Jones Lang LaSalle Hotels sees Moscow as the emerging market to watch for hotel investment…
Jones Lang LaSalle Hotels sees Moscow as the emerging market to watch for hotel investment. Mark Wynne Smith, European CEO, Jones Lang LaSalle Hotels says: “International investors have been viewing the hotel market in Russia with heightened interest and we predict that investment into hotels in Moscow could rival London, Paris and New York in the coming years.”
With this in mind, Jones Lang LaSalle has organised the first ever Russian hotel investment forum in Moscow to bring industry leaders together to discuss the investment opportunities in the region. Today’s event is sponsored by Accor, Hotel Baltschug Kempinski and Rezidor SAS.
Mark Wynne Smith continues: “With a stable political situation, a growing economy and increasing global prominence, the volume of high net worth individuals and increasing tourism, Russia is emerging as a hot spot for investors. Hotel investment is beginning to take off but many believe that it will only gain momentum after the end of the privatisation period that is currently happening in Moscow and St Petersburg. We expect that hotel real estate investment activity will increase over the next 12-14 months, from both international and domestic investors and then domestic investors.”
Moscow – present and future
Last year saw 27.4 million passengers travelling to the city’s three main airports-this was a 15.5% year-on-year increase. As many as 32 million passengers are expected through the airports this year. European and domestic markets account for two thirds of the total room requirement with business travellers demanding 80% of the room supply.
Supply and demand – The total room stock in Moscow is estimated to be 35,000 but only 8,000 is considered to be international standard. Compared to London and Paris where the total ‘graded’ room stock varies between 70,000 and 75,000, Moscow looks undersupplied. International hotels represent the upper tier of the market and include Kempinski Hotels & Resorts, Hyatt International, Rezidor SAS, Marriott International, Accor and Starwood Hotels & Resorts; other high-end brand operators show a continued interest in the Moscow market.
By 2012, hotels currently under construction or planned are expected to increase Moscow’s quality room supply to 14,000, almost doubling today’s stock. Up to international ten international hotels are expected in the next five years. The Ritz-Carlton and Four Seasons are securing their position in the heart of Moscow. Occupancy rates are forecast to remain at a level of 70% for the next few years allowing hotels to yield good returns in the near future. In the short term, the upper end of the hotel market may become over-supplied and only then will investors start considering the development of mid-market and budget properties.
St Petersburg is Russia’s second city in terms of development and appeal to foreign investors. It’s ‘Venice of the North’ tag ensures that it is popular with tourists who contribute to 15% of the city’s economy. The majority of visitors come from Finland, followed by USA, Germany, France and Italy, staying on average 3.5 days and spending approximately $150 per day. In 2004 the city attracted over 3.1 million international and 1 million domestic visitors.
Supply and demand – Overall St Petersburg has 180 hotels, the equivalent of 17,000 rooms, 4,000 of which are considered to be of international quality including existing, newly built or renovated properties. In comparison to other world-renowned destinations such as Prague and Vienna, St Petersburg has a modest supply of hotels. As from September 2005, there are four hotels at various stages of development which could add another 2,400 rooms to the current supply. There are a further six high-end hotels proposed for future development.
St Petersburg is improving its position as a world class tourist destination as well as developing its infrastructure. To balance out hotel occupancy rates, the city needs to attract more business travellers. Due to the lack of supply in the market, existing hotels are charging higher prices, making St Petersburg less attractive for both tourists and business travellers. There is room in the market to balance out the current stock levels and provide more quality hotels, both first class and mid market, for a new target clientele.
Russia – market overview
In its seventh consecutive year of strong growth, Russia’s economy continues to show some of the highest expansion rates in Europe. Direct foreign investment continues to grow in 2005 with the Central Bank stating that $9.3 billion was invested in the first half of the year. Russia is set to join the World Trade Organisation in 2006 providing further opportunities for foreign investment.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
