Hoteliers and experts believe the impact of the World Cup in 2018 will help hotels in Moscow and St. Petersburg to improve performance, but there is still work to be done in order to surpass numbers seen before the 2013 recession.
REPORT FROM RUSSIA—Hoteliers in Russia’s two biggest cities are hopeful the 2018 FIFA World Cup will boost hotel performance to levels not seen since the collapse of the ruble.
Moscow’s hotels ended July with a strong rise in overall performance, as occupancy increased 4.8% (to 66.4%) in comparison with the first seven months of 2016. ADR during that time was up 14.3% in constant currency to $92.85, though in rubles, ADR dropped 2.2%. As a result, RevPAR jumped 19.8% year-over-year in constant currency to $61.68 with only a smaller increase of 2.5% in rubles, according STR, parent company of Hotel News Now.
In St. Petersburg, occupancy was down 3.7% year over year to 60.2%. ADR increased 29.5% to $111.46 and rose 13.9% in rubles. RevPAR grew 24.7% to $67.05 or 9.7% in rubles.
Kirill Agapov, CEO of Umbrella Hospitality CIS, suggested the good performance indicators to a considerable extent are a result of the Confederation Cup, which drove 10 million inbound tourists to Moscow and as many as 3.8 million people to St. Petersburg in the first half of 2017. He said the cities are also affected by the rise of the internal tourist flows in Russia, the stabilization of the national economy and the upcoming 2018 FIFA World Cup.
Anna Tertychnaya, a consultant who works with JLL’s Hotels & Hospitality Group and CBRE’s Russian operations, said 2017 for the Moscow hotel market seems identical to 2016 in terms of occupancy. The market-average occupancy in the first quarter increased 2% to reach 69%, while ADR in local currency stayed practically on the same level of 7,500 rubles ($130). St. Petersburg, in turn, showed a positive ADR dynamic in all market segments. Average rate in the market increased by 14% in the first half of 2017 and reached 6,400 rubles ($111), while occupancy in the city has dropped by 1.8% to 50%, she added.
At the same time, Blackwood Real Estate and Top Hotel Experts said to not overestimate the effect of the football events on the performance indicators of the hotel industry in Russia. During the Confederations Cup, occupancy in Moscow and St. Petersburg was between 15% and 24% lower than hoteliers originally expected due to the smaller number of foreign tourists, the agency said.
The higher rates are on the pipeline
Although hoteliers in Moscow and St. Petersburg managed to get back to the pre-crisis levels for occupancy, average rates are still below the level of 2013. But sources said there are reasons for optimism.
“For Moscow, 2016 was a year of recovery—the trading results clearly demonstrated that hoteliers got an opportunity to start building up the rates, as the need to fight for occupancy seemed to have evaporated,” Tertychnaya said. “Occupancies seem to be at a peak, with little reason to forecast a significant rise in 2017. There needs to be stimulation of the high-end leisure trade into Moscow to boost upscale to luxury hotel occupancies—though we see no evidence of this happening.”
Tertychnaya said Moscow’s ADR will have to increase to improve to boost the market’s recovery.
“We expect that rates in Moscow must increase to find a route for the dollar equivalent rates to grow,” she said. “It is being driven today by the main luxury hotels; Four Seasons, Hyatt and to a lesser degree the Ritz-Carlton due to too many rooms. Both Four Seasons and Hyatt, being smaller properties with a high mix of suites, are now able to push ADR above 18,000 rubles ($313). This, in time, will drag other hotels upwards—but slowly and only from 2017 onwards—using the World Cup in 2018 as a ‘springboard’ to drive dollar-equivalent rates that will eventually being back ADR levels in 2019-2020 in U.S. dollar terms to those last seen in 2013.”
In the meantime, the task to increase rates could become a challenge for the hoteliers, Agapov said, since Moscow and St. Petersburg have been drawing less wealthy visitors.
“It is taking place primarily because the tourist flow has been replaced in numbers, but not in terms of the purchasing power, which is down as visitors from U.S. and Europe have been replaced with visitors from China, the countries of the Middle East and South America,” Agapov said.
Alexandr Martynov, the head of the tourism committee in St. Petersburg City Hall confirmed that Chinese tourists comprise the largest group of visitors in the city’s hotels since 2014. In 2017, the tourist flow from China to St. Petersburg jumped by 140%, he said, and the number of tourists from other Asian countries, including India and Vietnam, also is sharply rising.
Nevertheless, in 2017 the combined hotel room supply in Moscow and St. Petersburg will be increased by 5,000 new rooms, including seven new projects with a total of 700 rooms that are being implemented by Umbrella Hospitality CIS, Agapov said.
Tertychnaya said she expects the hotel supply of modern quality in Moscow will increase by 2,492 rooms in 2017, though some of the projects planned can be postponed and will not open until 2018. St. Petersburg already brought to the market both of its projected openings for this year—the 234-room Hampton by Hilton St. Petersburg ExpoForum and the 154-room Lotte Hotel St. Petersburg with 154 keys.