Some former Soviet nations, notably Armenia, Georgia and Uzbekistan, tick all the boxes when it comes to leisure demand generators, but markets across the region differ greatly and require patience from owners.
BUDAPEST—The markets with former Russian or Soviet influence are rapidly developing their tourism potential, investment landscape and infrastructure efficiency.
But for the increasing trickle of international investors moving into the region, capital patience, local partners and constant engagement are needed in spades, according to sources at HOTCO.
Russia dominates the region politically and economically, but individual markets, notably Georgia, are creating their own development and investment landscapes, while the “Stans”—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—offer unrivalled tourism drivers but need to be regarded carefully and separately, panelists said during a session titled “Russia, Caucasus and CIS.”
“The region lacks liquidity, and there are very few quality properties for sale, so very few international investors,” said Alexis Delaroff, COO of New East Europe for Accor. “What it needs is equilibrium, so investors can return and have that coupled with improvements to legal systems.”
In Russia, a lack of liquidity is not a problem, said David Jenkins, VP of business development at Radisson Hotel Group. He added that his company has a pipeline of 20 hotels in the region.
“(Russia) is very active for us, as it is with all the major operators. There is huge potential, and not just Moscow,” he said.
Moderator Tamás Pakuts, GM of hotel and aviation consultancy Baranja Consulting, said the former direction of development and investment in the entire region—from West to East and from North to South—is not fully the story anymore.
Panelists said Armenia and neighboring Georgia are full of opportunities.
“We also invest in energy, agriculture and manufacturing, but hospitality now is the largest, with 11 hotels in development, some to open this year. Georgia is booming,” said Tsotne Ebralidze, CEO of private equity firm Georgian Co-Investment Fund.
Artyom Khachatryan, co-chairman of Armenian firm Galaxy Group of Companies, said he remains focused on Georgia—as well as on Armenia and Belarus—which is an indication how the region is progressing with the relationship between Armenia and Georgia relaxing politically largely only over the last half a decade.
“Our prominence now also is with hotel. Armenia has seen 18%-plus growth in year-on-year tourism, with now 2 million tourists annually and new concepts of hotel projects,” Khachatryan said.
Most countries, though, still have a lot of room in regards to the interpretation of laws, sources said.
“That also makes it difficult for international investors to have compliance. But it is coming,” Delaroff said.
He added Moscow and Baku, Azerbaijan, remain the region’s major business destinations.
“In such markets, we want to develop leisure on top (of business travel) and raise (average daily rate), although I add that will be in local currency,” he said.
Sergey Egorov, director of development of Russia and CIS at Wyndham Hotel Group, said the region is filled with new owners.
“Owners are ready to invest, some more ready than others, but what is required are procedures to encourage professional growth,” Egorov said.
He added corruption remains a major issue, but Delaroff said this is certainly a problem elsewhere.
“(Corruption) is on the level of the investor, not the operator, and name a country where there is no compliancy needed,” Delaroff said. “That said, in this region, corruption has been rooted out of some countries completely.”
The Stans stand up
The Stans, five huge countries independent since the breakup of the Soviet Union, will also see more attention, but performance and ease of entry varies, sources said.
“Uzbekistan for one now has visas on arrival, and with that, suddenly you see a huge surge in tourism,” Jenkins said.
Delaroff said some of the Stans are markets where he would not want to do business.
“We did, and we learned the hard way, and then no one followed us,” he said.
Each market comes with its quirks, Delaroff said.
“Turkmenistan maybe is a little better in (business) climate than North Korea, but the bureaucracy kills anything you try to do,” he said. “Tajikistan, yes, it is developing, but only one or two hotels in Dushanbe, as there still is a security problem there. Kazakhstan is one of the easier ones. Almaty (its principal business center) is strong, but Nur-Sultan, the capital with its new name, is more difficult.”
If Delaroff had to choose, he said he would choose Uzbekistan.
“It has everything needed for tourism. (The cities of) Bukhara, Samarkand are jewels, and with the change of president, there is a new look at the development of this country, and more construction,” he said. “Kyrgyzstan is smaller and with limited connection to the rest of the world, but maybe the focus there might be Eastern travelers.”
Egorov said it was heartening to see such young markets undergo such huge transformations over the last 10 to 15 years.
“(Uzbekistan’s capital) Tashkent, a few years ago it was painful, but with the liberalization of politics is now one of our best-performing assets, as the hospitality and culture there is without compare,” Egorov said.
The story is not just one of international brands seeing the white space and moving in, sources said.
“It depends on the market segment and the owner,” Ebralidze said. “Local operators know they compete against the international brands, and they know they have to be good, and the lower segments have received a lot of competition from Airbnb.
“Nothing is new here in one regard. It starts with a good location, and comes with strong competition.”
Khachatryan added that quality business partners are available.
“Each market has a different culture, and good partners,” Khachatryan said.
Delaroff, whose responsibility ranges from the Red Sea north to Kaliningrad and far to the east to Vladivostok, said the region is huge and is on the brink of huge possibility.
“Yesterday, it was Russia and CIS, and now the markets are all different as Serbia is different from Ireland,” he said. “Different philosophies and different politics. After all, I, like Jenkins, am based in Moscow, and there are parts of Russia where a wise investor would not go as the return would not be for another 25 to 30 years.”