Hotels in Moscow and St. Petersburg were expected to post performance declines following the 2018 FIFA World Cup, but the actual 2019 numbers managed to stay close to those 2018 all-time highs despite new U.S. sanctions and other challenges.
REPORT FROM RUSSIA—Analysts predicted a tough comp for Russian hotel performance in 2019 after the country hosted the 2018 FIFA World Cup.
Russia’s principal cities, Moscow and St. Petersburg, added 2,500 new hotel rooms before the first World Cup match was played. Marina Usenko, partner of tourism and hospitality at Cushman & Wakefield, said that once demand decreased year over year to start 2019, industry analysts expected a pricing war with hoteliers forced to cut average daily rates to maintain occupancies.
The region isn’t without its challenges. Usenko said additional new supply came to market in anticipation of a new, more liberal visa application process proposed by the Russian government. If approved, it would boost tourist inflow in Russia by 10% to 20%, she said, adding that it appears that these reforms have currently stalled.
Sanctions imposed by the U.S.—and to a lesser degree by the European Union—are believed to have affected the inflow of foreign tourists, sources said.
Despite more supply, a drop in visitors after the World Cup and the hurdles still needed to gain visas, hoteliers remain confident of the opportunities in both Russian cities.
Even with a notable number of new rooms in Moscow and St. Petersburg over the past few years, hoteliers said the saturation of the local market remains rather low, and there are significant growth opportunities.
Ivan Kiseev, development director of Russia and Commonwealth of Independent States for Marriott International, said the Russian hotel market is still in its infancy and room demand for branded hotels is growing steadily thanks to both increasing business and leisure travel.
Alexis Delaroff, chief operating officer of Russia at Accor, agreed there is a lack of hotels in Moscow.
In Paris, by comparison, Accor operates 150 hotels, despite the city being significantly smaller than Moscow, Delaroff said, adding that interest in the city has increased since the World Cup.
According to data from STR, the parent company of Hotel News Now, April 2019 year-to-date occupancy increased 1.5% year over year. Year-to-date average daily rate rose 4.3% to 5,550.28 Russian rubles ($88.11) and RevPAR increased 5.9% to 3,705.29 rubles ($58.82). In St. Petersburg, occupancy rose 5.9% to 49.5% year to date through April 2019, while ADR increased 2.7% to 4,316.72 rubles ($68.52) and RevPAR rose 8.7% to 2,136.77 rubles ($33.92).
Growth in all directions
Hotel and tourism analysts have noticed the tourism picture in both Moscow and St. Petersburg is better now than it was before Russia hosted the World Cup. Tatiana Veller, head of hotels and hospitality, Russia and CIS, at business consultancy JLL, said there is no evidence of a post-event performance hangover.
“The after-World Cup reality has arrived, but so far hasn’t disappointed,” she said. “Moscow’s branded hotels continued to improve operational results in the first quarter of 2019 compared to the same period of previous years. The same situation has been recorded in St. Petersburg’s branded hotel market, too.”
Sources said operational performance has improved in both markets, despite the large number of new rooms.
Veller said branded room supply in Russia increased 1.5 times faster than it did in 2017, and ahead of the World Cup, markets gained 5,700 new rooms.
“Well over half of the new branded supply volume belonged to hotels opened in World Cup cities,” she said. “Moscow received 1,700, (and) St. Petersburg about 540 hotel rooms. The main influence on the investment activity is quite obviously the continuous improvement of the business environment, thus bringing more travelers and producing more demand for hotel accommodation.”