009 2010 2011 Total 54 months Transilvania Developments projects for the forthcoming period include the expansion of the City Hotels concept to other tourist regions in Romania, as well as in the Danube Delta, Prahova Valley or Timi[oara. According to the company representatives the same profile and concept as their two hotels in Cluj are envisaged for these new locations. Their development plans for this year aim the increase of accommodation capacity in City Plaza hotel up to 90 guest rooms. Investing efforts of Ana Oil group will bring, apart from the existent and appreciated 3-star hotel in Sibiu, a second property of 4 stars in the same city and a 3-star one in Cluj, with a hypothesis of their affiliation to Golden Tulip Hotels, Inns & Resorts. The list of hotel market players is permanently filled in with new investors who either learnt correctly the opportunities in this field, or wish to secure profits obtained from other fields or simply note that its fashionable to own a hotel. Along with SIF Transilvania, Continental, Ana Hotels, Perla Majestic, Unita Turism, Cocor, Transilvania Development, European Drinks, Ana Oil, Celco, Nord Grup and others, there are a plethora of other new entities that make their determined way onto the hotel market, generating large-sized projects in Bucharest, Bra[ov, Cluj, Arad, Constan]a, Ia[i. SIF Transilvania has initiated renovation and modernization programs of some of the strategic objectives in its portfolio, such as ARO hotel an emblem venue of Bra[ov city and International hotel in B`ile Felix Resort, which is at present the largest unitary accommodation capacity in a balneary resort combined with the most modern and elaborated health treatment and spa facilities.

No.of rooms 500 2005 1315 1276 1273 6369

Total hotel capacity at the end of the period, year 20012 = approximately 12,000 guest rooms, compared to almost 3,000 rooms at the beginning of year 2003. The national trend shows a wider option for large-sized projects, over 150-200 rooms each, with correct concepts, specialized consulting assistance and aiming a brand identity and operational support in relation to an international chain. Most of them are looking for a franchise agreement, while the interest for local or international management is growing. Given these circumstances, the stockholders of Continental chain intend to invest in the next 5 years around EUR 135 million, so that its capacity would double, reaching 3,800 rooms. This will be possible thanks to the signing of the partnership between PPF Investments and RED Group. The investment fund joined directly the stockholders of the Continental hotel chain, with the purpose of sustaining the investment program for the next five years. As well, Continental group signed a strategic partnership agreement with Accor, based on which the 7 Ibis hotels will be opened between September 2008 May 2010 in Timi[oara, Trgu Mure[, Sibiu, Bucharest, Bra[ov, Cluj and Ia[i. Except for the current Continental hotel in Sibiu that will be re-branded as Ibis, all the other projects will refer to new projects. The hotel group managed by Nicolae Ra]iu, after having invested EUR 7,5 million in a complex of 32 deluxe villas in the Danube Delta, will soon develop a tourist ecological location in Moroieni, in a new 8 villas complex. It has come close to the end of the planning for the redefinition and refurbishing of Leb`da hotel, a property with remarkable potential renovated and open as a deluxe hotel 25 years ago. Another future project is the Carol Park Residence complex in Bucharest that might include a hotel. In Turda, the group will develop a commercial center estimated to cost some EUR 15 million. This project will be developed on two structures, a new one with a surface of 12,000 sqm for commercial functions and a component that will include the old building of the Ursus bear factory, to be converted to hotel and office spaces. A similar approach can be noted in Trgu Mure[, where the structure of an old leather factory was converted by a local entrepreneur into a deluxe hotel with 66 rooms, an Argentinean restaurant, 3 meeting rooms with a total capacity of around 1,800 persons, a fitness & relaxation center. The complex will be extended with 30 additional rooms, office spaces, night club, bowling, and an Olympic-sized swimming pool. Following an EUR 18 million investment, Sibiu gained a new international-standard hotel, open this mid-year under the Ramada brand. Atlassib group, owner of the hotel, plans to build other 3 hotels in Bucharest, Timi[oara and Cluj, all 4-star rated, with an individual capacity between 120 and 150 guest rooms, each investment being valued at a minimum of EUR 20 million and intended to be affiliated with Ramada.
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Hotel development forecasts for various areas of the country

Ever more targeted are concepts such as resort hotels or all inclusive club, in tourist resorts that are already famous, but also in new natural regions with high potential, thus generating new tourist areas. An active part of this process should be both the tourism authority and the local governments, in order to convey coherence and consistence to the private investing efforts. In vineyard regions, there is a more visible investor interest for a defined concept meant to valorize the major natural, historic and human resources of every important vineyard, this way bringing back to life a good-for-sale tourist product The Wine Road but also contributing to the promotion of Romanian oenology and a genuine spa concept, long known abroad, based on grapes and derived products. As we predicted three years ago, the Black Sea coast, which still concentrates a considerable percentage (over 36%) of Romanias lodging availabilities, is now subject of numberless hotel estate transactions, so that in the years to come, it may witness an essential change of its structural and exploitation concept. This process should be defined and reinforced by hotel industry experts, by the business community, but only with an active and direct involvement of local authorities and the government in this industry, in order to succeed in reconverting an entire region dedicated exclusively to summer tourism into one that will host large events at least for 2/3 of the year. We advise that the physical and conceptual limit that was reached by most of the hotels built in the 1970s should open for discussion and analysis the issue of their efficient exploitation. We consider that 227

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certain resorts where the architecture and urban structure is more similar to that of a town, and the tourist attraction lowered subsequently, should be evaluated as opportunities to convert old hotels to private residences permanent or seasonal , anticipating the need for additional inhabiting spaces, but also counting on the growth of the buyer power and the trend of purchasing a second home for holiday purposes. An example of the possibility of building new tourist areas may be the 23 August village, where the authorities have auctioned 26 hectars of land for the development of a project that may reach about EUR 160 million value, in order that the village is acknowledged as a tourist resort. Such an action of apparent decrease of the direct hotel accommodation would be compensated by private initiatives, in relation to the authorities of touristically virgin towns, but with a higher potential than certain obsolete resorts. An approach of this kind would provide the possibility of an extended and consistent conceptual redefinition of the whole Romanian seaside. It will also allow a reformulation of the strengths of the offer, both for the summer season, whose climate change justifies the development of appreciated and efficiently exploited holiday clubs, and for the MICE market, where a large concentration of accommodation spaces in a narrow area is an advantage, provided that convention and exhibition spaces and facilities are available as well. Unused venues might become residence buildings, partly destined for the summer holiday, therefore decreasing the pressure on the direct hotel offer in peak season. Balneary resorts will see essential changes in the next 3 years, benefiting from the attention of local and foreign investors equally, under the pressure of demand from the European market, which seems to have a better understanding of Romanias balneary potential than the local population itself. Romanian balneary resorts will keep their traditional medical component of the stays, but progressively SPA concepts will be implemented, starting from the real and authentic meaning of the Antique Sanitas Per Aquam. As well, an advantage will be retrieved from the concentration of large accommodation capacities in relatively narrow perimeters, specifically completed with meeting facilities. According to the authorized lodging capacities in 2006, the top balneary resorts is led by B`ile Felix resort with 22% of the total, followed by B`ile Herculane (15%), C`lim`ne[tiC`ciulata (12%), Amara (8%), Covasna (8%), Voinesa (7%), Vatra Dornei (7%), Sovata (6%) and Techirghiol (6%), plus others which cumulate 9% (under 3% each). Old balneary resorts are coming to a revival through EU funded projects, where local authorities understand the importance of their involvement in such actions. Such is the case of Moneasa resort, where an Austrian company won the tender for the resorts tourism potential development. The total investment is over EUR 4 million, being the first of this value. In Vatra Dornei, during the past year the number of accommodation seats raised by 20% in 3 and 4 star guest houses, while the total lodging capacity of the resort is 2,450 seats. The project of tourist structure rehabilitation in Vatra Dornei values EUR 6 million, while the infrastructure works, especially roads, claims EUR 3 million. New skiing facilities will be defined in easily accessible locations, generating a mixture of guest houses offer with rural-ecological hotels, by the development of original projects in still untouched areas. For instance, located only a few kilometers away from the famous Bran, Poiana Bra[ov and R[nov, the Fundata village lies at the 1,300 m altitude. Thanks to the beauty of its woods, wide graze fields and 228 spectacular panorama towards the Piatra Craiului and Bucegi mountains, there have been registered over 10,000 tourists, despite the fact that this village only has 15 guest houses rated 2 to 4 flowers. The main types of ski activities can be practiced on the close-by slopes, and therefore some EUR 20 million investments are expected, for a first stage in structuring a new and fresh mountain resort. The need to enlarge the accommodation availabilities in Romania is more than obvious, together with a redefinition of the countrywide spread of the new capacities and their typology, considering a development strategy that should finally be elaborated and the fact that Romanias present-date capacity in seats (not rooms) equals only 1,7% of the country population. A relevant and logical percentage, in a country where tourism can be a national economy priority and power engine, should be around 6%. This aspect is taken into account by many visionary foreign investors, who explicitly target Romania for large hotel and tourist acquisitions and investments, as the countrys tourism potential is remarkable thanks to a complex offer addressing a European market that is hungry for new consistent, genuine and geographically accessible travel opportunities.

Recommendations for the correlation of the hotel, city planning and systematization investments
However, we must be conscious that the planning of tourism development in Romania is fragmented and uncoordinated. There are frequent problems regarding unauthorized functions that show up near major tourist attraction sights, functions that are also undesirable and low in quality. On the other hand, we highlight cases of over-development in sensitive areas such as seaside resorts and even certain villages, where excessive development overcomes the accountability of the specific destination, causing it to degrade. Upon a weak support infrastructure, including the local roads capacity limits, a lack of requested parking spots and lack of basic facilities for visitors, such as toilets, info-centers, signs, add to low urbanism standards, with too many examples of buildings that do not fit the towns and regions architectural style. A clear hierarchy of the urbanism framework was settled by the authorities, in order to provide strategic recommendations for the national development process. It is also clear that the current phenomenon, although it is covered by an extended set of laws, does not respond to the needs of tourism and its future development. There are 3 levels of territory planning in Romania: national, regional/county and local/urban. The top of this system is the National Territory Plan (PATN), whose main framework was prepared and approved by the Parliament. The plans detailed tourism section no. 6 is currently being finalized and waiting to come into force at the end of 2007. Regional plans have been included in the following categories: regional territory plans deriving from the PATN, regional urbanism studies, county urbanism studies and individual urban/rural urbanism studies or based on regions identified in the master plan. The existence of a clear and integrated urbanism framework based on which the regional and local tourism components
Romanian Business Digest 2007

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must be grounded claims for compliance with the planning hierarchy in section 6 - Tourism of the PATN, by assuming the key-position of the tourism development plan at the national level. Regional tourism plans must be submitted for analysis and approval to the Ministry of Development, Public Works and Housing, while the county urbanism plans must be subordinated to regional plans, and the urban ones to the county plans. The role of the governmental entity coordinating tourism, in close cooperation with the professional and business community, is to provide in a timely manner exact and relevant statistic data, as well as forecasts for the central and regional urbanism authorities, to participate in the preparation of the national and regional plans, to elaborate the focused marketing and promotional activities in support for the approved plans, to evaluate the progress of the plans implementation process and to draw conclusions for the national and regional urbanism authorities. Within the present context, it would be desirable that the entitled governmental institutions or the Regional Development Agencies should postpone decisions on the funding requests until the conclusion of the national, regional and municipal urbanism plans, in order to allow the evaluation of the compliance of the funding requests with the urbanism framework and approved objectives. In the local and county urbanism plan there is a strong need for preparation of design standards and recommendations, in order to ensure the compliance with international standards acceptable in tourism areas. Design recommendations should settle the requirements for capacities, functions, concepts of the tourist accommodation units. As well, there should be recommendations regarding the construction design, surface settlement, maximum allowed height of the building and allowed building surface or the characteristics of the construction layout. The building style should require, for instance, a certain kind of architecture specific to the region, the accepted types of wall finishing, the shape and material of the roof and windows, exterior design works and materials, colors. Further norms should be established for the characteristics of the public areas and functions, parking and access, commune facilities for visitors. In areas with settled resorts, both at the seaside and in the mountains, it is necessary to identify the means for special purposes or institutional framework that will facilitate and guide their restructuring and development. The most reasonable and efficient solution would be that of publicprivate partnerships that should be established as companies of local resort administration. The availability of tourism investors/owners to network and cooperate in their target areas is extremely low, thus annulling any possibility to determine a complementarity of their properties, to generate synergies useful to them and the market, to commit to the sustainable development of the area. Lack of collaboration between the owners of accommodation units also causes a limited capacity to positively influence the decisions and actions of local authorities with regards to the development of infrastructure and tourism issues of the entire aimed area. There are few examples where there were founded investor councils or associations that promote their interests and prove that things can be approached pragmatically, professionally, efficiently, for every investor and for the entire local community.
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Another aspect worth evaluating is the still limited or unequal involvement of local authorities in the issues of tourism development in the areas they coordinate and represent. Lack of understanding of the utility of public private partnerships, avoidance or discontinuity of their dialogue with the business community, sometimes obtuse approaches of the needs for infrastructure development or business environment incentives, lack of qualified human resources to elaborate and promote projects for funding or co-funding, all these are causes that determine low efficiency in using the tourism and investment potential of the area these authorities are responsible for. Finally, the control of development must be addressed and solved. Local plans will identify the urbanism areas, allowed uses and standards. But it is of crucial importance that these measures are fully applied by local and regional authorities. Proliferating usage of inferior standards, due to negotiated or conflict solutions, must be stopped if there is a will to obtain a quality tourist product for a longer term.

Analysis of the tourist circulation in Romania

At present, European tourism faces a change in trends and orientation, namely from traditional tourism to customized travel arrangements more and more original and diverse. The Secretary General of ECTAA declared that Romanias promotion strategy should concentrate on incentive, conferences, team-building programs and attaining tourist groups from Europe, as an efficient solution shared also by WTO experts that elaborated the master plan for tourism development in Romania. Regional market share - 2006
34% 50% Europe (+17 mn) Africa (+3 mn) America (+3 mn) Asia and Pacific (+12 mn) 8% 8%

Source: UNWTO

International tourist 1995-2006

850

750 2006 842 mn (+36 mn) 4.5% 1995 Source: UNWTO 2000 2006

500

Based on estimations, the number of foreign tourists that will visit Romania in 2007 might increase by 22% compared to last years figure when about 1.7 million tourists (by correct definition) arrived. This years main Romanian destination is Sibiu the European Cultural Capital. As well, estimated foreign currency income will be about 6% higher than the expenditures made by Romanians traveling abroad. Tourism contributed 4.85% to GDP in 2006, according to a study 229

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written by WTTC, a value that could increase to 6.9% in the next 6 years, as per the same source. Out of the average 6 million annual arrivals at the borders, reported by NIS, only 25-27% can be considered foreign tourists, which is far less than in other destinations of Eastern Europe. Still the number of foreign tourists is growing, having reached 1.4 million in 2004, 1.8 million in 2005, while a relative regression to some 1.7 million persons was seen in 2006 and already over 900,000 tourists in the first 5 months of 2007, with a hopeful expectation of almost 2 million people by the end of the current year and over 30% of border entering visitors. Considering the domestic and foreign tourist circulation together in 2006, it had a total of nearly 6 million persons, comparable with the figures in 2004, which is 15% higher than in 2003. About 80% of travelers to Romania in 2006 chose to be accommodated in hotel properties of various classification levels. In January-June 2007, 79% of the visitors were hosted in hotels. Especially in large cities, foreign currency hotel income in 2005 and 2006 was constantly bigger than in 2004, thanks to a larger number of incoming foreign tourists. One of the favorable factors of this situation was the hosting of international events, such as the Universal Postal Congress in 2005 for which the entire 3-5* accommodation capacity of Bucharest was booked for 3 weeks for a total number of over 2,500 attendants in 204 countries, or the Francophone Summit in September 2006 which required around 2,500 accommodation seats in 3-5* hotels, plus a large volume of conference & related services. For 2005, Romanias tourist market growth was close to Eastern Europes regional increase ratio reflected in the RevPAR, OCC and ADR, while for 2006 it improved with a clear trend of ascension that persists in 2007. A higher number of travelers prefer 3-star and 4-star hotels, now within the international standards, some of them already under an international franchise, and the travel purposes are especially for company-related. The percentage of foreigners accommodated in 3-star hotels in Romania is over 30% of the total foreign tourist number (with a visible growth along with the additional capacities built at this level), whereas in 4-star hotels countrywide 40% of the guests are foreigners, with an average length of stay of 1,7 to 2,5 days, typical for business stays. As per the data available on the market, the total tourist circulation registered in Bucharest in 2006 reached about 930,000 visitors, which is almost 11% higher than in 2005. Over 89% of Bucharests visitors (irrespective of origin) were accommodated in hotel structures in 2006, and a similar distribution applies also to the number of overnights. The balance between foreign tourists and Romanian tourists coming to Bucharest is definitely in favor of foreign guests who covered more than 58% of the total in 2006, similar to 2005 and showing a growth up to 61% in the first half of 2007. The top countries of origin of visitors counted at the Romanian border have been more or less the same during the past 6 years, with a more relevant change of order in 2006, as follows: Hungary, Republic of Moldova, Bulgaria (a statistical number with no special relevance, as it includes the small border transit), Germany, Italy, Turkey, USA, France, Austria, UK, Poland, Greece, Holland, Czech Republic, Russia, Israel etc. These are the countries that generate between some tens of thousands visitors each per year in Romania, irrespective of their travel motivation. An important indicator, though not absolute, of foreign tourist circulation is also the incoming air traffic that grew significantly in the past 6 years and became the second most used transport means by foreigners visiting Romania, after car transport. Compared to the potential, the figures are not as high as they should, but they reflect markets with a defined interest for Romania. The Henri Coand` International Airport in Bucharest/ Otopeni registered an increase of traffic by almost 22% in the first half of this year, without counting the takeover of B`neasa airport related operations, which we estimate that might add another 6% of growth. Regarding the average annual hotel occupancy at the country level, it was slightly over 40% in 2004, with a small increase in 2005 and 2006, reaching 47%. High-season peaks vary with the aimed segments: spring and autumn for event & business travel in urban locations, or summer winter in Romanian mountain resorts. We estimate for 2007 an average annual occupancy countrywide of minimum 51-52%. A maximal reference, whose performance is due mainly to business & event travel, is Bucharest, with an annual average occupancy that has consistently moved over 65% in the past few years and reached the average of 68% in 2006 according to Peacock Hotels forecast, being expected to increase at least by 5% in 2007. By mid-2007, OCC in Bucharest was evaluated at over 71%. Bucharest gathers over 11% of the total domestic and foreign accommodation demand for Romania. Out of these, almost 87% of the guests travel for purposes other that leisure, about half of them being Romanians. Inbound and outbound demand of hotel services and interest for Bucharest as a destination, are considerable, and they can be turned into advantages under the condition of complying with the world professional standards and practicing rates that should be comparable to other similar destinations.

Peacock Hotels / Strategic Development Partner of Golden Tulip Hotels, Inns & Resorts for Romania Strada {tefan Greceanu Nr. 10 Sector 2, 020109, Bucure[ti Tel.: +40 21 211 1058 Fax: +40 21 211 1059 www.peacockhotels.ro Contact Paul M`r`[oiu, President & CEO E-mail: marasoiu@peacockhotels.ro 230
Romanian Business Digest 2007