Russia’s dynamic economic environment is fueling a surge in hotel demand, especially in the country’s three major cities: Moscow, St. Petersburg and Yekaterinburg.
This represents a stark turnaround from 2008, when the economic downturn was taking its toll. Russia’s economy started recovering in the third quarter of 2009 as the price of petrol increased. Gross domestic product posted relatively strong gains of 4.3% during 2011; the EU27 and Germany, by comparison, reported more modest GDP increases of 1.5% and 3%, respectively. During the same 12-month period, Russia also saw inflation increase by 8.9% compared to 3.1% in the EU27 and 2.5% in Germany. The country has benefitted from ongoing demand for natural resources (particularly petrol) and manufacturing goods, as well as robust growth in science technology.
Additionally, nearly all the major hotel players have opened and are in the process of opening new properties during 2012.
I remember when I first visited the city of St. Petersburg in early 2005. The city had just a handful of properties that were modern and could adequately meet the demand and growing number of international travelers. The hotel inventory around the city has changed dramatically since then. Inventory has increased not only in number but also in terms of service level. In the last year alone, St. Petersburg has seen the addition of more than 700 rooms, including two Crowne Plaza (InterContinental Hotels Group) hotels, the modern and hip W St. Petersburg Hotel (Starwood Hotels & Resorts) and more recently a Domina Hotel.
Despite all these new additions, St. Petersburg has seen strong demand growth, which year to April 2012 was 18.5%, compared to demand growth of 12.7% during 2011. This demand growth mainly has been translated for hoteliers in a higher occupancy rate, whilst the average daily rate has remained fairly unchanged year to April as compared to the previous year.
Moscow, which has the largest room inventory at 36,799, has seen a slightly lower growth rate compared to St. Petersburg. The new hotel supply increased by only 2.4% in 2011, with 887 rooms comprising offerings from Courtyard by Marriott, InterContinental, Radisson Blu and Ramada.
The city’s demand increased 4.6% during 2011. RevPAR growth was a combination of occupancy growth and ADR growth. This year alone, RevPAR growth reached double-digit levels, excluding the month of March, which contained a long bank holiday and also experienced some unrest in parts of the city during the presidential election.
Some 1,400 kilometers (869 miles) east from Moscow is Russia’s fourth largest city, Yekaterinburg, which has 1.3 million inhabitants and approximately 2,587 daily rooms. The city experienced strong growth in occupancy (+25.5%) and ADR (+4.2%) during 2011. During the first four months of the year, hoteliers have enjoyed strong demand growth of 12.5% and supply levels that have remained practically unchanged.
As Russia continues to benefit from global demand for commodities and fuel, its hotel industry undoubtedly will benefit from the increasing demand from business travelers, as well as new hotel projects that are being completed across the major cities.
Most of the attention from global hotel brands up until this point has focused on Moscow and St. Petersburg. Now is the time when secondary cities across the country will see more of the international hotel brands opening up their doors. With 20 cities having more than 600,000 people, hotel brands have the chance to claim a stake in this growing market. This will help to meet the demand of international and national business travelers.
I also believe that Russia will see the emergence of its own brands such as Azimut Hotels and Heliopark, which so far have mainly focused their development plans towards the upper end of the hotel segment. There is definitely room for budget and midscale modern facilities across the country.
David can be contacted at david.grossniklaus@ehl.ch. Follow him on Twitter @dgrossniklaus.
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