Russia tipped for boom in hotel investment

28 October 2005
Russia tipped for boom in hotel investment

Moscow is poised to rival London, Paris and New York as a magnet for hotel investment, predicts hotel consultant Jones Lang LaSalle Hotels (JLLH).

The country's political stability, growing tourist trade and fast-growing economy offer opportunities for international hotel operators. This potential will be spelt out at the first Russian hotel investment forum in Moscow earlier this week.

"Hotel investment is beginning to take off in Russia but many believe it will only gain momentum after the end of the privatisation period that is currently happening in Moscow and St Petersburg," said Mark Wynn-Smith, European chief executive officer at JLLH.

"We expect that hotel real estate investment activity will increase over the next 12-14 months from both international and domestic investors."

Hotel performance is booming in Moscow, but the market is underdeveloped and unbalanced. Business guests account for 80% of hotel trade and only 8,000 of the city's 35,000 bedrooms meet international standards. The number of top-tier bedrooms is set to almost double to 14,000 by 2010, with Ritz-Carlton and Four Seasons set to join current operators Hyatt, Rezidor, Marriott, Accor and Starwood.

However, JLLH sees an opening for more quality budget and midmarket properties to grow Moscow's leisure business.

Most of the current developments in Moscow are at the top end, but JLLH warned this sector could soon become saturated, paving the way for investment in lower-priced quality accommodation.

In contrast, St Petersburg relied heavily on the highly seasonal leisure market and needed new hotels to attract business customers.

JLLH said a shortage of bedrooms has led to unattractively high rates. At present only 4,000 out of 17,000 bedrooms meet international standards.

Average room occupancy 50.6%63.2%70.4%72%77.1%
Average room rate£72£64.5£69£80.3£94.4
Room yeild£36.2£40.7£48.6£57.7£73
Change in room yeild-3.7%12.5%19%18.9%26.1%

Figures converted from US dollars

By Angela Frewin

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