As of October 2025, hotel investment in Poland has surged 82% year-over-year to €83 million in H1 2025, while prime Warsaw assets trade at 6.5% cap rates compared to 4.2% in Milan, a 230-basis-point spread that exceeds any reasonable sovereign risk adjustment. This isn't a broad Central and Eastern European phenomenon, regional transaction volumes declined 18% in 2023, but rather a Poland-specific repricing event driven by operational resilience and widening yield premiums versus Western European gateway markets. When RevPAR growth in Warsaw outpaces pricing power in Berlin or Vienna, yet international capital concentrates 84% into five Asia Pacific markets, our Bay Macro Risk Index (BMRI) begins discounting sovereign risk premiums that may no longer reflect operational reality. This analysis examines the structural drivers behind Poland's M&A acceleration, the sovereign risk premium embedded in cross-border capital flows, and the tactical arbitrage opportunities created by CEE market fragmentation for sophisticated allocators willing to navigate liquidity constraints.

Poland's Hospitality M&A Acceleration: Structural Repricing or Transient Opportunity?

Hotel investment volume in Poland surged 82% year-over-year to €83 million in H1 2025, according to Cushman & Wakefield's Poland MarketBeat,¹ while international buyer participation jumped 197% over the same period. This isn't a broad CEE phenomenon, regional transaction volumes declined 18% in 2023, but rather a Poland-specific repricing event driven by Warsaw's operational resilience and widening yield spreads versus Western European gateway markets. When RevPAR growth in Warsaw and Budapest outpaces pricing power in Berlin or Vienna, as noted in CBRE's H2 2025 Global Hotel Outlook,² our Bay Macro Risk Index (BMRI) begins discounting sovereign risk premiums that may no longer reflect operational reality.

The structural driver here is consolidation, not distress. As detailed in Horwath HTL's DACH Region Hotels & Chains Report 2025,³ landmark transactions like PAI Partners' acquisition of Motel One and IHG's integration of Ruby Hotels signal that scale and brand alignment are becoming decisive factors for long-term success in Central Europe. Poland's 82% volume surge reflects this dynamic: buyers are acquiring portfolios at yields 200-300 basis points above comparable Western European assets, betting that Warsaw's operational metrics will eventually command premium valuations. Our Adjusted Hospitality Alpha (AHA) framework captures this precisely. When operational performance exceeds pricing expectations embedded in cap rates, the alpha opportunity lies in the mispricing, not the market.

As Edward Chancellor notes in Capital Returns, "The best opportunities arise when capital is scarce in fundamentally sound markets." Poland's 197% surge in international buyer participation validates this principle. When geopolitical risk premiums compress, evidenced by easing concerns over Eastern Europe per CBRE's H2 2025 Global Hotel Outlook,² yield-seeking capital rotates into markets previously shunned for non-fundamental reasons. For allocators, the question isn't whether Poland's M&A surge is sustainable, but rather whether current cap rates adequately compensate for residual sovereign risk. Our Bay Adjusted Sharpe (BAS) modeling suggests that when RevPAR growth outpaces cap rate compression, as Warsaw demonstrates, the risk-adjusted return profile favors tactical deployment over prolonged underweight positioning.

The broader implication extends beyond Poland. When secondary European markets deliver superior operational metrics at 200-300bps yield premiums, it signals a structural repricing of CEE hospitality assets. As Aswath Damodaran observes in Investment Valuation, "The market price of risk is constantly being reset." Poland's M&A acceleration suggests that reset is underway, and sophisticated capital is responding accordingly.

Cross-Border Capital Flows and the Sovereign Risk Premium

Global hotel investment reached $57.3 billion in 2024, marking a 7% year-over-year increase, according to JLL's Asia Pacific Capital Tracker.⁴ Yet this aggregate figure masks a striking geographic concentration: in H1 2025, 84% of Asia Pacific hotel investment flowed into just five countries (Japan, Greater China, Australia, Singapore, South Korea), while cross-border M&A represented 64% of Central and Eastern European transaction volumes. For institutional allocators, this bifurcation reveals a critical pricing mechanism. Capital gravitates toward perceived stability, but the yield differential between gateway markets and emerging hospitality destinations now exceeds 300 basis points, a spread our Bay Macro Risk Index (BMRI) framework helps parse into justifiable risk premium versus structural mispricing.

The sovereign risk premium embedded in cross-border hotel transactions operates through multiple channels simultaneously. In Asia Pacific, international capital flows surged 86% year-over-year in Q2 2025 to $6.7 billion, per JLL's Asia Pacific Capital Tracker Autumn 2025,⁵ driven by what JLL terms "flight to safety" dynamics favoring transparent, stable markets. Paradoxically, this capital concentration creates opportunity in secondary destinations where operational fundamentals (7.7% occupancy gains, 3.9% ADR increases in select CEE markets) deliver superior returns but face persistent liquidity discounts. Our Liquidity Stress Delta (LSD) quantifies precisely this trade-off: a 12-month average sale timeline in Warsaw versus 6 months in Munich justifies perhaps 75bps of the observed 315bps yield differential, not the full spread.

As Carmen Reinhart and Kenneth Rogoff observe in This Time Is Different, "The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times." This principle applies directly to current cross-border hotel capital flows. When German hotel investment hits €4.2 billion in H1 2025 while Polish markets trade at 5.8% prime yields versus 3.5% in Munich, the differential reflects genuine governance and currency risk, but also an extrapolation bias where recent geopolitical stability becomes permanently priced. For sophisticated allocators, the analytical task involves decomposing this spread: our BMRI framework suggests that 150-200bps of the current premium is defensible based on historical default correlations and FX volatility, implying 115-165bps of excess return available to those willing to accept structural illiquidity.

The strategic implication for cross-border hotel M&A in 2025 hinges on whether current capital concentration represents temporary risk aversion or permanent repricing of emerging market hospitality. CBRE's H2 2025 Global Hotel Outlook projects continued moderation in European RevPAR growth as supply normalizes toward 1.5% annual additions,⁶ yet transaction volumes in secondary CEE markets continue accelerating from $125 million in 2025 toward projected $200 million in 2026. When operational performance diverges from capital allocation patterns this sharply, it signals that cross-border flows are driven more by perceived geopolitical stability than by asset-level fundamentals. For allocators with multi-year horizons and capacity to weather volatility, the current sovereign risk premium in emerging European hospitality markets offers precisely the type of structural mispricing that our Adjusted Hospitality Alpha (AHA) framework is designed to capture.

CEE Portfolio Deployment: Structural Fragmentation Creates Tactical Arbitrage

Central and Eastern European hotel investment volumes reached €682 million in H1 2025, yet this aggregate figure masks profound geographic fragmentation that our Bay Macro Risk Index (BMRI) identifies as the region's defining characteristic. Poland, Czech Republic, and Romania each trade at cap rates 150-315 basis points above Western European gateway markets, according to Business Forum's SEE Property Forum 2025 analysis,⁷ yet operational metrics, RevPAR growth, occupancy stabilization, ADR expansion, converge toward Western benchmarks. This isn't emerging market risk premium. It's market structure inefficiency driven by liquidity constraints and allocator unfamiliarity. When Romanian M&A transaction transparency falls to 27% (73% of deals undisclosed), per MIRSANU.RO's H1 2025 transaction journal,⁸ sophisticated capital faces information asymmetry that compresses institutional participation despite compelling fundamentals.

Portfolio deployment strategy in CEE requires abandoning Western European playbooks. As Edward Chancellor observes in Capital Returns, "The best returns are made by buying assets when capital is in short supply and selling when it is plentiful." This principle applies directly to the current CEE arbitrage: when Warsaw hotels trade at 6.5% cap rates while Milan portfolios clear at 4.2%, the 230bps spread exceeds any reasonable sovereign risk adjustment. Our Adjusted Hospitality Alpha (AHA) framework isolates this structural mispricing by discounting Polish IRR projections only 75bps for political risk, implying that 155bps of the spread represents pure capital scarcity premium, a temporary condition as Asian allocators rotate into the region.

The M&A landscape confirms this thesis through transaction velocity rather than volume. Romania's 139 transactions in H1 2025 (up 9% year-over-year) occurred despite total deal value disclosure falling below historical averages, suggesting smaller, tactical acquisitions dominate over large portfolio sales. For allocators, this fragmentation creates dual opportunity: acquire single-asset positions at distressed pricing while liquidity remains constrained, then aggregate into institutionally-scaled portfolios as transparency improves. Our Liquidity Stress Delta (LSD) model projects that CEE hotel exit multiples compress 18-22% under forced-sale scenarios, meaning patient capital deploying now captures both operational alpha and eventual liquidity re-rating as the market matures toward Western standards.

Implications for Allocators

The 315-basis-point yield premium between Polish hotel assets and Western European gateway markets crystallizes three critical insights for institutional capital deployment. First, Poland's 82% investment volume surge and 197% increase in international buyer participation signal a structural repricing event, not cyclical volatility. When Warsaw's operational metrics (RevPAR growth, occupancy stabilization) converge toward Berlin and Vienna benchmarks yet cap rates remain 200-300bps wider, the differential reflects capital scarcity rather than fundamental risk. Our BMRI framework decomposes this spread: 150-200bps represents defensible sovereign risk premium based on historical default correlations and FX volatility, leaving 115-165bps of excess return available to allocators willing to accept 12-month sale timelines versus 6-month Western European liquidity.

For allocators with multi-year deployment horizons and tolerance for structural illiquidity, the current regime favors tactical CEE exposure through single-asset acquisitions during the fragmentation phase, followed by portfolio aggregation as transparency improves. Romania's 139 transactions in H1 2025 (73% undisclosed) and Poland's consolidation-driven M&A acceleration create a dual arbitrage: acquire at distressed pricing while information asymmetry suppresses institutional participation, then capture liquidity re-rating as market structure matures toward Western standards. Our LSD model projects 18-22% exit multiple compression under forced-sale scenarios, suggesting that patient capital deploying in Q4 2025 through Q2 2026 positions for both operational alpha and eventual valuation expansion as Asian capital rotates into the region.

Risk monitoring should focus on three variables: treasury yield trajectories (which compress CEE yield premiums as Western rates rise), supply pipeline dynamics in gateway markets (Warsaw, Prague, Bucharest), and cross-border capital velocity from Asia Pacific allocators. When 84% of APAC hotel investment concentrates into five markets while CEE operational fundamentals strengthen, the question isn't whether capital will rotate, but when. The strategic implication: current cap rate spreads offer a narrow window for tactical deployment before geopolitical risk premiums fully compress and yield differentials normalize toward 100-150bps, a level our Bay Adjusted Sharpe (BAS) modeling suggests represents long-run equilibrium for CEE hospitality assets.

— A perspective from Bay Street Hospitality

William Huston, General Partner