From Russia with love - Moscow hotels post double-digit revPAR growth year-to-date

Deloitte Reports

Whilst many of the world’s economies are struggling in the aftermath of 9/11 and the war in Iraq, Russia’s seems to have been moving in the opposite direction. Following a period of sustained growth since the financial crisis of 1998, the Russian economy has remained relatively sheltered from the world economic slowdown. Latest figures from the Economist Intelligence Unit (EIU) forecast that Russian Gross Domestic Product (GDP) will increase by 6 percent in 2003, this compares to just 0.6 percent for the EU.

Moscow is currently ranked as one of Europe’s strongest performing markets in terms of revenue per available room (revPAR) growth. Preliminary year-to-October 2003 figures from the HotelBenchmark Survey by Deloitte shows an increase in revPAR of 17 percent to US$97, compared to the same period in 2002.

The city however has not always seen such strong growth. The financial crisis of 1998 brought with it tough trading conditions for Moscow’s hoteliers. A year before the crisis the city was managing to achieve occupancy levels of around 68 percent, however by the end of 1999 - just two years later - this had fallen to 45 percent. As the country’s economic climate started to improve, hotel occupancy levels naturally followed suit, however it took five years before these were back at the same levels achieved in 1997. Although occupancy may be back, average room rates still have some way to go. Year-to-October 2003 figures show that Moscow’s average room rate is almost US$60 below that achieved in 1997. The good news however is, that since hitting an all time low in 2001 room rates have been showing a gradual improvement. However, the devaluation of the rouble during this time period should not be forgotten.

With the majority of internationally branded hotels in Moscow operating in the 4- and 5-star sector the 3-star market has remained relatively untouched, until now. Last year Accor opened their second Novotel (255-rooms) in Moscow and are rumoured to be looking to also establish the Ibis brand there. Plans are also afoot by several chains to roll out mid-market properties across the rest of the country. Rezidor SAS and Delta Capital Management have recently announced plans to open 50 Country Inn hotels across Russia within the next decade. Marriott International are also reported to be working with Yukos to develop some 40 mid-market hotels, however whether this continues in light of the recent press coverage on Yukos remains to be seen. Kempinski are also reported to be planning to roll out a chain of 3- and 4-star hotels across the country.
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