Even though the current economic climate is creating uncertainty in relation to the potential economic growth of some countries, another 194 hotels with a total room stock of nearly 37,300 units are due to open in the region by 2020 according to the pipeline of international hotel chains.
Based on our interviews conducted within the frame of the survey with the representatives of major hotel chains in Russia and the CIS, there has been no considerable drop-off in investor interest towards the hotel market, who plan to continue implementation of already started projects, despite adverse geopolitical and economic conditions.
However we believe that projects on early stage of development may be frozen and initiation of new construction may be put on hold until the situation stabilizes.
Currently the leading hotel company in the region is Carlson Rezidor Hotel Group, with 41 hotels and a total inventory of nearly 11,000 rooms operating under its brands in Russia and the CIS. By 2020 the leader in terms of number of operating hotels is projected to change to Accor Hotels, which is forecast to have 85 properties with a total inventory of 15,400 rooms.
In terms of hotel network Russia is the most developed country in the CIS, with 131 hotels in operation and around 136 in the pipeline.
Recent geopolitical and economic events have worsened the business environment outlook, and as a result of banking sanctions financing costs could increase. However even after recent economic and geopolitical developments and an attendant slowdown in tourism activity, Moscow remains the most attractive market in the country for hotel development, although regional markets are also seeing active development. Whereas in the past hotel operators preferred to establish a presence in cities with a population exceeding one million, now they are actively seeking to expand their networks into regional centres with more than 300 thousand inhabitants.
International operators by presence in Moscow
The majority of Russian room stock and hotels under international brands are concentrated in Moscow (38% of current Russian room stock of international operators). At present, 44 out of 340 hotels in Moscow, or 11,192 of 46,989 rooms, operate under various international brands. Upscale and luxury hotels currently account for the bulk of the hotel supply in Moscow, while there remains a lack of international-quality hotel rooms priced in the mid range. No new midscale hotels are expected this year, and the budget and midscale markets currently comprises only 12 hotels, with a total inventory of approximately 2,700 rooms.
Each year more and more international hotel chains are opening or assuming the operation of properties in Moscow, from established brands such as Marriott and Radisson, to relative newcomers such as Four Seasons. Hotel Nikolskaya, which opened last spring under the Kempinski brand, has changed operator to Starwood Hotels & Resorts and launched a new brand on the Russian market, St. Regis.
Another trend witnessed this year is the expansion of international hotel brands into the Moscow region, with Radisson Zavidovo (239 rooms) and Hilton Garden Inn Moscow New Riga (162) open in the first half of 2014. Two more hotels were open in Q3 2014 in the Russian capital: Four Seasons Hotel Moscow (180 rooms) and Double Tree by Hilton Moscow Marina (270).
By 2020 the room stock of hotel chains in Moscow is expected to rise to nearly 22 thousand, with 42 new properties creating almost 11 thousand rooms, making the capital's share of room stock in the future supply of Russia 39%.
International operators by presence in St. Petersburg
St. Petersburg, the second-most popular city in Russia for hotel operators and investors, is less stable than Moscow in terms of tourist flow, due to its high dependence on leisure travellers in summer, the peak season for the city. Geopolitical and economic events this year have had an adverse impact on the number of tourists visiting the city, mostly represented by a decline in European and American travellers.
Consequently, hotel occupancy in St. Petersburg has been negatively affected. Nevertheless, hotel chains, which have not yet established a presence in Russia's second-largest city, are still looking for opportunities to enter the market.
Two branded hotels opened in the first six months of 2014: Indigo by IHG and Park Inn by Radisson Pulkovo Airport. Currently over 70% of branded hotels in St. Petersburg belong to the upscale or luxury segments, while almost half of pipeline properties belong to the midscale segment.
New hotel brands are expected to enter the St. Petersburg market in the near future: Hilton and Hampton by Hilton are due to open in 2015 (near the new Expo Center in the city), while Golden Tulip Hotels is scheduled to commence operations in the city in 1Q 2015, and Jumeirah is expected to launch in 2017.
International operators by presence in Russian Regions
After Moscow and St. Petersburg, the most developed city in the country in terms of hotel infrastructure is Sochi, whose leading position is explained by the recent Olympic Games held in the city, which created great demand for international standard hotels. Somewhat surprisingly, Sochi's development continued after the Olympics - five more hotels, operated by Starwood Hotels, Marriott International Inc., Hilton Worldwide, Accor Hotels and Rezidor Hotel Group, are expected to add to the network of 20 existing branded properties in Sochi.
Among regional cities with a population exceeding one million, the most developed in terms of number of hotel properties are Yekaterinburg, Samara, and Kazan, with four or more branded hotels already operating. A further 10 large Russian cities (population > one million) have more properties in the pipeline than are currently operating. Rostov-on-Don has the biggest pipeline among regional cities, with six hotels scheduled to open within the next four-to-five years under the Ibis, Mercure, Hyatt Regency, Le Meridien, Sheraton and Ramada brands and none under international brands currently operating.
The second-highest number of projects (four) are being developed in Nizhny Novgorod, where only one branded property, Ibis Centre Nizhny Novgorod, has been opened. Cities with a population exceeding one million are due to have from three-to-eight branded properties up and running by 2020.
Among second-tier cities (population over 500 thousand), Yaroslavl has the highest number of hotels operating under international brands (Ibis, Mercure and Park Inn). In other second-tier cities international brands have established a presence only in Krasnodar, Izhevsk and Lipetsk (Hilton Garden Inn and Marriott in Krasnodar; Park Inn in Izhevsk; Mercure in Lipetsk).
Cities such as Ufa and Tyumen each have four hotel projects in progress and no hotels operating at present. Other second-tier cities are set to open no more than two properties by 2020, thus creating potential for further development for investors and brands.
Looking at smaller regional centres, Kaluga is attracting significant attention from international hotel operators, and is the only city with a population of less than 500 thousand where one hotel, Hilton Garden Inn, has already opened and three more international hotels (Four Points by Sheraton, Ibis and Adagio) are due to open in the next two years. Such a strong pipeline is explained by the dynamic development of the automotive and related industries in the city.
Another interesting case is the resort town Gelenzhik, where Kempinski has already established a presence, and another branded hotel, Radisson Blu Primorye, is due to open. Despite Gelenzhik having a population of only 65 thousand, it attracts many tourists in the summer season. The town is following the Sochi trend (the city is located not far from Sochi), where Soviet-era accommodation is gradually being replaced with international quality facilities.