Investors cautious on Uzbekistan’s robust hotel plans
Investors cautious on Uzbekistan’s robust hotel plans
16 JANUARY 2019 8:55 AM

Uzbekistan has plans to expand its hotel industry and tourism infrastructure in a bid to attract foreign tourists, but international investors still have concerns.

TASHKENT, Uzbekistan—Hoteliers in the former Soviet republic of Uzbekistan, a nation independent since 1991, are at the forefront of an ambitious project to welcome a new era of guests and hotel development, according to sources.

At the inaugural First International Investment Tourism Forum in November, Uzbekistan Deputy Minister of Finance Sunatullo Bekenov said between 2019 and 2025, the nation will invest $3 billion in domestic tourism infrastructure and $500 million in the construction of 196 hotels in its largest cities and principal resorts. Across the country, the number of hotels in Uzbekistan will nearly double across the project period, reaching 1,600, Bekenov said, as the tourism industry seeks to more than double revenue to approximately $2 billion per year.

Tourism infrastructure lags behind rises in tourism flows aided by simplified visa initiatives, Bekenov said.

More investment over the next seven years will include $2 billion in new railways, $500 million in new airport infrastructure and $200 million in new highways, Bekenov added, to serve an estimated 7.2 million foreign tourists by 2025, a 50% increase over 2018.

Hoteliers and consultants said Uzbekistan still has a long way to go as a market.

“The hotel market in Uzbekistan is in early stages of development,” said Tatiana Veller, head of hotels and hospitality, Russia and Commonwealth of Independent States, at business advisory JLL.

Leonid Ibragimov, managing partner of Hotelios, Uzbekistan’s first industry aggregator, said he saw the Uzbek hotel market as one somewhat “in chaos.”

“In high season, it is impossible to find a single room in Tashkent, while during summer and winter most hotels are almost absolutely empty,” he said. “Tourism companies offer tours only in autumn and spring.”

State tourism initiatives place pressure on hoteliers already seeing close to 100% occupancy during the high seasons of March to June and September to November, sources agreed.

Veller said hotel distribution across the country is disparate.

“Branded hotels are only present in the capital Tashkent,” she said. “There are five hotels, all in the 4- and 5-star segments. … Other cities, even well-known tourist attractions like Samarkand and Bukhara, are still waiting for flags and mainly offer locally managed (hotels) with varying degrees of quality and service levels.”

Veller said hotel performance in Uzbekistan’s markets is on the upswing.

“Current occupancy levels in the branded and comparable quality local hotels in Tashkent are running at about 60% to 65%, rates are between $100 for lower end of the spectrum and $180 for the higher, (although) both indices have been steadily increasing in the last couple of years,” she said. “In the tourist destinations like Samarkand, Bukhara and Khiva, farther away from the capital, the lower (rates are) between $60 and $80 on the higher side. Occupancy ranges from 30% to 35% in low season, to 90% to 95% in high season.”

Revenue management is also in its early stages in the country, Ibragimov said.

“In the high season, where there are no available rooms, local hotels are not only raising tariffs, but also gambling on the market,” Ibragimov said, who added he was aware of examples of hotels doubling rates on a whim and canceling pre-paid bookings if higher rates entered the equation.

Wind of change
It has hardly been plain sailing for international investors and partners.

In 2012, InterContinental Hotels Group handed over operations to a local government agency of the former InterContinental Tashkent—at the time the only hotel in the country to have international management. The property is now the International Hotel Tashkent and IHG no longer has an Uzbek property.

“For the longest time, there has been no foreign business in the domestic hotel industry,” Ibragimov said.

Sources said international investment reticence reflects in part on accusations of human rights abuses in Uzbekistan and difficulties in day-to-day operations and exiting capital.

But that will not stop international brands from entering the country, sources said.

“Hotel brands are actively considering entry into the Uzbekistan market, including secondary cities,” Veller said. “The main tourist destinations—Samarkand, Bukhara, Khiva, Fergana, Andijan and, of course, Tashkent—are all attractive for international brands. We believe there’s potential for one to two branded hotels in each of these cities, mainly in the economy, midscale and upscale segments. Possibly, the bulk of government’s assistance to the hotel developers will take shape of lowered interest rates for financing construction, tax breaks rather than direct investment.”

Ibragimov said in Tashkent, the Hyatt Regency Tashkent; Radisson Blu Hotel, Tashkent; and Hilton Tashkent, scheduled to open in 2025; will most likely be competing against each other and it is unlikely there will be new major openings involving international investors in the near future.

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