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News Release


Insight into the Russian & Ukrainian Hotel Market Report

​Moscow, 25 September 2013 — Jones Lang LaSalle today presents their Russian and Ukrainian Hotel Market Outlook at the Hotel Investment Conference Europe (Hot.E) in London.

Report in brief:
• Moscow hotel market runs to 32,000 rooms, incl. 11,000 branded rooms;
• Moscow branded hotel market to grow 40% in the next 3 years;
• Occupancy in Moscow exceeded pre-crisis level, while ADR and RevPAR won’t meet 2007-2008 figures;
• St. Petersburg market runs to 7,500 branded rooms, an additional 800 rooms is due to open by the end of 2014;
• Occupancy in Russian regions grows up to 45-49%, but ADR stays flat;
• Kiev has seen a 30% drop in ADR since 2009.

David Jenkins, Head of Jones Lang LaSalle’ Hotels & Hospitality Group, Russia & CIS, said: “With 36 branded hotels (app. 11,000 rooms) Moscow remains Russia’s key hospitality market for most developers and investors. In the pipeline for the next 3 there are some 4,500 new branded rooms to come – mostly in the economy and mid-market segments. This will result in a 40% growth in the branded hotels segment till the end of 2016.”
Occupancy rates in Moscow have exceeded the pre-crisis level across all segments, except Upper Upscale hotels. Growing competition from the significant new hotels, including the Radisson Royal Hotel Moscow and InterContinental Moscow Tverskaya, has meant that this segment has yet to reach the 70.4% occupancy levels seen in 2008.
ADR and RevPAR are still lower than 2007-2008, i.e. rate in Luxury segment reached RUB 15,870 in 2007 vs. RUB 13,000 in H1 2013. “We do not expect ADR and RevPAR in Moscow hotels meet pre-crisis figures. We’ve seen a bubble due mostly to a lack of supply so eventually there had to be a correction – we had a crisis and a correction at same time”, - David Jenkins commented.
Source: Jones Lang LaSalle
Moscow is still the most interesting city in Russia in terms of new hotel development. “Investors are driving development decisions on IRR calculations and Moscow can offer IRR of 20% and above for the right project in the right place. The regions offer close to 10% and below – even for midmarket.” - David Jenkins commented.
St. Petersburg remains a seasonal market but investment here has to be viewed as far longer term. The city has a very strong hotel development pipeline; approximately 1,000 branded rooms have opened since 2011 and an additional 800 rooms are due to open by the end of 2014. “Currently there are approximately 7,500 branded rooms, only 25% of the existing city hotel supply,” - David Jenkins said. – “We see good opportunity for midscale and economy hotels in St Petersburg – less so for luxury – at least in the short term.”
With the exception of Moscow, St. Petersburg or resorts like Sochi, we see limited supply and highly price sensitive markets across the main Russian regions. Growth can be seen in occupancy only; however rates are staying flat with very little chance to yield. Midscale hotels reached 49% occupancy in 2012 (44% in 2011) with an ADR of RUB 3,600. Upscale reached 45% in 2012 (37% in 2011) and RUB 4,600 ADR. According to Jones Lang LaSalle forecasts, 2013 will show a further 7% to 10% growth in occupancy and a flat ADR.
Commenting on the investment activity David Jenkins mentioned: “Hotel yields in Moscow often below that of Prime Class A office ranging from 5% to 10%, yields in Russian regions exceed those of Moscow and range are 10% to 13%. However it is important to note that most deals are direct and off-market, it is consequently very difficult to get ‘real’ stats on deals and total deal volumes.
Moscow hotel investment volume in 2011 amounted to approximately USD 800m mostly due to Ritz Carlton sale, 2012 resulted in USD 655m sales (including the Metropol, InterContinental and Radisson Slavyanskaya). The only sale in 2013 has been the Renaissance Olympic Moscow.
Majority of interest in Moscow hotels has been ‘local’ – Russian, Ukrainian, Azeri and Kazak investors, with the growing interest from China and ‘remote’ interest from Middle East, but there is almost no foreign interest into the regions. Hotel market in Russia will likely remain mostly local for the foreseeable future.
Ukraine Hotel Market
“Kiev has been an excellent market up until the 2009 crisis, - David Jenkins said. - The impact of the crisis, political instability and a sudden boom in hotel openings led to sharp drops in ADR – over 30% drop since 2009. Today Kiev is a busy market and has approximately 100 hotels, 9 of which are branded (Hyatt, Intercontinental, Fairmont, two Radisson, Holiday Inn, Park Inn, Ramada Encore and Ibis) with Renaissance, Hilton, Novotel, Courtyard by Marriott, etc. in the pipeline. It is still targeted by operators – but it requires a long-term view from investors.”
As for the Ukraine regions, pre-crisis saw much of the development activity take place in the key cities of Donetsk, Kharkiv, Lviv, Dnipropetrovsk and Odessa – however we see very little of the activity today. The resort area in Crimea has huge potential for resort development but requires significant infrastructural investment that is unlikely to occur any time soon. With no visa necessary for EU and US visitors we see huge tourism potential, but there is still very poor promotion of the country and Kiev as tourist destinations.
David Jenkins concludes: “Moscow remains the focus for most developers and investors – hotel operations remain strong despite a small dip this year. There is room in the city still for all types of hotels from luxury (albeit limited numbers) to economy hotels. There is increasing interest from investors to buy hotels in Moscow, but limited supply for sale.”
“There is limited interest to buy hotels in other cities though local developers remain active across the country. There is a danger that the World Cup 2018 will stimulate an over-supply of hotel construction and investors need to be wary of what happens in the market in those cities the day after the World Cup has blown its final whistle.”
Ukraine as a country is moving towards a decision on further integration into Europe and it may well stimulate a new wave of hotel development though we see a far more cautious approach from investors there.”
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 242 million square meters and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management.
In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg, Kiev and Aktau. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 at the Commercial Real Estate Awards, Moscow and Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg.
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About Hotels & Hospitality Group
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centres; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totalling nearly US$25 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.
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