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News Release

Moscow, Kiev

Kiev Modern Hotel Market. EURO 2012 influence

Jones Lang LaSalle Hotels presents the analytical report concerning hotel sector development in the capital of Ukraine


Moscow-Kiev, 30 May 2012– Jones Lang LaSalle Hotels’ experts have analyzed the Kiev hotel market and forecasted the changes the city will meet after being selected as one of the capital cities for the EURO 2012 football championship.

Main conclusions are:
• Only 28% of Kiev room stock meets the modern standards;

• Roaring development of hotel projects before Euro-2012 will cause almost double supply increase on the market by 2015;

• Kiev is ranked among the top 5 European cities with the highest average daily room rate (ADR) – $266. At the same time current ADR level is 30% lower than the pre-crisis rank (according to the statistics of the middle of 2007);

• The sharp supply increase is expected to reduce the Kiev hoteliers’ transaction indicators in mid-term perspective if there are no prerequisites for considerable growth of visitors flow;

• 2012 can become a challenging period for Kiev hotels: the hopes for a new surge of interest in Ukraine/ Kiev are still not realized while business tourists can reduce the amount of their visits during championship matches as well as during parliament elections in autumn.

Supply

The Kiev hotel market is still in the early stages of development. According to the official statistics, the hotel market currently offers 9,807 rooms in 133 establishments, of which, by the estimates of Jones Lang LaSalle Hotels, modern quality hotel stock comprised only 28% (2,759 rooms).

While post-crisis hotel development activity in Kiev has been rather slow, 2011 saw the opening of two new hotels (the 212-room Ibis and the 272-room, independently run Autograph). Modern hotel supply increased by 18% in 2011 alone.

More than one third of Kiev’s modern hotel stock (933 rooms) belongs to Luxury and Upper-Upscale segments; 607 rooms to Upscale segment, 557 rooms to Mid-Market and 662 to Economy segment (see the scheme below).

Marina Usenko, Executive Vice President, Head of Jones Lang LaSalle Hotels Russia & CIS, said: “The current sudden surge in hotel construction, no doubt driven by the Euro 2012 event (and the financial incentives offered to investors by the state), is likely to affect the market balance as early as 2012-13, and is set to add as many as 2,279 keys of mostly upscale and mid-priced rooms between 2012 and late 2015. By the end of 2015 the existing modern room stock will have grown by 83%.”

Marina Usenko added: “In order to benefit from tourist flow during EURO 2012 matches in Kiev hoteliers were actively constructing large scale projects. Meanwhile, for example, Hilton and Holiday Inn that have not opened by June will miss their opportunities during the championship that was considered to be a very winning period. Hoteliers’ earlier expectations that substantial business volumes (which might have resulted in higher room rates) might be driven by Euro 2012 are not likely to materialise either, as the pace of booking for the quarter-final and final which are scheduled to take place in Kiev has been slow at best, and these were the only games expected to raise substantial international fan interest.”

Demand. Indicators’ dynamics

Kiev is not only the largest city in the Ukraine but also its political, cultural and business centre. Naturally, Kiev is also the country’s main international tourist destination, with around 25% of all foreign visitors into the country accommodated in Kiev hotels.

In fact, the top five feeder markets for the Kiev hotels are somewhat different from the main feeder markets for the country: Russia (25.8%), Germany (9.1%), the USA (8.3%), Belarus (4.9%) and the UK (4.3%). Moreover, hotel demand in the city is generally formed by business guests which cause the ‘business’ type of hotel occupancy – so the weekly and monthly occupancy patterns of Kiev hotels have remained unchanged, with sharp drops in room and other sales during the summer holiday months as well as around Christmas and New Year.

Marina Usenko mentioned: “Before 2008–9 the Kiev market was one of the best performing in the EMEA region, with occupancy of both modern quality and un-renovated but centrally located hotels exceeding 65–70%, and ADR levels in the best properties reaching $400–500 per night.”

The slow recovery of the global economy (including the feeder markets) after the economic crisis of 2008–9, together with the political changes in Ukraine, have reduced the number of international visitors. Following the return of some economic and political stability in 2010–11, the Kiev hotel market has been steadily improving its trading indicators, which deteriorated badly in 2009.

While the monthly occupancy of the modern hotel stock had already started recovering from the mid-40% reached in 2009, by the second half of 2010 to the end of that year, it had stabilized at 53%, the structure of demand has stayed the same. Kiev continues to be a mainly business travel destination, with no marked increase in the number of leisure visitors.  This has enabled the high-end modern quality hotels to achieve reasonable occupancy rates of 62% in 2011, and the lower-grade hotels, offering more affordable accommodation plus some conference and banqueting infrastructure, have been able to exceed the level of 70–75%.

Modern quality hotels ended 2011 with positive results both in occupancy (15.7% year-on-year) and in ADR (8.7% year-on-year), to reach 61.9% and $266, respectively. At the same time the perspectives of 2012 estimated by Jones Lang LaSalle Hotel’s experts are much more moderate.  By all accounts, 2012 might prove to be a challenging year for Kiev hotels, due to the likely disruption of business by the Euro 2012 games scheduled in Kiev in June as well as the upcoming parliamentary elections in October, which are expected to put a lot of business projects on hold.

Marina Usenko summarized: “With the increased availability of modern supply in the market (including the lower-grade branded hotels, such as the Ibis) and the lower volumes of business, this is unlikely to remain a sustainable trend in the mid- to long term. Unless market demand starts growing at comparable levels, the increasing level of competition is expected to result in price wars and a general decline in operational profitability for all city hotels.”


About Jones Lang LaSalle Hotels
Jones Lang LaSalle Hotels is a global real estate services firm focused exclusively on hotels & hospitality. We provide acquisition and financing advice, valuations, investment sales and asset management for luxury hotels, select service and budget hotels, smaller hotels and pubs, from single assets to large portfolios and mixed-use developments.
In the last five years we completed nearly 4,000 advisory and valuation assignments and more sale, purchase and financing transactions than any other hotels real estate firm in the world worth over $30 billion. With 44 offices in 20 countries and 265 hotels real estate experts, no other firm is better connected. Through our depth and breadth of research and experience, with 75 Research Reports each year, we know the market at every level, we know the players and we know how to get results. For further information, please visit our website www.joneslanglasallehotels.com