Ukraine market faces bumps on recovery track
22 SEPTEMBER 2015 8:35 AM
The country’s hotel markets generally have turned the corner after an abysmal 2014, but violent protests and armed conflict still remain significant challenges in some regions.
REPORT FROM UKRAINE—Hotel performance in some Ukrainian cities has started to reverse course after last year’s collapse amid political struggles, although intermittent protests in Kiev and more prolonged armed conflict in the East remain significant hurdles.
Overall, however, hotel performance is trending up.
“Kiev’s hotel industry is definitely starting to see signs of recovery after the very grim 2014, as the situation in the Ukrainian capital city is stabilizing,” said Tatiana Veller, head of the hotels and hospitality group for JLL in Russia & CIS.
Data from STR Global, sister company of Hotel News Now, showed an occupancy gain of 28.2% through July to 34.8% in the Ukrainian capital. Average daily rate and revenue per available room have increased more strongly, with gains of 51.8% and 94.6%, respectively, in hryvnia terms.
Veller advised not to read too much into such significant jumps in the metrics, however.
“Comparing 2015 with 2014 may even mislead one to think that the market has grown nicely,” she said. “The impact of the 2014 political events in Ukraine on travel to the country’s capital was major, thus 2014 is a wrong base for comparison.
“Seems like the existing properties in Kiev have chosen the right strategy—cautiously trying to keep the prices solid while doing all they can to regain the occupancy levels and maintaining RevPAR,” Veller added.
The result is a market moving in the right direction, said Alexander Nosachenko, managing director of operations at Colliers International’s office in Ukraine.
“Basically, hoteliers agree that the ‘critical point’ in the market of hotel real estate in Ukraine has already passed and (they) hope for a positive trend in the future,” he said. “With conventional stabilization of the national currency since the end of the first quarter of 2015, hoteliers see the revival of demand in the market of hotel property.”
Regional situation rather uneven
Performance outside Kiev is mixed at best, sources said. Hoteliers in the west of the country are enjoying a rise in the number of both internal and European tourists, while hoteliers in the east are feeling the pressure of armed conflict.
Most volatile is the country’s Donbass region that borders Russia to the east. According to information from the Ukraine Association of Star Hotels, all hotels in the city of Luhansk were closed at the end of 2014 closed. In Donetsk, which is farther from the Russian border, only four hotels were operating out of 45 hotels as of the end of 2014.
Hotel business in Western Ukraine is more insulated to such conflict and is seeing much better hotel performance, said Dmitry Prokhorov, executive director of the Ukraine Association of Star Hotels.
“In the autumn of 2013, we saw the tendency of the collapse of tourism activity in the capital and in the east of the country,” he said. “The recession has affected the market of hotel business and the Western Ukraine, but to a lesser extent. At the beginning of 2014, occupancy rates in Western Ukraine fell by an average of 15%. Given the overall situation in the country, this is not very bad.”
In Crimea, where sovereignty is disputed after a 2014 revolution and annexation by the Russian Federation, the average occupancy is only at 50%, according to Pack Bag travel agency. In the resort cities of Yalta and Alushta, it is hovering between 60% and 70%.
“Many people in the past year have visited Crimea out of curiosity. But in general, there is poor quality the hotel rooms, and the infrastructure is undeveloped. Given the traditional price increase in peak season of occupancy by 50% or more, the ratio of price-quality was unfair,” said Marina Smirnova, a partner in Cushman & Wakefield’s Moscow office and head of hospitality and tourism for the region.
“Crimea could become an attractive market in about five years. If it will be implemented a comprehensive program for the development of the region with the participation of the state, which should help investors with utilities and infrastructure,” she said.
However, it is clear that both in Crimea and in major Ukrainian cities true recovery will only come when travelers’ confidence returns.
“As the situation in the country stabilizes, the travel should return,” Veller said. “The big question will be: When will the international leisure market feel confident enough to start coming back to Kiev and taking advantage of the weaker local currency?
“Kiev will have a big challenge in the upcoming years of rebuilding its image as a tourist destination.”