Five billion euros in investments expected in hotels and 2800 new five-star rooms

The new Tourism Act (ZoT) has introduced, for the first time, the possibility of potential restrictions on the construction of properties for short-term tourist rental with relatively low added value, especially in relation to hotel accommodation, through the development of a sustainable tourism development study, which is an obligation of local self-government units (JLS). The ZoT represents a framework for monitoring and developing tourism towards sustainability, and as part of destination management, it monitors investment analyses in tourism, incentive systems, and defines indicators and standards for ensuring the sustainability of tourism (especially green and digital). In the next five years, investments in hotel capacities are expected to reach up to five billion euros, which is crucial for improving the quality of tourist accommodation, given that only 10 percent of capacities in Croatian tourism are in hotel beds, compared to an average of 43 percent in Mediterranean destinations, states the Croatian Employers’ Association in its analysis this week.

However, in order for the expected investments to be realized and to ensure the full implementation of the Tourism Act, it is necessary to adopt legal and operational tools primarily in the Spatial Planning Act, but also in the Expropriation and Compensation Act and the Act on Strategic Investment Projects of the Republic of Croatia. This is particularly important when it comes to strategic projects such as transport and communal infrastructure, which involve the jurisdiction of multiple local communities, one of which is ‘refusing’ to cooperate.

The incentive measures for which the Tourism Act provides a legal basis will be aimed at encouraging activities in tourism, investments in higher value-added tourist products and public infrastructure, improving transport connectivity, investments in green and blue transitions that include waste reduction and more. Although the Act prescribes planning for hospitality-tourism purposes, including recommendations for improving spatial development, it is necessary to implement the obligation for project holders to calculate acceptable capacities as well as to adopt a Destination Management Plan, it does not provide the possibility to prohibit or restrict through spatial planning that areas intended for residential purposes are used in the future as accommodation units for temporary stays of guests. According to the latest available data from 2019, the estimated area for tourist activities in the construction area is 15,736 hectares.

Activate the concession institute upon request

The holders of spatial planning (JLS) are still not obliged to include bodies responsible for tourism, tourist boards, and especially not regional tourist boards in the preparation of the spatial plan. Therefore, this remains exclusively the personal (non)responsibility of local leaders and those responsible for the preparation of the spatial plan. The question is how much sectoral managers (transport and communal infrastructure), who develop separate sectoral strategies that are ’embedded’ in spatial plans, think strategically about tourism, how much they are compelled to comply with the provisions of the Tourism Act, or the destination management plans.

The status of a project of special significance for the development of the destination in an implementation sense does not provide an advantage over projects without that status when it comes to the actual implementation of the project. Namely, there is no legal basis that accelerates or gives priority to obtaining administrative decisions for the project itself, except when it comes to strategic projects of the Republic of Croatia. Thus, there are no benefits for projects of special significance at the local level that would arise from the Expropriation and Compensation Act, nor from other regulations that directly affect the realization of large, but local projects, therefore the question is, within what timeframe will projects that address the issue of transport and communal infrastructure be realized and how will they be expedited just because they are of special significance for the development of the destination?

One of the main novelties of the Maritime Property Act is the institute ‘concession upon request’, but it is necessary to define open issues through by-laws, such as the problem of land in the camping segment in the basic capital of a company subsequently declared maritime property, as well as the conduct of commercial activities on maritime property. It is essential to enable users to easily obtain a concession, directly upon request, for technologically or functionally inseparable units of beaches, tourist moorings, and tourist ports with hotels, camps, and tourist resorts. Furthermore, it is necessary to precisely and fairly regulate the status of property that has entered the regime of maritime property after the completion of transformation and privatization. Quality regulation of maritime property is a prerequisite for investment development and raising the quality of Croatian tourism.

Finally, local self-government units must strategically decide on future tourist growth, primarily regarding the accommodation structure based on encouraging the quality of accommodation facilities in accordance with development plans and sustainable development of the environment.

Croatian hoteliers invest 235 thousand euros per key, more than the regional average

Croatia will record a real decline in foreign revenues in tourism for the second consecutive year in 2024, indicating that the existing tourism model dominated by short-term rentals is facing limits to further growth. The unfavorable accommodation structure evidently results in the lowest average spending of foreign tourists in Croatia of around 160 euros per day, which is about two to even four times lower spending than in some Mediterranean destinations.

In Italy and Spain, tourists spend an average of around 215 euros and 260 euros per day, respectively, while in France, it is around 500 euros. The tourism sector, according to the movement of EBITDA margins, records the largest decline in profitability from 22.1 percent in 2022 to 17.7 percent in 2023, which is also below the level from 2019 (19 percent). The rapid operationalization of the Law on Unvalued Construction Land is extremely important for initiating a significant investment cycle.

According to the value of investments in hotels over three years of around 1.5 billion euros (Top Hotel projects), Croatia ranks third in the Southeast European region (including Austria and Turkey), ahead of Austria (1.3 billion euros) and Greece (1.2 billion euros), but lags behind Montenegro (1.6 billion euros).

In Croatia, 6155 hotel rooms are planned, which is less compared to Austria (9452), Greece (7204), or Montenegro (6229) and indicates that investments in higher category accommodation units (4* or 5*) are realized on average in our country. In Croatia, 2794 rooms are planned in the 5* segment and 3361 rooms in the 4* segment. In terms of investment value per key of 235 thousand euros, Croatia ranks second in the region and significantly exceeds the regional average of 157 thousand euros.

Given that tourism is one of the sectors where the mass of wages will significantly increase due to further strong growth in the minimum wage, further margin erosion is to be expected, which jeopardizes the investments necessary for the medium-term competitiveness of tourism. In order to increase added value, it is necessary to rapidly and strongly encourage the direction of investments towards organized accommodation to solve the problem of the worst accommodation structure in the Mediterranean.

The problem of labor shortages in the coming years will become increasingly pronounced, so it is necessary to further activate all domestic labor potential through further liberalization of the labor market legislative framework and expedite the processes of issuing work permits for foreign workers from ‘third’ countries. Last year, 46 thousand work permits were issued to foreigners in tourism, and this year, between 50 and 55 thousand are expected. The Croatian Employers’ Association also advocates for an adequate legal solution for occasional and temporary jobs on a voucher basis to encourage further activation of available domestic labor.

It is also necessary to promote scholarship programs, education, and job promotion in tourism, as well as the design and implementation of lifelong education and retraining programs in tourism. Special programs for foreign workers need to be created to facilitate their integration and provide high-quality service.