INTERNATIONAL REPORT—With miles of coastline on the Adriatic Sea, historic sites and appearances in popular movies and television shows, the Eastern European nation of Croatia is becoming a hot tourist destination—and the hospitality industry has taken notice.
“Croatia has the winning combination of the Mediterranean charm, European history and Slavic mystery,” said Maja Gudelj, senior director of travel industry relations at Olive Tree Escapes, travel consultants specializing in that area of the world. “People are warm, speak excellent English and will do everything they can to make you fall in love with the destination. Food and wine offerings are also excellent, given it was influenced by all the nations that ruled in the area through the centuries: Italians, Germans, Turks, French— every single culture has left its mark.”
Over the next five years, nearly $1.4 billion is expected to be invested in the country’s hotels, according to Ernst & Young Croatia’s “Investment in hotel developments: Observations of pipeline in Croatia 2018–2022.”
The report identified 83 hotel projects (9,751 keys) that are currently in advanced planning stages, approved for development, under construction, or opening in 12 Croatian counties. Half of the projects are newly built greenfield investments, with the remaining quarter (26%) consisting of development of a new hotel project within an existing non-hotel building, and one quarter of the projects (24%) are renovations of existing hotels—reconstruction and adaptation.
“Out of 9,751 keys, 5,958 are completely new keys and 3,793 are upgraded keys, 61% and 39% respectively,” said Marija Norsic, the author of the report. “But when the investment value is the focus, then 86% of the whole development volume is for the new projects and 14% for the modernization, implying that the new keys carry most of the investment value.”
The strong dollar has made the country a popular destination for many Americans looking for new destinations to explore beyond Europe’s typical hot spots. “People are seeking new, local and authentic experiences that are off the map and away from the usual crowds,” said Ina Rodin, director for North America for the Croatian National Tourist Office. “Therefore, the rising dollar and strong U.S. economy have helped fuel Americans’ interest in and to Croatia.
“Croatia has experienced a robust growth of tourist arrivals from the U.S. in the last five years,” Rodin continued. “From 2011 to 2016, the number of arrivals doubled to a total of 338,000 visitors. This growth trend has continued throughout 2017, with an increase of 35% in visitation—475,992 tourist arrivals from the U.S.—and an increase of 34% in overnights—1,364,497 tourist overnights from the U.S.”
Also helping Croatian tourism are a number of fans looking to visit filming locations for some of their favorite films and television programs. “Croatia has been on the radar of many travelers since 2011, when the HBO epic fantasy series Game of Thrones debuted and quickly became a blockbuster sensation,” said Rodin. “It is without a doubt that this series had a part in putting Dubrovnik on the map for Americans, as the iconic walls of the Old City is the setting for King’s Landing.”
In addition, Star Wars: The Last Jedi featured Dubrovnik as a Monaco-inspired casino planet, Canto Bight, and Mamma Mia! Here We Go Again, filmed on the island of Vis.
Gudelj said that the hotel investment is much needed, especially to compete with entities like Airbnb. “This is actually one segment that needs to catch up with the boom Croatia has been experiencing,” she said. “A lot of hotels were built in the last couple of years and a lot more are going to be built in the next few, but it is still not sufficient. For example, in Split alone, there are way more beds in private accommodation than in hotels, and this is definitely detrimental to the development of a destination. Like in everything, there needs to be a balance.”
Rodin said that the country’s strategy to raise Croatia’s awareness as a tourist destination means that an improvement in the quality of all types of accommodation—mainly hotels, campsites and private homes—is imperative.
“This developmental strategy depends on new construction and the increase in quality of the existing offerings. Only hotels in the higher category brackets have relevant facilities to attract off-season guests,” Rodin said. “This year, there were 1.6 million beds registered in commercial and noncommercial segments, and most of those beds are registered in private homes (more than 600,000 beds). In the hotel segment, we registered 171,000 beds, which means that one of the strategic goals of Croatian tourism is to increase the number of beds within the hotel segment.”
While 42% of hotels in development are backed by Croatian investors, another 42% are backed by Asian investors, according to the Ernst & Young report. European investors account for only 13% of the investment volume.
“The market is still investment- and operations-wise predominantly run by the existing hotel owner/operators, accounting more than 62% of the investment projects,” said Norsic. “As per our analysis, hotel investors are anticipating a return on their current investment in the range of four to 15 years, with the mean time being 10 years.” HB