FCS BuZZ Quarterly Newsletter, Volume 5, March 2012
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Tips & Forward Thinking
Are you ready to compete in the race for the Russian hospitality market?
By Dmitry Levkin, Commercial Director of PWV Group
The end of 2011 has shown that the hotel market in Russia continues to be restored after the global financial crisis, though not as quickly as predicted previously. The year’s trend was mainly due to the expansion of international hotel chains. In the past, most investors and hoteliers did not extend their investments past Saint Petersburg. However, now they are trying to find new investment opportunities by opening new hotels in all regions of Russia. The Russian hospitality market has entered a new era, and the key question is… are you ready to run the race?
With a focus on the FIFA World Cup 2018 that will be hosted in Russia, the industry is heating up for more quality hotels and resorts, especially in the 13 host cities: Kaliningrad, Kazan, Krasnodar, Moscow, Nizhny Novgorod, Rostov-on-Don, Saint Petersburg, Samara, Saransk, Sochi, Volgograd, Yaroslavl and Yekaterinburg.
Over the next two years, the Russian cities listed above are seriously determined to catch up on the supply of hotel rooms by building new hotels. There will be tremendous growth in the number of new hotel rooms, especially in Moscow, Sochi, Saint Petersburg and Rostov-on-Don. Currently, the average cost per room of 5 star hotels in the Capital is US$400 to US2,000. Meanwhile, it costs around US$250 per room for 4 star hotels and US$150 per room for 3 star hotels for business traveler. By 2013, around 7,000 rooms will be built in Moscow; 2,780 rooms in Sochi; 1,700 rooms in Saint Petersburg and 1,150 rooms in Rostov-on-Don. It is also interesting to note that the greatest increase in terms of growth rate are expected in those cities with a population of less than one million inhabitants, e.g. Irkutsk will grow by 80%, Lipetsk by 53%, Ryazan by 49%. Hoteliers are concentrating on these smaller cities where the hospitality market is not currently saturated, compared to the other mega cities.
Hoteliers are Accelerating
At the moment almost all international hotel chains across the globe, irrespective of how big they are, are facing constant competitive pressure. Therefore Russia’s rapidly emerging hospitality market gives them an excellent opportunity to increase their presence in the CIS region. A number of large hoteliers have already confirmed their development plans to expand their footprints in Russia. The diagram below demonstrates the market share regarding new hotels opening in 2011-2014.
FIFA World Cup 2018 Fever
According to the requirements set out by the FIFA World Cup Appraisal Committee, an increase in the supply of hotel rooms is needed in the 13 host cities in order to successfully host the international tournament. The requirements for hotel room capacities are indicated below:
By 2013, it is obvious that only Moscow and Saint Petersburg can fulfill the requirements set out by FIFA. Winter Olympic Games 2014 is scheduled to be held in Sochi, and around 27,100 hotel rooms with 3-5 stars will be constructed. Therefore, the supply of hotel rooms in Sochi will not be an issue in 2018.
For the other nine host cities, there is a shortage of hotel rooms which needs to be filled between 2013 and 2018. According to the authorities, they are going to spend an additional $11 billion on building the tourist infrastructure, until 2016. These cities will also actively offer building areas to attract developers, investors and hoteliers to ensure the cities are ready to accommodate the hundreds of thousands of participants, fans and tourists that are expected to join this mega event.
Many hoteliers express optimism about the future of the Russian hospitality market. The competition between hotel chains is becoming fiercer than ever before. Let’s get ready to win the race!
