By Lone Alletorp, Market Analyst, Arthur Andersen, London

With 3.1million inhabitants, Athens accommodates almost 30 percent of the country’s population. Ancient Athens, the city sacred to Athena, goddess of wisdom, reached the peak of its glory 2500 years ago. In 1833, after the War of Independence from Turkey, the city was proclaimed as the capital of the modern Hellenic (Greek) State. Today, it is the administrative, commercial, financial and transportation centre of the country. Located in the south-east of the Greek mainland, the city lies in a valley bordered by the sea and surrounded by mountainous areas. 

Greece will join the European Union in 2001

The Greek economy continued to perform strongly in 1999 with GDP growth of 3.3 percent.  Both major political parties in Greece (representing over 85 percent of the electorate) are strong supporters of European Monetary Union (EMU) membership, and the country has now qualified to formally join the EMU as of January 1, 2001.

Future growth of the Greek economy depends both on the ability of the government to maintain the economic policies of the EMU and to extend reforms including further privatisation and labour market reform.
 

Demand driven by business tourism

Whilst Athens offers an array of cultural and leisure attractions, such as the Acropolis, the city’s dominant role is that of the commercial capital of Greece. The proportion of corporate demand, whilst lower than in many European cities, still represents the largest individual segment, accounting for 23 percent of visitors, with Europe and North America being the key source markets. Athens also generates significant residential conference and incentive demand, currently representing 14 percent of room nights.
 

Future growth from the business segment is expected to come from the conference and incentive market.  However, given the lack of a dedicated conference centre in Athens, the majority of meeting/event space is provided by hotels. A facility is under construction adjacent to the Athens Concert Hall, but is understood to primarily serve as an extension to the Concert Hall and is not intended as a public convention centre. The development of a dedicated convention facility would strengthen Athens’ position as a destination for conference and incentive travel in the future.

The 2004 Olympics

Athens was frustrated in its bid to host the centennial Olympic Games in 1996 and the millennium games in 2000, but was finally selected to host the Olympics in August 2004. It is estimated that over 70 percent of the facilities for the games are already in place, including the Olympic Stadium in Maroussi, and the Peace and Friendship Stadium in Piraeus. The main facilities for visitors will be in Maroussi, whilst the Olympic Village is being constructed at the foot of Mount Parnitha, north of Athens. It will house all athletes attending the games and include leisure, retail and cultural facilities. It is planned to use the village for residential housing after the games. 

It is estimated that some 200,000 visitors will be attracted to Athens during the games and the completion of current infrastructure projects is regarded as vital to the success of the event. Infrastructure projects include: the opening of the new Eleftherios Venizelos international airport, located 23 kilometres east of the city centre; construction of a new highway and ring road; and the opening of the Athens Metro, considered to be the most complex infrastructure project in Greece. The metro is hoped to improve the image of the city for visitors through decreased air pollution and traffic congestion. 

Lifting of hotel construction ban

The supply of hotel accommodation in Athens has remained relatively constant since the mid-1980s when a moratorium on the construction of new hotels in the city centre was instigated. The ban was lifted on December 15, 2000, paving the way for new investments in the sector ahead of the Olympic Games. The decision has been welcomed by the International Olympic Committee, which had been concerned about accommodation for the visitors expected during the 2004 games. However, the Hellenic Chamber of Hotels (HCH), the industry lobbying body, has been arguing against such a move on the basis that increased capacity will dilute occupancy levels in the long term. 

Currently, the hotel market is characterised by independent hotels of arguably indifferent standard with only five internationally managed hotels (and one franchised property). This is low when compared to other European capitals. The HCH reported 272 hotels operating in Athens in 1999 providing 16,762 rooms.
 

It should be noted, however, that the Greek grading system is not totally comparable to international classification systems, as evidenced by some hotels designated as Luxury, which would be considered three-star hotels by international standards.

Despite the 14 year ban on new hotel construction, the availability of significant financial incentives from the government has led to the renovation of many properties during the 1990s. Recent renovations include: the Chandris Athens hotel, which has been fully renovated at a cost of US$20 million and re-branded as the Metropolitan, the Ledra Marriott which is currently being renovated, and the Grande Bretagne Hotel which is due to undergo total renovation. A number of refurbishments have also taken place. Grecotel have refurbished the Acropol and Omonia hotels and partly refurbished the NJV Meridien, renaming it the NJV Athens Plaza. The Pentelikon is expected to undergo a two year rolling refurbishment programme commencing in early 2001, whilst a refurbishment of the Hilton is also due to commerce in January 2001.

Despite a number of rumours circulating with regard to potential hotel developments, currently only two firm projects are known. The new 345-room Sofitel airport hotel and the 52-room Semiramis Hotel, which will be re-developed to a boutique hotel are both expected to open outside the city centre during 2001.

However, it is assumed that, in light of the recent lifting on ban on hotel constructions, major brands currently absent from the market will continue to seek a presence in the city. Potential candidates include Hyatt, Meridien, Radisson SAS, Starwood (Sheraton) and Four Seasons. 

Hotel Performance 

Hotels in Athens enjoy relatively high occupancies, averaging 74.05 percent from January to October 2000. This represents an increase of 8.2 percent over the same period last year. Room rates averaged Dr40,615.16 for the year, which represents an increase of 11.1 percent over the same period last year.

However, both occupancy levels and average room rates were slightly down in 1999 due to a combination of regional instability in the Balkans (Kosovo crisis), the effects of the earthquake and the lack of the two major biennial Athens trade fairs (Posidonia and Defendory).

Hotel Performance 1999 and 2000 (January to October)

SOURCE: Arthur Andersen Hotel Industry Benchmark Survey

The hotel market demonstrates highly seasonal fluctuations in demand, with peak periods being May, June, September and October. The pattern is typical of a market with a large number of corporate visitors and conferences.

Outlook

The performance of the Greek economy has improved significantly in the 1990s with declining inflation and GDP growth rising above the EU average. The prospect of maintaining this new-found stability should be secured by successful completion of the EMU convergence plan and membership in 2001. The extensive infrastructure developments taking place, and the impetus provided by the 2004 Olympics, should further underpin economic growth in the medium-term.

The Olympic Games will not only aid economic growth, but also provide a unique challenge and opportunity for the city to re-brand and re-develop itself and demonstrate its unparalleled heritage and cultural resources.  However, whilst the Olympics are seen as a great opportunity to stimulate demand in the short-term, there are risks of potential over-building of new hotels which would impact future hotel performance negatively, especially with the recent ban lifting of new hotel constructions.

© 2000 Arthur Andersen.