Speaking at the 2025 R&R Hospitality Forum in Athens, Greece, Radisson Hotel Group regional chief development officer Elie Milky said construction costs have increased to such an extent that the up to five openings the company has in Greece over the next 12 months are all conversions.
He added the decision to do so has been cost driven even in Greece, which is proving to be a bit of an anomaly when it comes to the capital available.
Milky said: “The interesting thing about Greece is lending is available, whether it's from the banks or from other groups entering the market.
“Interest rates are still affordable. And I think, particularly in Greece and Cyprus and you can see that in other markets, because the market is peaking, is booming, more and more banks are willing to lend and finance developments in these markets.
“What has also changed is that because of there's been a massive increase in construction costs, and that has really impacted development. That has changed budgets and that has changed the numbers; that has made people and investors think do we want to invest or not?”
Banking blocks
Equinox Hotels global head of hotel development Shafi Syed agreed that while construction cost increases have been prohibitive, it is the banking sector that has been the real impediment on creating new properties.
He said: “The world has changed dramatically in the last five years. At least you have seen some lending out here, but in the US, it's a full absolute stop.
“There are a lot of other things that have stopped as well, including flights taking off and a lot of folks not landing here but it is really a difficult capital environment right now.
“I can't remember the last time I took a greenfield project to my investment committee over the last two or three years to say would you guys like to participate in this?”
No easy conversions
While Syed agreed that conversions have increased in popularity as a result, he warned that they too come with their own problems.
He said: “Conversions are tough for luxury to be able to create that experience and have the right bones.
“There was a trend over the last year where office became a dirty word because working from home was a real thing and it still is a real thing. And so a lot of the office conversions that came to us, but 90 per cent of those don't work because there are deeper cores.
“It's way more expensive to actually convert an existing office building than to drop it down and rebuild it.”
Syed also cited the example of Madrid where room rates of up to €800 make opening another hotel appear to be an obvious strategy.
However, he added just as rates per room have risen in the city, so have building acquisition costs meaning many opportunities are turned down for not being financially viable.
The power of choice
Milky said when creating a new hotel, he is helped by the fact that he is up to six brands that it can be allocated to.
He added this came in handy when a plan to convert a listed building in Athens into a luxury hotel was found to be impossible as both the rooms and the lobby would have been too small.
As a result, the conversion went ahead with the hotel allocated to the four-star Radisson Red brand where it was a more natural fit.
Milky said: “We have five, six brands that we focus on not 30 or 50 brands that we don’t focus on and it’s an advantage.
“The disadvantage is if you don’t like my five or six brands, I don’t have five or six more.”
Syed said as a result of the toughened environment investors are making more demands of hotel operators right from the start of any deal.
He added: “More and more, we're seeing investors and developers saying, I am not going to go out and raise equity and debt on my own.
“I need you to sit in the same room on the same table and justify the pro forma, justify why that bank's going to lend to you, justify why that equity investor is going to come in on the stack.
“So we're seeing almost a shift in how a brand used to sit and wait for investors and developers to go and raise the stack to actually sitting side by side with them and actually pitching and supporting the stack to raise the debt because capital is just the only way you get deals done today.”
Syed added that the biggest change he could wish for in 2026 is for interest rates to fall, so freeing up the market, and is confident that this will happen.
By Edward Robertson
